“I am not evading tax in any way, shape or form. Of course, I am minimising my tax. Anybody in this country who does not minimise his tax wants his head read. I can tell you as a government that you are not spending it so well that we should be donating extra.” Kerry Packer (when addressing a Government Senate enquiry on corporate tax evasion)

What is the difference between tax fraud and tax evasion

Tax fraud is knowingly, recklessly or without belief in the truth, making a false statement to the ATO with the result being that the taxpayer claims a tax benefit it is not entitled to. This is fairly uncontroversial however tax evasion has a broader spectrum that may fit between an innocent mistake and some “blameworthy act or omission” (as described by Dixon J in Denver Chemical Manufacturing v Commissioner of Taxation)

The Australian tax system is based on the notion of self-assessment meaning it relies on taxpayers to comply with their obligations and be honest in doing so. It is little wonder then, in the pursuit of legally minimising tax, that many succumb to the traps and pitfalls of tax evasion. The only way to avoid this is to be properly advised by a recognised tax professional.

Tax fraud and evasion is treated very seriously by the ATO and the consequences are devastating. Not only are the penalties crippling but the ATO are active in referring matters to the Commonwealth Director of Public Prosecutions for criminal prosecution.

What are the penalties for tax fraud and evasion

When imposing shortfall tax for fraud and evasion the ATO will characterise your culpability level into the three categories of failing to take reasonable care, recklessness and intentional disregard. The Tax Administration Act 1953 prescribes the penalties, which can be up to 75% of the tax owing. In addition, a further 20% uplift is added in certain circumstances – totaling 90%. Finally, interest at high rates are applied and backdated to the relevant time which can often result in more money being owed in penalties and interest than what is owed in tax!

Will the ATO prosecute me

A finding of Intentional disregard during a tax audit will likely trigger a further internal assessment as to whether you should be referred to the Commonwealth Director of Public Prosecutions for criminal prosecution. Put simply, Intentional disregard means that you knew that what you were doing was wrong but you ignored the law and proceeded anyway. This may be by making a false statement to the ATO or by omitting to disclose relevant information. Even in the absence of direct evidence against you a charge may be proved when the facts and circumstances support an inference that you acted with an intentional disregard for the law (see Weyers v. Federal Commissioner of Taxation [2006] FCA 818). Such findings will often lead to a custodial sentence (prison).

Once the decision to prosecute has been made, charges of dishonesty against the Commonwealth (Criminal Code Act 1995), including ‘dishonestly obtain a financial advantage from a Commonwealth entity’ may be brought against you and can attract a 10 year prison sentence.

Am I personally liable for fraud or evasion committed by a company or trust

You may be asked to appear before the Court in your individual capacity even if the tax offence was committed by a company or trust, leaving you with a criminal record. The deeming provisions in section 8Y of the Tax Administration Act 1953 allow the ATO to attack the company officer responsible for the tax offence of the company or trust and bring them before the Court to be punished.

What defences are there to tax fraud and evasion

There are a number of approaches available which may result in a reduction of penalties. One such approach is to seek the protection of what is called ‘safe harbour’ if you or your tax agent have failed to take reasonable care. With a carefully structured approach, the ATO may acknowledge mitigating factors, including honest mistake, which will reduce the penalties imposed and remove the threat of criminal prosecution. This is not easily accepted by the ATO without detailed scrutiny of the facts and circumstances. However, with the right strategy and comprehensive knowledge of the ATO’s policy and procedure a negotiated settlement may be agreed upon that minimises the damage that the ATO is seeking to inflict.

What can you do to ensure you only pay what you owe

CharterLaw Legal has extensive experience in dealing with tax fraud, evasion and avoidance by utilising a solid network of high ranking contacts within the ATO to achieve results that can only be obtained by tax professional who understand ATO policies and procedures. Working constructively with the ATO in way that robustly protects your interests can result in potential ATO criminal prosecutions being avoided and to a negotiated settlement with the ATO. Our objective is you pay what is fair but as little as possible.

Who is CharterLaw

CharterLaw Legal is part of a professional services group that includes CharterLaw Accounting, and this gives us immediate access to chartered accountants who will undertake the necessary compliance work that must be prepared in order to make an appropriate disclosure to the ATO.

This allows CharterLaw Legal to control the entire process and to maintain confidentiality no third parties are involved apart from yourself, the ATO and your CharterLaw adviser. CharterLaw Legal offers sound technical confidential advice, which is bound by legal professional privilege, to ensure that your rights are protected and what you tell us stays with us.