By Justin Inskip, Director, Westlawn Business Services 28 April 2015
The ATO recently warned investors about illegal tax schemes advising that “if it sounds too good to be true, get a second opinion”.
ATO deputy commissioner, Tim Dyce, said illegal tax schemes are becoming increasingly sophisticated, and therefore getting the right advice is now more important than ever.
“We see many illegal tax schemes, which are often cleverly dressed up as seemingly legitimate arrangements. These could have an impact on your financial security, family and lifestyle,” he said.
As leader of the ATO’s Aggressive Tax Planning (ATP) unit, Mr Dyce stressed the importance of seeking advice before signing up to any tax scheme, no matter how professionally it’s presented.
“Today, tax schemes are often slick. They’re dressed-up with glossy brochures and people in suits selling them. They’ve got a veneer of respectability,” he said.
“We want people to be cautious. Look at the outcome and not the window dressing. If that outcome doesn’t seem appropriate or sensible, ask somebody else.”
The deputy commissioner highlighted one such dodgy tax scheme which recently cost 151 investors “an awful amount of money”.
“We recently came across one being sold out of a stall in a shopping centre that said it could help you pay off your mortgage in about 5 years,” Mr Dyce said.
“But to sign up, you had to sign over your house to the scheme promoters, and refinance it with them to the full value of the house. You had to sign over your tax refunds and sign a waiver saying you wouldn’t tell anyone else about the arrangement and that included getting legal advice, supposedly because the scheme was so good that others would copy it.
“People were told that the ATO had signed off on the scheme, but weren’t given any evidence of that claim, nor did anyone actually check with the ATO to see if this was true, which it wasn’t,” Mr Dyce said.
Tax tricks that will get you in trouble
Check out the ATO’s short video on what to look out for and how to report a suspect tax scheme like the one highlighted above by Mr Dyce.
How to recognise a dodgy tax scheme
Firstly, be wary of promoters that:
Offer zero-risk guarantees for their product
Refer you to a particular adviser or expert (they may claim the adviser has specific knowledge about the arrangement and promised tax benefits)
Ask you to maintain secrecy to protect the arrangement from rival firms
Discourage you from obtaining independent advice
Do not provide a product disclosure statement (PDS) or prospectus.
Many tax schemes are promoted with ways to help you finance your involvement. Here are some of the red flags that should prompt you to seek professional advice before signing up:
The promoter lends you the money to invest in the product
Use of non-recourse loans that you don’t have to repay if the investment goes bad, or limited recourse loans where your liability is limited to your share in the investment
Investments that are primarily funded through tax deductions – for example, by including substantial interest prepayments in a financial year.
Disclaimer Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.