It is crucial to understand unlawful tax schemes along with their warning signs to avoid getting caught and paying penalties.
What are Tax Schemes?
You have the right to manage your financial tax matters to reduce the tax amount you need to pay. This is often called tax planning or tax-effective investing. Tax planning is legal if you do it within the intent of the law. However, tax schemes that are not legal may attract ATO’s attention.
Unlawful Tax Schemes
An unlawful tax scheme involves an intentional violation of ATO’s tax and superannuation systems. The ATO takes these schemes seriously and could take action when they are not legal. The presence of a tax scheme could affect your original investment. You might also have to pay back taxes with penalties and interest.
Some advisers might consider new methods to violate the changes in the law. They may promote tax schemes to people and offer benefits that are not available legally. Various tax schemes are available ranging from mass-marketed arrangements advertised to the public to boutique or specialised arrangements designed for specific taxpayer circumstances. Some are advertised to individuals and others to large private groups and public companies. The ATO monitors the behaviour of advisers and takes action against promoters through promoter penalty laws.
Typical Signs
These tax schemes involve:
- increasing rebates
- increasing their tax deductions against their income
- minimising the taxable income of a participant
- getting refunds
- avoiding tax obligations entirely.
A tax scheme may include complex financial transactions or the wrong way funds are used to avoid tax obligations. It could structure arrangements to:
- violate concessional tax rates
- incorrect classification of revenue as capital
- hide the source of funds
- illegally release super funds early
- move funds inappropriately through different entities to avoid or reduce the tax that would otherwise be payable.
Strict Action on Using Unlawful Tax Scheme
According to the Deputy Commissioner of Private Wealth, they will focus on identifying and preventing behaviours that are intentional to violate the tax, superannuation and registry systems. Being part of this priority, they focus on advisers and intermediaries who promote unlawful tax schemes involving violation of their systems. It is essential because unlawful tax schemes result in damage to the revenue that funds crucial community services. These schemes can also result in considerable financial and emotional consequences for participants.
Promoters of unlawful tax schemes are on their target and can appear in several forms, including financial planners, lawyers, accountants, and consultants. They understand that most tax accountants in Melbourne or Australia do the right thing and give the right advice to their clients. However, promoters of unlawful schemes present offers that are not legal. They are using Promoter Penalty Laws to take action against promoters of unlawful tax schemes. Be careful of unlawful tax schemes. Anyone involved in a tax scheme can risk more than just their investment.
Warning Signs
It’s important to be aware that anyone can promote an unlawful tax scheme, including accountants, lawyers, financial advisers, telemarketers, and salespeople in shopping centres. To avoid falling victim to such schemes, it is important to look out for the following warning signs when dealing with promoters:
- Promising a zero-risk guarantee for their product.
- Referring you to a specific adviser or expert who they claim has knowledge about the arrangement and the promised tax benefits.
- Asking you to keep the arrangement a secret from rival firms.
- Charging a fee or commission based on tax saved.
- Discouraging you from seeking independent advice.
- Not having a PDS or prospectus for the product.
- Offering advice about illegal phoenixing or liquidation of key companies.
Remember to be cautious and vigilant, and to seek independent advice when in doubt. You can seek help from tax accountants to identify such tax schemes.
Conclusion
The blog outlines the consequences of following any unlawful tax schemes. It is also advisable to be aware of promoters of unlawful tax schemes because you may have to pay back taxes with penalties. You can also reach Reliable Melbourne Accountants if you want the right tax adviser to prevent yourself from paying unnecessary penalties.