The Australian Taxation Office (ATO) has issued a warning about a surge in fraudulent tax schemes being promoted online, particularly through social media. These schemes, often disguised as investment opportunities, claim to offer significant tax reductions or complete tax avoidance. However, the ATO cautions that individuals who engage with such schemes may face financial losses, penalties, and legal consequences.
Increasing spread of online tax avoidance schemes
According to Acting Deputy Commissioner Sarah Taylor, promoters of these tax schemes often target vulnerable individuals by making misleading promises of high returns and tax savings. Some schemes are presented as investment opportunities, while others involve setting up entities that falsely claim to provide tax benefits.
“Sometimes tax schemes can be peddled as investment schemes. We don’t want to see honest people lured into unlawful tax schemes with false promises of high returns and tax savings – if an offer seems too good to be true, it probably is,” Ms. Taylor stated.
The ATO warns that those who participate in unlawful tax schemes not only risk losing their investments but may also be required to pay back the tax they attempted to avoid, along with interest and significant penalties.
Examples of fraudulent tax schemes
The ATO has identified specific schemes that are currently circulating, including:
- Early-stage innovation company (ESIC) investment schemes: Some schemes encourage individuals to invest in start-ups that claim to qualify as early-stage innovation companies (ESICs). Investors are told they can claim a tax offset for their shares. However, the ATO has concerns that some of these companies may not meet ESIC eligibility requirements, putting investors at risk of tax audits and penalties.
- Non-profit foundation schemes: Certain promoters advise individuals to set up non-profit foundations and divert their income to these entities, claiming this allows them to avoid tax. The ATO warns that such arrangements do not provide legal tax benefits, and participants will still be liable for taxation on their income.
ATO’s response and legal consequences
The ATO has emphasized its zero-tolerance policy on unlawful tax schemes and their promotion. Those who promote or participate in these schemes attempt to gain an unfair advantage over law-abiding taxpayers. The agency has committed to taking targeted enforcement action against tax avoidance schemes and misinformation.
“Promoting and participating in unlawful tax schemes are not victimless crimes. Those who choose to engage in these behaviours are attempting to obtain an unfair advantage over those who do the right thing,” Ms. Taylor said.
The ATO actively monitors tax schemes being promoted through social media and other online channels and is working to shut down misleading campaigns.
What to do if approached with a tax scheme
The ATO urges individuals to be cautious and seek professional advice before committing to any tax arrangement. To protect against fraudulent schemes :
- Consult a registered tax practitioner before engaging in any investment that claims to provide tax benefits.
- Check the Tax Practitioners Board’s public register to verify a tax advisor’s credentials.
- Report suspicious tax schemes to the ATO through its confidential tip-off form or by calling the tip-off hotline at 1800 060 062.
Individuals who unknowingly become involved in an unlawful tax scheme should contact the ATO immediately. Proactively reporting involvement may result in reduced penalties.
