GST fraudsters to face ‘full force of the law’: ATO
The Tax Office has the tools and resources to uncover even the most elaborate schemes, a deputy commissioner has warned.
By Christine Chen • 06 December 2024
The ATO has declared a crackdown on GST cheats, warning businesses against becoming involved with illegal invoicing or financial schemes at the risk of facing “the full force of the law”.
The warning comes amid an increase in fraudulent claims for large GST funds across a number of industries, according to the Serious Financial Crimes Taskforce.
Deputy commissioner and SFCT Chief John Ford encouraged business owners to take the ATO’s warning seriously and make a voluntary disclosure if they were involved in the illegal schemes.
“Those who seek to defraud the tax and super systems will get caught and face the full force of the law.”
“We are equipped with the resources, sophisticated data matching, analytics capability, and intelligence sharing relationships to uncover even the most elaborate financial crime.”
“If you are involved in an illegal invoicing or financial arrangements, we strongly encourage you to come forward and make a voluntary disclosure rather than wait for us to contact you.”
According to the Australian National Audit Office, over 57,000 taxpayers have participated in GST rorts that proliferated in late 2021 due to their promotion on social media platforms like TikTok.
They claimed $2 billion in bogus refunds and the ATO stopped a further $2.7 billion from being paid out.
The audit office also found the ATO investigated 150 of its workers as part of the multi-agency response to the rorts, known as Operation Protego.
The ATO said it observed more “sophisticated” structuring arrangements between inter-related parties undertaken to obscure transactions and disguise artificial or fraudulent arrangements, resulting in high-value GST refunds.
“Through intelligence and information sharing with partner agencies, the SFCT have identified multiple specific groups who are involved in commercial arrangements which seek to exploit the GST rules,” the ATO said.
The ATO said the arrangements exhibited some or all of the following features:
- False invoicing between related entities.
- Deliberately misaligning GST accounting methods across the group.
- Duplicating GST credit claims in related entities for a single high-value transaction.
- Claiming GST credits for purported purchases, development or construction by related entities that never occurred.
- The use of straw directors in an attempt to hide the true relationship between entities.
The ATO said enablers and recipients of the schemes used the fraudulent refunds to fund business ventures or personal purchases, disadvantaging taxpayers who did the right thing.
“We are targeting businesses who are participating in these schemes to ensure a level playing field for those who follow the rules,” Ford said.
“Not only is this behaviour putting honest businesses at risk, but it also takes funding away from vital community services such as hospitals, schools and transport.”
Middle-aged Australians are being turned into “money mules” to convert cash raised by organised criminals into cryptocurrency so it can be moved out of the country via a record number of specialist ATMs springing up around the nation.
As the Australian Tax Office warns of a scam being used by substantially sized small businesses to de-fraud the GST system of millions of dollars, the agency charged with overseeing the integrity of the financial system has created its own taskforce to target digital currency exchanges and their cryptocurrency ATMs.
AUSTRAC believes some of the ATMs are being used by organisations based in South-East Asia to launder money from Australian-based organised criminals.
Over the past year, there has been a huge increase in crypto ATMs across the country, climbing from around 200 at the start of 2023 to more than 1200. Australia has the third-largest number of such ATMs in the world.
Australia is also home to 400 digital currency exchange providers. By contrast, Britain has just 40.
Between January and November last year, about $119 million of transactions went through 75 per cent of the crypto ATMs dotted across the country. Almost all were deposits, with the money converted into everything from Bitcoin to Tether and Dogecoin.
AUSTRAC chief executive officer Brendan Thomas said his agency had serious concerns about the amount of cash converted into cryptocurrency through the ATMs.
He said people in their 50s and 60s, having been hoodwinked into crypto investments, were often being persuaded by scammers to deposit cash into the machines, inadvertently becoming part of organised criminal networks that were using cryptocurrencies to launder profits. In some cases, they are losing their life savings.
Thhe worry is that we see these people who are scammed being coerced by the scammers into becoming money mules, moving money around these ATMs,” he said.
There has been a sharp rise in the number of people caught up in various scams, in part due to the recent surge in the value of cryptos. On Thursday, the price of Bitcoin went above $US100,000 for the first time, soaring by 50 per cent since Donald Trump’s election victory.
AUSTRAC will increase monitoring of crypto ATM providers while also taking legal action against those found to breach existing money laundering laws.
“We will take strong action. We’re warning these businesses that the penalties are larger than the profits they can make,” Thomas said.
“As the use of cryptocurrency increases, so too will criminal exploitation, which is why this taskforce
will work to eliminate non-compliant high-risk operations.”
will work to eliminate non-compliant high-risk operations.”
It’s not just new forms of technology and payment systems that agencies are concerned about.
The ATO on Thursday warned of a growing number of business operators using the GST rebate system to boost their profits or keep their companies afloat.
This year, the Tax Office revealed an estimated 57,000 people had been involved in a scheme, which started as videos on social media such as TikTok, that claimed participants could gain “free” cash from the ATO by handing over personal details.
Instead, the details were used to invent fake businesses with their own ABNs which were used to submit fake business activity estimates to claim GST refunds. About $1.2 billion was paid out in GST rebates while another $2.7 billion worth was stopped.
In the newest scam, well-established and “sophisticated” company operators are using inter-business transfers to claim GST rebates worth hundreds of thousands or millions of dollars. Obscure transactions are being made to disguise the actions of businesses seeking to inflate their GST rebates.
While scams such as this have existed previously, the ATO has detected a recent increase.
John Ford, ATO deputy commissioner and the head of the Serious Financial Crimes Taskforce, said those involved in such scams were trying to boost their own businesses or making personal purchases while disadvantaging legitimate taxpayers.
“We are targeting businesses who are participating in these schemes to ensure a level playing field for those who follow the rules,” he said.
“Not only is this behaviour putting honest businesses at risk, but it also takes funding away from vital community services such as hospitals, schools and transport.”
Fines can be 75 per cent of the tax that should have been paid while criminal charges can also be made against those caught defrauding the Commonwealth.
The Council of Financial Regulators, which includes the Reserve Bank, Treasury and the Australian Prudential Regulation Authority, on Thursday also noted that “geopolitical risk” was a growing concern and likely to dominate global affairs “for some time”.
“Heightened international tensions create the potential for adverse effects on the economy and financial system, including from cyber threats and conflicts,” it said in a statement.
ATO cracking down on GST fraud
The ATO is warning businesses not to get involved in related-party structuring arrangements or schemes to cheat the tax and super systems. The Serious Financial Crimes Taskforce (SFCT) has identified an increase in fraudulent claims for large GST refunds across a number of industries. The arrangements that have been observed involve sophisticated structuring arrangements between inter-related parties undertaken to obscure transactions and disguise artificial or fraudulent arrangements, resulting in purported high value GST refunds.
The ATO is warning businesses not to get involved in related-party structuring arrangements or schemes to cheat the tax and super systems. The Serious Financial Crimes Taskforce (SFCT) has identified an increase in fraudulent claims for large GST refunds across a number of industries. The arrangements that have been observed involve sophisticated structuring arrangements between inter-related parties undertaken to obscure transactions and disguise artificial or fraudulent arrangements, resulting in purported high value GST refunds.
Ronald MizenPolitical correspondent
Labor has caved to pressure to overhaul its plans to make public the secret owners of Australian unlisted companies, amid fears wealthy investors and their families could be exposed to identity theft and cybercrime.
After committing to a public database of so-called “beneficial owners” of companies, the government will instead limit access to regulations, law enforcement, journalists and academics.
Assistant Treasury Minister Andrew Leigh last year announced the creation of a public database of people who own, control, and receive benefits from businesses in a bid to limit complex structures that can help avoid tax and fund crime.
The first stage of the reform targeted unlisted companies, while the second stage targeted the beneficiaries of Australia’s nearly one million trusts; about three million entities in total would be subject to the transparency measure.
The move is backed by unions, churches and tax transparency campaigners. But lawyers and tax advisers blasted it as overreach that will unnecessarily capture a large swath of investors, from high-profile Rich Listers to family businesses, doctors, tradespeople, farmers and retirees.
In response to privacy fears, Dr Leigh sought advice from the Attorney-General’s Department, which recommended the ownership data be kept hidden from the public at large.
In an updated proposal being announced by Dr Leigh on Friday, only law enforcement, regulators, academics and journalists would be allowed to view the information.
The data would initially be held by each entity covered by the law and ASIC would seek the data from them on behalf of applicants. Labor intends to centralise the information at some stage in the future.
Companies that fail to handover information to ASIC will face fines under the new regime, while beneficial owners who fail to disclose their details will face freezing orders over their assets.
The new proposal will also increase the definition of ownership from 20 per cent of shares or more to 25 per cent, inline with other legislation.
“By making these amendments and developing an open register of ownership, the Government will improve awareness of who ultimately owns, controls, or receives profits from a company or legal vehicle operating in Australia,” Dr Leigh said.
ATO slams wealthiest taxpayers’ lax record keeping
Governance and record-keeping gaps are driving tax errors among the Next 5,000 group, the Tax Office has said.
06 December 2024
Many of Australia’s richest taxpayers are still making errors in their tax returns due to poor record keeping and failing to document their governance processes, an ATO report has found.
The ATO’s 2024 Next 5,000 report, released on Thursday, said many of the country’s largest privately owned and wealthy groups inadequately documented tax preparation procedures, leading to unsubstantiated expenses, incorrect trust distributions and CGT errors.
Assistant commissioner Daniel Smith said the report’s findings should encourage members of the Next 5,000 group to reassess their tax affairs.
“We expect those groups in the Next 5,000 program to have their record keeping in order, be open about risks, and document all transactions properly,” Smith said. The Next 5,000 is an expansion of the ATO’s Top 500 private groups tax performance program.
It is made up of individuals, who together with their associates and connected entities, control net wealth exceeding $50 million.
Since the program began, the ATO said it had reviewed around 8,850 transactions, activities and events and finalised around 1,404 streamlined assurance reviews. The ATO said groups and their advisers typically engaged “collaboratively and proactively” during the review process and a high proportion had governance processes and procedures.
But most of those governance processes were not documented, the ATO said, leading to repeated instances of incorrect reporting. “Some Next 5,000 groups are making errors in their tax returns that could be otherwise prevented,” the ATO said. Inadequate governance processes, procedures and poor recording of some taxpayers prevented the ATO from being able to ensure tax deductions were correctly claimed. “We were unable to assure tax deductions were correctly claimed in some cases because there were inadequate governance processes, procedures and poor recording keeping,” the report said.
“The expenditure could not be substantiated or the nexus between the expense and assessable income could not be evidenced.” “A high proportion of these expenses were related party transactions where the reported income derived by one party was less than the deduction claimed by the other party to the transaction.” The ATO said it often escalated the sale of significant assets to secondary reviews or audits because taxpayers failed to properly the transaction, with errors including incorrect loss calculations, mischaracterised sale types, and improper timing of CGT event reporting. Trust distributions also presented compliance issues, such as where distributions were paid to the wrong beneficiary and where section 100A might apply.
The ATO also had difficulty obtaining assurance over family trust distributions where there was inconsistent documentation for individuals set out in the trust deed. “In some reviews we concluded that a lack of governance processes and procedures resulted in omitted trust distributions for some beneficiaries within the group.” A lack of governance processes and poor record keeping also impacted tax compliance for intra-group and related party transactions.
“We found a correlation between poor record keeping and a lack of documented governance processes and procedures on the one hand with not taking the necessary steps to satisfy Division 7A on the other,” the ATO said.
Finally, the report flagged deficiencies in GST compliance and errors in BAS filing with some Next 5,000 groups lacking “a basic understanding of GST, how GST applies to related party transactions and correct reporting resulting in voluntary disclosures”. Common issues included late lodgment, incorrect classification of GST-free items, and discrepancies between income tax returns and sales reported in BAS.
“There is a strong correlation between the BAS errors that we see, with the late lodgment of BAS and a lack of or insufficient governance processes and procedures,” the ATO said.
Voluntary disclosures in these areas often also revealed a lack of understanding of GST rules, particularly for related party transactions.