The question that you often get asked is “I’m paying too much tax and how do I minimise it”?
Taxpayers, whether trading as a sole trader or through a trust structure or a company have made significant amounts of income and have sought angles to minimise their tax, either through clever financial advisers or lawyers. Inappropriately for a number of them they have been ill advised and have been for example introduced to promoter-driven tax schemes where these promoters are paid substantial consultancy fees and perhaps commissions to access tax structures or arrangements for the purposes of tax avoidance or tax evasion. Where promoters are involved, for example, income can either be diverted overseas or alternatively money is sent from Australia to an overseas country, for example Greece or a tax haven where it does a round robin and sees its way back to the taxpayer and/or their company or trust disguised as a loan on which the taxpayer then pays interest and in some cases in an attempt to legitimise it, for example in relation to withholding tax paid or some other dressed up expense.
Another example: debit cards are used for daily drawdowns to keep money flows under the Austrac and ASIO radar. Evidently such tax driven arrangements where sophisticated company and/or trust structures are involved is an obvious attempt to make transactions look real and they are given exciting names and addresses to emphasise its legitimacy.
Over a long period of years the taxpayer is able to avoid paying substantial sums of money which runs into hundreds, millions or tens of millions of dollars. Sooner or later they come to the attention of the Australian Taxation Office (ATO) through a number of mechanisms including Austrac which tracks money flows in and out of Australia. In these regard, all financial transactions are getting greater attention today due to money laundering and heightened sensitivity to terrorist attacks.
Money flows of as little as $10,000 per day are noted, tracked and analysed. Often where something is suspicious the matter is then referred to either or a combination to ASIO, INTERPOL Australian Federal Police (AFP) and the Australian Crime Commission (ACC) or can be referred to sophisticated law enforcement task forces or secret investigation prior to the ATO contacting the taxpayer, however extensive intelligence has been gained by these government bodies before this occurs.
In these circumstances, as Greece has entered into multilateral agreement between various countries, including Australia who is one of the signatories to the agreement.
Australian/Greek taxpayers who are resident in Australia and who have been for a substantial period of time should have come clean and disclosed their undisclosed foreign income and or offshore assets from Greece by yesterday 19th December 2014.
In this regard, the ATO’s Project DO IT – Disclose Offshore Income Today – was an initiative which came into operation in May 2014 that encouraged eligible taxpayers to voluntarily disclose unreported foreign income or capital gains and related deductions they had claimed incorrectly.
Project DO IT offered the most substantial terms ever publicised by the ATO since the last foreign income amnesty came into play back in 2010 for making a voluntary tax disclosures. Moving on four years later to 2014, the key points to Project DO IT were:
• Tax was only assessed for the past four assessment years, regardless of the number of years of non-disclosure;
• Penalties of 10 per cent, or nil if additional income in a year was $20,000 or less;
• The ATO would not refer you for investigation for criminal prosecutions;
• The ATO would not voluntarily refer the disclosure to another law enforcement agency;
• Guarantee and certainty was given on the tax effects of winding up offshore structures and bringing offshore assets back to Australia;
• Only certain financial information was to be provided and
• There was efficient disclosure processes with no compulsion to meet the ATO.
What happens if you didn’t disclose your offshore income and offshore assets and you are detected after 19 December 2014?
Given the amount of publicity, both nationally and internationally and the need for the Commonwealth of Australia to protect its revenue, the ATO has firmly focused on the distinction between tax avoidance and tax evasion. Project Wickenby was a response to a change in dynamics out of which came Operation Wickenby which centered on high profile tax cases and high net wealth individuals with successful civil and criminal prosecutions. Frequently taxpayers are detected through any number of processes including a simple request, query, field audit, review or business review, investigation or audit.
In these circumstances, taxpayers who have become aware that their tax affairs are not compliant and they need to make a voluntary disclosure there is absolutely no doubt that their level of tax non-compliance will eventually be detected and if so, they run a real risk of being prosecuted and being incarcerated for substantial periods of time depending upon the nature of the offences committed. Accordingly, what the ATO is targeting amongst other things is for example, conspicuous consumption, low salaries, substantial assets, glamorous cars, luxurious holidays, expensive homes, children at elite private schools and significant business and other overseas dealings.
The Changing Global Environment
Soon even more jurisdictions will be automatically exchanging tax information with the ATO. Previously, information sharing between countries was cumbersome for the ATO and often occurred on a taxpayer by taxpayer case. Automatic exchange of tax information means that Australians who have offshore assets, including Greece will have their details reported every year to the ATO. Many countries previously considered to be ‘secrecy havens’ or ‘tax havens’ are now actively exchanging information with a number of other countries, including Australia.
Furthermore, the ATO’s compliance program 2014-2015 is far more aggressive than ever in detecting and prosecuting taxpayers who don’t disclose their foreign income or who overstate their deductions. Just to give Australian/Greek taxpayers an insight, below you will find statistics from the ATO’s website in relation to criminal prosecutions in relation to taxpayers who attempt to cheat the system:
The ATO have stated that “Those who commit serious tax crime can expect to be referred for prosecution before the courts by the Commonwealth Director of Public Prosecutions (CDPP). In addition to recording criminal convictions, the courts may impose security bonds, community service orders, fines, additional penalties and, for some offences, prison sentences”.
If you are in doubt about anything you should immediately contact your financial advisers who may be able to assist you.
*Tony Anamourlis is an international taxation lawyer.