Taxman warns on business tax scam

The Australian Taxation Office has warned that it will closely scrutinise the affairs of business owners and tax scheme promoters that engage in dodgy evasion schemes.

In a clear shot across the bows of tax evasion as the end of financial year approaches, the tax office has issued taxpayer alerts on two evasion schemes it says could result in tax debts and penalties for those involved.

The first alert warns against the use of a scheme that involves avoiding tax payments by seeking to return profits to shareholders in the form of debt rather than dividends. After the loan is made, a cheque is then issued by the company to the shareholder, which in turn is endorsed to the scheme promoter and then back to the company in purported repayment, but never cashed.

The second alert relates to deductions claimed for prepayment close to the end of one financial year for services supposedly to be provided in the following financial year.

In both cases, the tax office warns, the schemes are highly unlikely to be affective and could result in fines or other penalties being imposed on the participants.

“These particular types of tax evasion schemes tend to have a snowball effect each year, which means people can end up with a very large tax debt and substantial penalties when they do get caught,” Tax Commissioner Michael D’Ascenzo says. “People marketing these schemes should also be aware that they could face penalties under the promoter penalty laws.”

Sue Prestney, the Institute of Chartered Accountant in Australia’s SME business issue spokeswoman and principal with accounting firm MGI Boyd, says while tax laws quite clearly prohibit both schemes, naïve business owners could be vulnerable to tax promoter offers of big tax savings.

“It would be clear to anyone that there is something wrong with a scheme where the cheques are drawn and never presented. You don’t have to be a tax expert to know something as artificial as that can’t possibly be effective – it’s got sham written on it in blazing neon lights,” Prestney says.

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