Tax is something that every Australian is legally required to pay. Unfortunately, there is a small percentage of people who will deliberately break the law to avoid paying tax or to claim refunds or payments that they are not entitled to. Doing this, however, puts the tax and superannuation systems at risk.
One of the ways that people may break the law surrounding tax (on purpose or inadvertently) is when they get involved in a tax minimisation scheme.
You do have the right to arrange your financial affairs to keep the tax you have to pay to a minimum. This is referred to as tax planning or tax-effective investing, which is something that we may be equipped to assist you with. It’s a legitimate measure to use if done within the intent of the law. Some taxpayers however may find themselves in situations where their tax affairs push the boundaries of the law
However, a tax minimisation scheme (also referred to as a tax avoidance scheme or arrangement) aims to exploit the tax and superannuation system.
They can range from mass-marketed arrangements advertised to the public, to boutique or specialised arrangements that are offered directly to experienced investors. Some are marketed to individuals and may exploit people’s social or environmental conscience, and generosity.
These schemes typically involve:
- Reducing a participant’s taxable income
- Increasing their deductions against their income
- Increasing rebates
- Avoiding tax and other obligations entirely
A tax avoidance scheme may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. It may also structure arrangements to:
- Incorrectly classify revenue as capital
- Exploit concessional tax rates
- Illegally release super funds early
- Inappropriately move funds through several entities, such as a series or trusts, to avoid or minimise tax that would otherwise be payable.
Some of the more common tax avoidance arrangements that the Australian Taxation Office (ATO) are currently aware of include:
- Retail sale of illicit alcohol
- Mischaracterised arrangements and schemes connected with foreign investment into Australian entities
- Accessing business profits through an interposed partnership with a private company partner
- Accrual deductions and deferral or avoidance of withholding tax
If you are concerned that you may be involved in a tax avoidance scheme, you should consult with us, or speak directly with the ATO. This may entitle you to a reduction in penalties if you speak with them prior to their investigation.