With the end of the 2015 tax year fast approaching us, it’s that time of year again when people start looking at different ways to minimise their tax. I would suggest that this search for a tax-
effective investment be taken with caution as it also brings with it a risk of increased ATO scrutiny. There are different measures that can be taken so as to minimise any possible exposure to investments that do not meet the ATO’s guidelines.
Below is an extract of the ATO’s approach to Tax Planning and some tips so as to avoid any potentially “illegal” schemes. The main points are:
- Get a second opinion
- Investment opportunities – do a ‘background check’
- Recognise a tax avoidance scheme
- Get out of a scheme
- Report tax schemes and promoters
Tax planning – ATO View
“Actions to deliberately evade tax obligations or fraudulently use the system to obtain an improper financial benefit constitute tax crime. This includes identity crime, secret offshore dealings, credit and refund fraud, and illicit tobacco growing”
You have the right to arrange your financial affairs to keep your tax to a minimum – this is often referred to as tax planning, or ‘tax-effective’ investing. Tax planning is legitimate when you do it within the letter and the spirit of the law. However, a small percentage of taxpayers plan their tax affairs in a manner we consider is aggressive towards the tax system. These arrangements attract our scrutiny to determine whether or not they are within the law. We provide as much support as possible for people who do the right thing, and are fair, but firm, with those who don’t.
- Get a second opinion
There are ways to minimise tax, as long as it’s done lawfully. If you’re not sure of a tax investment offered to you by anyone, make sure you get advice.
- Investment opportunities – do a ‘background check’
Does the arrangement have a product disclosure statement or prospectus? Does it have the certainty that comes with being covered by a product ruling? Have we issued a taxpayer alert about it or a similar arrangement? Does the promoter have a valid Australian financial services (AFS) licence issued by the Australian Securities & Investments Commission (ASIC)? Maybe you should consider a private ruling. Make sure you get independent advice.
- Recognise a tax avoidance scheme
Tax avoidance schemes aren’t limited to the ‘too good to be true’ types. They can be more sophisticated than many people realise. Watch out for complex structures and unusual financing arrangements, such as round robin financing, and non-recourse loans; ‘no-risk’ guarantees; and encouragement to keep the arrangement secret and not obtain independent advice.
- Get out of a scheme
Not only can involvement in a scheme risk your original investment, you could also have to pay back any missing tax – with interest – and penalties. If you think you are involved in a tax avoidance scheme, we can help you. Taxpayers who voluntarily tell us about their involvement before we start to investigate may be eligible for a reduction in any penalties that arise
- Report tax schemes and promoters
If you come across an arrangement that sounds like a tax scheme, let us know. Early detection of these schemes can help us protect other taxpayers from becoming involved. You can also let us know if you have concerns about a promoter.
- Tax avoidance schemes
Each year a significant number of tax avoidance schemes are promoted to individual and business taxpayers and to self-managed super funds(SMSFs). These contrived arrangements have little or no economic substance and are created predominantly to obtain a tax benefit not intended by the law. Check our list to see whether you’re considering a type of arrangement we have identified as questionable.
- Common types of schemes
Before you invest or participate in an arrangement, check our list of common types of schemes to determine whether we have concerns about the arrangement, or if the arrangement may be a a tax avoidance scheme. In our experience, promoters are always on the lookout to develop new schemes, so be wary of arrangements that promise significant tax benefits.
