There are people who are calculated in their attempts to deliberately commit fraud and evade their tax obligations, ultimately stealing from the Australian community and placing an unfair burden on others who are doing the right thing.
The ATO, along with our partner agencies, access various information sources and use sophisticated analytics, to identify people who deliberately break
the law to either:
- avoid paying the right amount of tax;
- claim refunds or other payments they are not entitled to.
These case studies demonstrate how the ATO is effectively cracking down on those who commit tax crime.
A company director has been convicted and fined $51,500 after pleading guilty to seven charges relating to outstanding activity statements and failing
to comply with information notices.
Michael George Fotios, the Director of private resource company Delta Resource Management Pty Ltd, was convicted and fined $37,500 for failing to lodge
five activity statements from 1 January 2016 to 31 March 2017.
He was also convicted of failing to provide information and documents to the ATO as required by notice. He was fined $7,000 on each of the two charges
relating to this failure.
Fotios was fined a total of $51,500 across all seven charges in the Perth Magistrates Court after the magistrate considered his plea, financial circumstances
and both the lodgment of the relevant returns and compliance with the information gathering notice.
The magistrate said due to the history of non-compliance and the seriousness of the offences, imprisonment was seriously considered as a sentencing option
however the appropriate penalty was applied. He described Mr Fotios’ non-lodgment and non-compliance as contemptuous.
On 10 August 2018, cousins Anthony Castagna and Robert Agius were sentenced following a complex tax-evasion and money laundering investigation involving
millions of dollars in offshore accounts.
Castagna, 70, was sentenced to seven years imprisonment with a four-year non-parole period and Agius, 68 was sentenced to seven years six months to serve
out eight years non-parole. This included a previous sentence for an unrelated tax evasion matter after being found guilty in 2012 for operating schemes
via his Vanuatu-based accounting firm.
The two men were sentenced for their involvement in tax evasion and money laundering schemes which led to them failing to declare of $5.7million of income
An offshore company in Vanuatu, owned by Agius, was used to hold funds before using fake loans to return the money to Australian shores without paying
This has resulted in a yet another significant win for the Serious Financial Crime Taskforce (SFCT) following the joint Australian Federal Police led investigation.
Since the establishment of the SFCT, more than 800 audits and reviews have been completed, raising liabilities of nearly $600 million. Seven people including
Agius and Castagna, have received custodial sentences and there are currently 31 criminal, civil and intelligence operations in progress under the
Prosecutions send a strong message to those thinking about cheating the system. No matter how complex or how long an investigation takes, the ATO affirms
it will never tire or give in, in the pursuit of justice and protecting the Australian community.
A Victorian man, Mr Kritsakul Thavapitak 41, was sentenced to two years jail, following his part in a refund fraud syndicate that used identity crime to
impersonate taxpayers and lodge fraudulent claims. ATO investigations culminated in money laundering charges.
Over a two-month period in 2010, Thavapitak received and dealt with $82,879 in fraudulent tax refunds. The fraudulent tax refunds stemmed from a series
of frauds committed on the ATO, involving the lodgment of 13 false income tax returns on behalf of 13 unknowing taxpayers.
Refunds were either moved by Thavapitak to other accounts or withdrawn as cash.
ATO investigations proved that the taxpayers were not employed as reported in the returns.
Thavapitak was also ordered to pay reparation for the amount of $82,879.
The ATO works with other agencies and the community where appropriate to ensure that those who do the wrong thing are caught and prosecuted.
Further it takes the view, the crimes are not honest mistakes on a tax return – they are calculated, deliberate attempts to commit fraud and avoid tax.
Legislation to extend Single Touch Payroll (STP) reporting to all employers from 1 July 2019 has been passed by parliament and is now law.
STP changes the way employers report their employees’ tax and super information to the ATO.
Using payroll or accounting software that offers STP, employers now send their employees’ tax and super information into the ATO each time they run their
payroll and pay their employees.
This is a big change for small employers and the deadline of 1 July could be difficult. So, employers with 19 or less employees can start reporting any
time from 1 July – 30 September. If they start during this period they will be reporting on time.
As a first step, talk to your accountant or tax adviser to understand your options. If you use payroll software, talk to your provider to find out what
you need to do to update your software and start reporting.
There is a range of resources on the ATO website to help you get ready, including transition options available for small employers and information on applying
for extra time if you need it.
Listen to the ATO webinar, how to transition to Single Touch Payroll for small employers, where they talk about transition options and how they will help
small employers move to STP reporting.
We also are able to help you with any difficulties you may have in the transition.
There is a range of no-cost and low-cost Single Touch Payroll (STP) solutions available in the market from early 2019.
These solutions will best suit micro employers (with one to four employees) who need to report through STP, but do not currently have payroll software.
Companies have put forward product proposals to offer no-cost and low-cost STP solutions in response to a market request. The solutions are required to
be affordable (costing less than $10 per month), take only minutes to complete each pay period and not require the employer to maintain the software.
These solutions may include mobile apps, simple reporting solutions and portals.
While we will take all reasonable care to ensure information provided in this list is accurate, changes in circumstances may occur after the solutions
are released which may affect the accuracy of this information. The list order has been randomly generated and does not imply any preference. We do not endorse any of the suppliers listed.
|Company name||Solution name||Solution type||Pricing||Website|
|Cashflow Manager||Wages 1-4|| |
|$10 or less per month||cashflow-manager.com.au/wages1-4External Link|
|$10 or less per month||epayroll.com.au/microExternal Link|
|Single Touch Pty Ltd||STP – Data||API, XML, CSV|
|$10 or less per month||singletouch.com.auExternal Link|
|CloudPayroll Pty Ltd||CloudPayroll Micro||PC|
|$10 or less per month||cloudpayroll.com.au/microExternal Link|
|AccXite Pty Ltd||AccXite||Web app|
|Free until 31 Dec 2019|
From 1 Jan 2020 $10 a month
|Free Accounting Software Pty Ltd||Free Accounting Software||Desktop|
The ATO has increased its focus on private use of assets. Small businesses and privately owned and wealthy groups sometimes purchase assets such as boats, horses or racing cars.
If these assets are used to earn business income, you can generally claim deductions for them. If you use the assets for a mix of business and private
use, you must only claim the portion related to your business.
The ATO have observed that when the assets are used partly for the business and partly for private purposes some businesses make common mistakes when accounting
for that use. It’s important to make sure all your assets are accounted for correctly, including where they are used for private purposes.
To get your tax right for the use of your assets:
- only claim deductions against your business income for expenses associated with the business use of your assets. You need to work out the portion spent
on private use and exclude this from your calculation;
- make sure you meet your tax obligations, including private company benefits and fringe benefits tax (FBT), which may apply when you provide benefits
to your employees, shareholders or associates;
- review your treatment of these assets each year, as your circumstances may change. If you have started using an asset for private purposes, you need
to start apportioning your expenses accordingly;
- keep proper records for your business that can explain all transactions, including payments to and receipts from employees, shareholders and associates;
- Inform us or the ATO how you’re using your assets so to correctly apportion the relevant income and deductions.
You can’t claim a deduction against your business income for expenses associated with an asset that has been used entirely for private purposes.
Example 1: Claiming deductions
A tavern operator purchased a boat for two million dollars and claimed it was purchased by the company with the intention of offering boat charters to
patrons of the tavern.
The business claimed large deductions for expenses associated with chartering and maintaining the boat, however they also reported minimal income.
This attracted ATO attention and when a review was conducted it was discovered that the:
- tavern was sold soon after the boat was purchased;
- boat was never insured to legally operate as a commercial vessel and didn’t meet specifications required to gain the appropriate insurance cover;
- boat was used as a home office for the director and for other private purposes.
The ATO determined the boat was not used in the business, but rather for the private use of the director. The deductions were disallowed, and the client
was required to pay the tax shortfall, with interest and penalties.
If your expenses are for both business and private use, you can only claim a deduction for the business-related portion. You need to work out the percentage
that relates to your business use.
Example 2: Apportioning deductions
A director claimed an aircraft was purchased by their business for the purpose of expanding into regional areas of the state and to provide chartered flights
to the public.
Over several financial years, the company’s accountant claimed ongoing large deductions for expenses associated with the cost of hiring out the plane.
However, there was minimal, or no income generated by business activities linked to the aircraft.
The tax outcomes related to this asset attracted ATO attention and a review was conducted. The review found that the:
- relationship couldn’t be established between use of the aircraft and expansion of the business;
- company stopped offering chartered flights soon after the aircraft was purchased as it didn’t meet legal requirements to operate commercially;
- aircraft was predominately unavailable for hire to the public;
- majority of flight hours were undertaken by the director and were of a private nature.
The ATO determined the overall use of the aircraft was a private pursuit, with limited periods of business use through chartered flights. The company’s
tax returns were amended to reduce the amount of deductions claimed, by apportioning and removing the private component of the expenses. The company
was required to pay the tax shortfall and interest as well as penalties.
A deemed dividend may arise when you purchase an asset through your company, and it’s used for private purposes by a shareholder or their associate.
Both the company and recipient of the dividend must record these on their tax returns.
Example 3: Private company benefits – Division 7A deemed dividend
A director who operated a consulting business claimed they personally competed in a racing network. The company purchased vehicles and claimed over a million
dollars in deductions for racing activities over several financial years. They stated the vehicles and activities were used for advertising and to
further their business income.
This behaviour attracted ATO attention and a review was made of the business. The review found:
- there were some vehicle and racing expenses associated with running the business; however, the scale of these expenses was disproportionate in comparison
to business income;
- the company’s business plan, client base and use of the vehicles were not sufficient to justify that the racing costs were an expense incurred to build
a client base;
- the vehicles were owned by the company but stored and used privately by the director;
The ATO determined the company was claiming deductions for a private pursuit and not for the purpose of furthering the consulting business.
As a result, the deductions claimed for racing expenses were disallowed and the company had to pay the tax shortfall, as well as interest and penalties.
The private use of the racing vehicles was treated as a deemed dividend on the basis that the company had provided assets for the personal benefit of the
director who was a shareholder. The director was required to include the deemed dividend in their assessable income. Their personal tax returns were
amended, and they had to pay the tax shortfall, interest and penalties.
An FBT liability may arise when a business purchases an asset that is used by an employee or associate of an employee for personal purposes.
Both the business and the employee must report these correctly.
Example 4: FBT liability
A property company claimed deductions for a boat on the basis that it was used for marketing the company. Large deductions were claimed relating to running
The ATO reviewed the arrangements and discovered the boat was used by the director and other employees for private trips, and to host parties for people
who had paid to attend the company’s property seminars.
When looking at the overall business activities, it was determined the director had purchased the boat primarily for their own private use. As a result,
the ATO disallowed the deductions and the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an
FBT return and pay the resulting FBT liability, as well as the income tax shortfall, interest and penalties.
Fringe benefits tax (FBT) is payable on certain benefits you provide to your employees or their associates. These benefits are in addition to, or part of, your employees’ salary or wages package.
FBT is separate from income tax and is calculated on the taxable value of the benefits provided to employees.
Examples include providing your employee (or someone close to them) with:
- vehicles for private use
- holiday accommodation
- concert tickets
Some benefits are exempt or receive concessional treatment, so it’s good to brush up on what benefits attract FBT.
The FBT year ends on 31 March.
If you’ve provided any fringe benefits since 1 April 2018, you need to:
- calculate your fringe benefits taxable amounts;
- lodge and pay your FBT return by 21 May (or lodgment may be later if you use a tax agent).
Of course, we can assist or arrange help in this area. Removing tax deductibility of non-compliant payments.
From 1 July 2019, employers can only claim deductions for payments you make to workers (employees or contractors) where they have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.
If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:
- Withhold the amount from the payment before you pay it;
- Report the amount to the ATO.
Any payments you make where you haven’t withheld or reported the PAYG tax are called non-compliant payments. You won’t be able to claim a deduction if
you don’t withhold any PAYG tax or report the PAYG tax to the ATO. If you make a mistake and withhold or report an incorrect amount, you will not lose
You can only claim a deduction for the following payments if you comply with the PAYG withholding rules:
- Salary, wages, commissions, bonuses or allowance to an employee
- Directors’ fees
- To a religious practitioner
- Under a labour hire arrangement
- For a supply of services (except from supplies of goods and real property) where the contractor has not provided you with their ABN.
A non-cash benefit is something you provide instead of paying cash, for example goods or services. In this case, you still need to report the PAYG tax to the ATO in order for this to be classified as a compliant payment and allow you to claim a deduction.
If you withhold an incorrect amount by mistake, you won’t lose your deduction. To minimise any penalties, you can correct your mistake by lodging a voluntary
disclosure in the approved form.
If you withheld the correct amount but made a mistake when reporting it, you won’t lose your deduction. You should correct your mistake as soon as possible.
If you should have withheld PAYG tax from a payment but didn’t, you will lose your deduction for that payment, unless you voluntarily tell the ATO before
they inform you of the commencement of an audit or other compliance activity. You can do this by making a voluntary disclosure in the approved form.
If you withheld PAYG tax from a payment but didn’t report the amount to the ATO at all, you will lose your deduction for the payment unless you report
the amount to the ATO before they tell you they have commenced an audit or other compliance activity.
If you haven’t yet lodged your activity statement, you should do so as soon as possible.
The ATO may also charge you penalties for failing to withhold an amount from a payment or failing to report the amount to them.
There may be a situation where you honestly believe your employee is acting as a contractor, so you don’t withhold PAYG tax form their payments as they have provided you with their ABN.
In this instance, although you have made a mistake and not withheld PAYG tax from payments you made to your employee, you won’t lose your deduction for
their payments because you complied with the withholding obligations for a contractor.
You can correct your mistake by lodging a voluntary disclosure in the approved form.
If you don’t comply with your PAYG withholding and reporting obligations for a payment you:
- Will lose your deduction for that payment;
- May face existing penalties that apply for failure to withhold and report amounts under the PAYG withholding system.
The ATO has warned it will be increasing enforcement activity in the lead up to 30 June 2019 and will visit 4,000 companies to conduct black economy checks.
In February, the ATO updated benchmark data for more than 100 industries, based on data from more than 1.5 million small businesses.
The benchmarks are used by the ATO’s automated systems to detect abnormal business activity, which may be evidence of fraud or other forms of non-compliance
with tax law.
Firms which fall too far outside of the benchmark data for their industry could be flagged for further investigation by the tax office.
In its media release the ATO said the benchmarks will help firms “swim between the flags”.
“We want small businesses to stay afloat, so our benchmarks are a great way to ensure your business is viable, competitive and not at risk of venturing
into rough water,” assistant commissioner Peter Holt said in a statement.
“Think of the benchmarks like the red and yellow flags on the beach. If you stay between the flags, you’ll be less likely to attract our attention.”
The retail, accommodation, building and manufacturing benchmarks have been updated, among many others.
It should be borne in mind that small business benchmarks are just a guide to help you compare your business’s performance against similar businesses in
the same industry.
While we agree that they are accurate benchmarks, there are on occasion good reasons a business with multiple functions docs doesn’t sit conveniently within
these benchmarks. In these circumstances it is very important to document the reasons benchmarks may not be fully applicable supporting this by complete,
accurate business data.
According to Mr Holt:
- The ATO will be visiting businesses around Australia as part of their work to protect honest businesses from unfair competition by addressing black
- ATO staff will be talking to local businesses to understand how they operate and identify any issues where help is required.
- For businesses that are genuinely trying to do the right thing, the ATO will be providing education and assistance to help them get back on track.
The visits can help identify who needs extra support to make it easier for them to comply.
- The ATO also has 10,000 visits scheduled for the financial year 2019-20. SMEs which report minimal profit while a business owner “seems to be maintaining
a lifestyle far exceeding their personal income will always attract ATO attention.”
- The black economy is estimated to be costing the community as much as $50 billion, which is approximately three per cent of Gross Domestic Product.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.