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A total of $2.7 billion in fraudulent claims were prevented, $1.7 billion in false refunds were paid out, and over 100 arrests have already been made. Now, the question arises: The TikTok tax scandal: how did it spiral out of control?

It was advertised as a hack with no victims that would deposit tens of thousands of dollars into your account. Participation was as easy as just following the directions, like with any hack. Under Australia’s self-assessment system, the streamlined method created to make it simple for a small business to launch itself, also made it simple for the “TikTok fraud” to become viral.

How did It Happen?

In 2021, some videos displayed how to get ATO to deliver money to your account. It was not a loan but a hack that sometimes noticed tens of thousands transferred into accounts, no questions asked. Facilitators appeared as the message spread and as more and more people validated the hack. All you had to do was provide the facilitators with your personal information, and they would do the rest.

In order to claim GST refunds, the fraudsters created fictional organisations, applied for Australian Business Numbers (ABN), frequently in their own names, and submitted fictitious Business Activity Statements (BAS).

By the end of 2021, the banks saw an increase in suspicious activity, mostly large refunds that were out of character for those accounts – in some cases, recipients of Centrelink receiving large credits from the ATO. Various accounts were frozen by the banks and they reported suspicious activities as they need to do under the Anti-Money Laundering & Counter Terrorism legislation, including to the ATO.

In April, to stop the rise in GST refunds by individuals, the ATO formed Operation Protego. At that stage, the strategy went viral. In May 2022, a $20,000 average GST refund was paid and around 40,000 people claimed it.

The ATO admitted that in fraudulent claims, around $850 million had been paid. In June 2022, that amount had increased to $1.2bn, but the ATO had stopped the flow, rejecting $1.7bn in fraudulent claims. Following search warrants, scheme promoters were detained.

It’s difficult to comprehend how so many people—approximately 56,000 Australians—made the erroneous assumption that there had been some sort of hack identified that allowed you to obtain tax refunds totalling many thousands of dollars as a form of ‘loan’ from the ATO. The ATO is not well recognised for its infrequent acts of benevolence and laissez-faire approach to tax revenue, even in the best of times.

This explains why so many people agreed with a TikTok-promoted viewpoint even though taking part in the fraud entailed altering records at several levels and did not raise any warning flags. Unfortunately, ignorance is not a convincing excuse for deception.

Caught in the Web?

The ATO doesn’t tolerate any fraudulent activities that may impact the ATO. The TikTok tax fraud is vast and has multiple repercussions for the 56,000 affected individuals.

The promoters and facilitators of the strategy make up the closest group. Including members of organised crime groups, adolescent crime gangs, and outlaw motorbike gangs, more than 100 people have been detained thus far, and more than 10 have been found guilty of their roles in the crimes.

Ten years in jail is the maximum sentence for encouraging a tax fraud scheme. The second circle are those involved in the scheme – who announced that they were running a business, held ABN and submitted GST refund claims for expenditures they didn’t incur. The money will not be paid back to those who received fraudulent GST refunds and penalties will be imposed. If the ATO has got in touch with you, engagement will help in minimising penalties and stopping an escalation to criminal proceedings.

Where do Victims of Identity Theft Go Now?

The third circle is spotted as the victims of identity theft whose details have been utilised for fraudulent GST refund generation. The ATO has reports of people offering to sell and buy myGov details to access refunds. The ATO is currently overwhelmed in attempting to manage the aftermath, not just from the TikTok GST refund fraud but also from identity theft in general, according to the conversation in the accounting community.

The TikTok Fraud Timeline

Nobody gives money for free or offers a loan without getting paid back.

Late 2021  The banks freeze accounts and they refer suspicious behaviour to ATO.
April 2022 Operation Protego formed.
May 2022  

A warning has been issued by the ATO to fake businesses, fraudulent business activity statements and ABN applications to produce GST refunds after making fraudulent payments of around $850 million to around 40,000 people, with the $20,000 average amount being claimed.

June 2022  

·     ATO counts the cost of fraudulent claims at $1.2bn. Between April and June 2022, $1.7bn had been rejected by the ATO in fraudulent claims.

·     ATO launched coordinated action across three days in 12 locations across NSW, Victoria, Tasmania, South Australia, Western Australia, and Queensland, which noticed warrants implemented against 19 individuals alleged of being engaged in GST fraud.

July 2022 ·     ATO implements search warrants against five suspected offenders.
Dec 2022 ·     ATO counts fraudulent rejected claims at $2.5bn by over 53,000 people.
Feb 2023 ·     Warrants were implemented against 10 people suspected of promoting the fraud including on social media.
Aug 2023 ·     ATO counts fraudulent rejected claims at $2.7bn.

 

The result to date, $2.7bn in fraudulent claims have been rejected before being paid, and $1.7bn fraudulent payments made with approximately $66m recovered by 30 June 2022. Another $700m in liabilities, including approximately $300 million in penalties, uplifted in 2023-24.

The Case of the Taxpayer Who Was Paid Too Late

A recent case prior to the AAT is a reminder about the effect of the tax on the timing of employment income. In this case, the taxpayer was working in Kuwait and a non-resident. As part of his work, he was eligible for a ‘milestone bonus’, but the employer was not able to pay the bonus at that time. After the end of the job, the taxpayer shifted to Australia and became a resident. Once in Australia, the former got the performance bonus and the employer paid it as a series of instalments.

The conflicts between the taxpayer and the ATO began when the Commissioner released amended assessments taxing the bonus payments that the taxpayer received. The conflict focused on when the bonus was received. If the bonus had been received while the taxpayer was still a non-resident, it would not have been subject to Australian taxation. This is because non-residents frequently only pay tax on income that is earned in Australia. Although there might be a few outliers, the majority of employment income comes from the actual place of the job.

According to Australian tax case law, employment income is typically generated at the time of receipt. In the taxpayer’s situation, this was the time that he started receiving payments from his former company, not the time that he started accruing bonus rights. The bonus was taxable since the taxpayer received it while he was an Australian tax resident.

For the taxpayer, the difference was fairly significant. Kuwait does not have an income tax, therefore if he had received the bonus when it was due, he would not have had to pay any taxes.

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