Understanding Tax Fraud and Tax Evasion
Tax evasion and tax fraud are two most common tax crimes. These crimes are not only a national problem, they pose a serious threat all over the world. Given this, in order to disrupt these crimes and the individuals committing them, the Australian government have setup legal groups and organisations whose sole purpose is to crack down on these criminal networks.
Investigations against taxation crimes are extensive. Australia goes as far as using external resources and assistance to hone in on these crimes because they can be committed by individuals at the highest level.
What is tax fraud?
Fraud is when an individual makes a false representation. So, when it comes to taxation (tax) fraud, individuals are essentially providing the Australian Taxation Office (ATO) with false or misrepresented documents, files or evidence. The purpose of this is generally lowering one’s tax liability. This usually means their tax returns are intentionally incorrect, with expenses overstated, neglecting to report their full and complete income, or giving dishonest information about where they live.
Examples of tax fraud
Further examples of tax fraud could include:
- Deliberately under reporting or omitting income
- Making false accounting entries
- Keeping multiple sets of books
- Taking tax deductions that the individual is not entitled to
- Hiding assets
- Claiming personal expenses as business expenses
Penalties for tax fraud
The consequences for tax fraud are severe. Unlike most interactions with the tax office, the matter can not usually be solved through repayment of the money owed. Once someone has been convicted of the offence, it’s usually too late and the individual could face some harsh penalties for their actions, including a maximum term of imprisonment for up to 10 years. Other penalties could include:
- The matter is proven but dismissed: This means that you are not convicted and your actions may be dismissed upon the condition of good behaviour.
- Fine: You could receive a fine up to $250,000, however this fine may not be greater than the maximum penalty for the offence.
- Good Behaviour Bond: You are ordered to demonstrate good behaviour for a specified period of time. If this is achieved, there is no further penalty. If this is breached, you are to be summoned back to court and resentenced.
- Community Service Order: Will typically involve unpaid community work or attendance at a Centre to undertake a course, such as Anger Management.
- Periodic Detention: Being detained in a jail for two-days a week, often requiring you to undertake unpaid work during the detention period.
- Suspended Sentence: A term of full time jail upon an offender, but the jail sentence is suspended upon the offender being released on good behaviour bond
- Full Time jail: Offenders are usually detained in a low security prison for the duration of their imprisonment.
As well as this, those who are found guilty of tax fraud may also be required to repay the prosecution costs.
What is tax evasion?
Tax evasion is, as its name suggest, the evasion of tax, with the purpose being the avoidance of paying a true tax liability. The use of trust funds, shell corporations, tax havens are just a few of the different ways that entities try to avoid paying tax, or at least the correct amount of tax.
Similar to tax evasion, this is considered a serious crime. It is most commonly committed by the wealthy, as they have a larger tax liability than your everyday person. An example of this would be celebrities and politicians. It is not uncommon for such individuals to be caught out attempting to evade paying the correct tax liability.
What is the difference between tax evasion and tax avoidance?
Tax avoidance is not illegal, unlike tax evasion, which is.
Tax evasion is an illegal practice, whereby the correct amount of tax is not paid, or no tax is paid at all. On the other hand, tax avoidance is legal, and perfectly fine. It is a way of minimising tax legally through using legitimate tax deductions, taking tax credits and setting up a tax deferral plan.
Tax audits and assessments
Tax audits and assessments are done regularly in Australia with an aim to identify fraudulent actions that may have previously gone unnoticed. If you have a seemingly simple tax return, you can expect that you have a two year window from the date of the relevant assessment for the ATO to contact you about any past returns you may have lodged. If your tax is a bit more complex, it is likely that the applicable time limit is 4 years from the date of the relevant assessment. However, despite these guidelines, if you have committed tax fraud, the ATO are able to review your past tax returns for however long it deems appropriate, whether that is 10 or even 20 years!
More information on tax fraud and evasion, and other white-collar crimes
Navigating the tax system can be quite complex. Even a small, unintentional mistake may become a costly error for an individual or business, with long-term consequences. If you have been charged with a tax-related offense, we highly recommend reaching out to our team of qualified lawyers who are able to help you understand your rights and the best course of action. This is a highly specialised field of law, and you require a team of lawyers who truly understand the ins and outs of the taxation system and the workings of the ATO.