Taxpayer alerts (not taxpayer alarms)

Every now and then you might read about a 'taxpayer alert' being issued. These are the Tax Office's 'early warning' signals about a particular area of concern – it could be about fraudulent schemes, or dodgy investments, or perhaps about a tax minimisation tactic that's doing the rounds that the Tax Office knows will get people into trouble.

Taxpayer alerts are the means by which the Tax Office lets the general public know there could be a problem, or a higher risk than usual, in an area of tax planning. It's the taxman's version of those 'kangaroos next 10km' road signs.

The sort of features that may lead to an alert being triggered will typically include:

• arrangements that seem contrived
• no real underlying business purpose
• an economic return that seems to rely largely on the tax benefit
• mechanisms in place for exiting an arrangement before income is generated
• passing income through a tax-exempt body such as a charity
• schemes involving tax havens.

The alerts are written principally to let people know about emerging issues that are of concern, and spell out what's under scrutiny (it could be a tax scheme or arrangement, or some particular transaction). The alerts should also highlight the aspects that most worry the Tax Office.

Not every potential concern makes it to being the subject of a taxpayer alert. Nor is it the case that every item that is mentioned in an alert ends up being a real problem. Further examination can uncover a simple benign matter that is not of exceptionally high risk and of no greater concern than usual. And if this is the case, a notification will be issued to let everyone know.

The taxpayer alerts are not law and are also not to be confused with the Tax Office's 'public rulings'. But once investigations are done and consideration is made about where the Tax Office stands on an issue, a ruling or a determination will be made and released publicly, or an alert will be withdrawn and we'll be told about it. (Rulings and determinations, broadly speaking, spell out how the Tax Office would apply the law to any particular situation.)

Anyone who is thinking about entering into a scheme or tax arrangement that ends up being the subject of a taxpayer alert can ask for a formal determination from the Tax Office, or request a private ruling on the issue (although the Tax Office does not always have to issue a private ruling).

A taxpayer alert should also name the tax officer involved, so you can contact that officer for further explanations and clarification. However you would have to speak to your tax adviser for advice on how the alert could affect your own tax affairs.

You can see the current taxpayer alerts here that the Tax Office has issued. Where a subsequent tax ruling has been issued or a decision has been made, the alert will have a link to that.

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