ATO’s crackdown on promoters of tax schemes, Federal Court battles looms over tax promoter-penalty laws

Five-year-old laws to punish promoters of tax evasion schemes are to be tested for the first time in the Federal Court, with the Australian Taxation Office set to pursue three matters in the next few months.

In what is believed to be the first ATO comments on its crackdown, the Tax Office said it has written to 80,000 taxpayers as part of its crackdown on tax advisers “whose behaviour shows a propensity to develop or encourage participation in tax exploitation schemes by clients.”

“We have reviewed the conduct of over 550 entities potentially involved in arrangements that may contravene the promoter penalty laws. In addition, we have completed over 50 more investigations of what appeared to be contraventions of these laws,” Commission of Taxation Michael D’Ascenzo said yesterday at an Institute of Chartered Accountants conference.

“We have also completed over 2,500 cases in relation to participants connected with these promoter entities.”

Paul Drum, director of policy and research at CPA Australia, says the laws – introduced in 2006 – have been a success, not only in the follow-up of cases but in preventing breaches of law.

Drum says: “The message is getting out there that there are quite significant penalties if you are deemed to be a promoter.”

Drum says large practises – such as law firms, banks and agribusiness – might be more at risk of a crackdown than smaller suburban accounting practises.

“This is pitched at high-end sophisticated complicated product developments that are going to be sold to the market, which are pushing the ledger in regards to the legality of the arrangements,” Drum says.

“Most practitioners shouldn’t be losing much sleep,” Drum says.

He expects serious penalties to be applied in the most egregious instances. Under the rules, an adviser can be penalised up to $550,000, and for firms it rises to $2.75 million.

Speaking at an Institute of Chartered Accountants event yesterday, D’Ascenzo said the three cases headed for court were identified in three ways.

“One promoter was found because of information from the community and media articles that indicated an arrangement had been implemented in a way that was materially different to the way it had been put to us in the product ruling request,” D’Ascenzo said.

“Another was found through an analysis of input tax credit claims for entities involved with the scheme.”

“The third was detected through information provided by the community both before and after we issued a taxpayer alert about the arrangement and by analysing tax returns and third party information already available to us.”

D’Ascenzo added: “We regard the fact that we are only now bringing the first cases forward for judicial review as evidence of an exhaustive process for alternative remedies.”

D’Ascenzo told the audience the ATO had taken a long time to get to the point of launching legal action because it uses a range of processes to try and change the culture of tax advisers.