Tax Evasion and Fraud

While the Tax Office has indicated a more realistic approach to some areas of tax administration, it has also shown a tougher attitude to evasion and fraud.

One of the last announcements made by the former Tax Commissioner, Michael Carmody, before his departure effectively said that the general anti-avoidance provisions of the Tax Act will not apply to typical husband and wife partnership arrangements.

The Tax Office has also already retreated on the criteria by which professional firms with service entity arrangements will be selected for Tax Office audit with the addition of a third criteria to the two previously announced.

It is hoped that the new Commissioner Michael D’Ascenzo will continue this ‘softly softly’ approach reflecting a more lenient and balanced approach for legitimate tax minimisation arrangements for business owners and other taxpayers.

If so, this, coupled with the expected tax breaks this year arising from the Government’s strong fiscal position, should reduce some of the frustration that small business owners in particular experience with what they see as unrealistic tax policy and practice.

Against this background of changes to the benefit of taxpayers, the Tax Office’s continued crack-down on fraud and evasion can not only be expected to continue, but stepped up.

The Tax Office has a number of additional weapons in its armoury, largely enhanced by greater use of ever-improving technology and increased cooperation with other Federal law enforcement bodies that helps it track undeclared income more easily.

Another indication of the toughening approach by the Tax Office is its policy of seeking jail terms for people who commit serious tax offences. While the numbers are still small, it is significant that in the 2002 tax year 59 people received jail sentences, whilst in the 2005 tax year 102 people received custodial sentences for tax-related offences – a 72% increase and a trend that can be expected to continue, at least in terms of prosecution.

While it is choosing to prosecute more cases through the courts under the Crimes Act, this does not mean that there will be any leniency in imposing monetary penalties under the Tax Act.

It would be a mistake to think that this activity targets only big business and high-profile individuals.

While the Tax Office still prosecutes high-profile cases for maximum publicity and the deterrent value, smaller businesses should not think that they will slip under the radar. The cooperative agreements that the Tax Office has in place with other Federal bodies, and the ease of technological surveillance of transactions and payments, means that even the smallest business taxpayers will be caught up in the net, and can expect to receive jail terms.

For example, there was the case of a Queensland mechanic last year who failed to disclose cash income from issuing road-worthiness certificates which resulted in a jail sentence. So the risks of being caught for tax fraud are increasing, as is the punishment.