Getting tough on tax evasion and avoidance

Dob in an evader |  Evasion or avoidance? |  Fraudulent tax returns |  Anti-avoidance legislation

Every year, the Tax Office flags the hot spots it will target with its annual compliance program, and always high among its priorities are measures to stamp out tax evasion.

It's a natural expectation that the Tax Office would be keen to stamp out attempts by people and businesses to dodge their tax obligations. And chasing down the perpetrators can be worth the effort. Up to January 31, 2011 for example, the Tax Office says its crime investigation activities identified 'liabilities' of more than $1 billion and brought 62 prosecution cases before the courts and 24 criminal investigations.

Its Project Wickenby activity (which is basically a financial crimes taskforce involving the Tax Office and seven other federal agencies) collected $240 million in cash in the same period.

The other side to that coin however is the amount of money spent pursuing these tax evaders. In the 2011-12 federal budget, the government allocated $337.5 million to continue to target tax crime and completed an additional 11,500 cases in 2011-12 to investigate the systematic or deliberate under-reporting of GST and potentially fraudulent GST refund claims. Still, given the amounts of revenue at risk, it's understandable that the Tax Office needs to be active in this area. In economically straitened times as well, the urge to evade tax obligations is even greater.

• failing to declare income
• claiming deductions for expenses that were not really incurred
• an employer failing to pay tax instalments for a worker's wages
• not lodging a tax return in an attempt to avoid paying tax.

Dob in an evader
The Tax Office encourages the public to dob-in tax evaders, and even has an anonymous online 'tax evasion report' tool (it's here if you want to have a look). A report may not result in a raid by men in dark glasses with a battering ram, but will certainly flag to the Tax Office that it needs to be diligent in monitoring compliance, and perhaps double check any data matching activity for the reported taxpayer.

A specific issue to come out of recent compliance programs is deductions for work expenses. The Tax Office says that such deductions have increased every year since 2006, and represent one of the largest categories of claims made in tax returns. It says it will therefore focus on occupations with a pattern of large or rising claims, and use a benchmarked pattern of such claims for certain occupations (and in recent activities focused on earth moving plant operators, flight attendants, carpenters and joiners and real estate employees).

Evasion or avoidance?
It's important to distinguish tax evasion from tax avoidance. Evasion is a criminal act, and is an attempt to get out of paying legitimate tax owed, while avoidance is using tactics to reduce what may be owed, by means within the law.

There's a further category as well; tax mitigation. While tax mitigation can be a synonym for tax avoidance, the latter can have negative connotations when it involves actions that conflict with the 'intention of Parliament', while mitigation can reduce tax liabilities without 'avoidance' (in that it is a reduction of tax via legal means).

In Australia, recent history has reinforced this otherwise finer distinction, due to so-called 'bottom of the harbour' tax avoidance schemes that were abused to the extent that they became obvious tax evasion scams.

The bottom of the harbour schemes of the 1970s seem like an unsophisticated ploy today, where a company would be stripped of its assets and accumulated profits before tax fell due, so that it was unable to pay up. It would then be transferred to someone of limited means (and usually the company records would go missing) and the Tax Office along with other unsecured creditors got nothing. The Crimes (Taxation Offences) Act of 1980 made it illegal for anyone to render a company unable to pay tax debt.

Back to top