SME director jailed for tax haven dodge as ATO gets new powers

The Australian Taxation Office’s tax haven taskforce Project Wickenby has claimed another scalp, with the director of a small NSW company sentenced to two year’s jail for using offshore tax havens to avoid paying tax on overseas income.

James Gerard O’Rourke, aged 51, was sentenced in the NSW District Court on Friday for his role in what the ATO has described as a “round-robin” scheme.

The ATO says O’Rourke created false invoices for items such as consulting fees, management fees and insurance premiums, which were then used to overstate the tax deductions he was eligible to claim.

Cash was then sent to bank accounts in New Zealand which were controlled by Vanuatu-based advisers and returned “tax free” to his personal or company account. O’Rourke claimed these payments were loans.

The scheme resulted in a combined company and personal tax fraud of $180,464.

Tax Commissioner, Michael D’Ascenzo said in a statement that the case should serve as a warning to tax payers to declare income from all sources, including money held overseas.

“You are responsible for your own tax affairs and if you are caught up in these schemes you may find yourself facing heavy fines or even prosecution.”

Project Wickenby has now raised over $800 million in tax liabilities, with 57 people charged with serious offences as a result and 11 convicted.

The conviction comes as the ATO has gained new power to crack down on one of its other big tax bogeys – phoenix trading.

On July 1, new legislation granted the ATO new powers in its fight against phoenix activity, which occurs when a company deliberately goes into liquidation to avoid tax, creditors and employee entitlements and then re-emerge as a another corporate entity.

The ATO will now be able to demand “security deposits” for existing and future tax debts if it suspects the business involved may be a risk of becoming a phoenix – where, for example, a company’s director has had a poor record of paying its tax bills.

The security deposits are uncapped, which means the ATO can demand as much as it needs.

While tax experts have warned the new laws could catch out SMEs who are behaving honestly but as having cashflow problems, ATO assistance commission Thomas Ryan has told the Australian Financial Review the new powers will be used sparingly and on a case-by-case basis, with directors given ample opportunity to talk through their situation.

“However, if you are a phoenix operator with a history of non-compliance and not paying liabilities, it would be reasonable to assume we could ask for a security bond.”