It seems that the Australians are also suffering from some of the tax schemes that have plagued Canada.  The Australian Tax Office notes “Examples of tax schemes Tax schemes often involve a series of complex transactions. They may also involve distorting the way funds are being used to enable you to claim deductions you are not entitled to. The following examples might not seem like tax schemes on the surface, but getting involved could be costly.
Inflated tax deductions for donation of goods to charity – A promoter may claim you can make a charitable donation and obtain a tax deduction for an amount that is significantly greater than the actual cash amount you outlay.”

Here is a link to the ATO’s website:

http://www.ato.gov.au/content/00183234.htm

Tax planning – investigate before investing
 

The fact sheet Tax planning – investigate before investing is also available to download in Portable Document Format [PDF 87 KB].
What is tax planning?

Tax planning occurs when taxpayers legally organise their tax affairs to minimise their taxation liabilities. You may receive advice about tax planning arrangements and schemes from financiers, accountants, lawyers, tax agents, financial planners and other businesses. However, some advisers and promoters will market arrangements that promise tax benefits but do not comply with the law. These arrangements are considered to be aggressive tax planning arrangements – commonly referred to as tax schemes.
How do I know if the arrangement I am interested in is a tax scheme?

It can sometimes be hard to tell the difference between a legitimate arrangement and a tax scheme. Promoters can be very good at convincing you the scheme is a good one, using professional marketing tools and attractive sales pitches offering big tax deductions or refunds. It can be difficult to tell if you are getting reliable advice.

The following are a few lines you should be wary of:

  There are no risks. We guarantee the returns.
  You don’t need credit or asset checks. We’ll lend you the money.
  Even if the investment doesn’t go ahead, you’ll still make a profit from your tax refund.
  There’s no need to ask the ATO if it’s okay.
  You can get up to 100% tax deductions.
  A top lawyer and accountant have looked at the investment and they think it’s great.
  We’ll put your money in a tax-free overseas account.
  You can run your business through your own offshore company.

No matter what a promoter says, the bottom line is if it sounds too good to be true it probably is.
Examples of tax schemes

Tax schemes often involve a series of complex transactions. They may also involve distorting the way funds are being used to enable you to claim deductions you are not entitled to.

The following examples might not seem like tax schemes on the surface, but getting involved could be costly.

  Inflated tax deductions for donation of goods to charity – A promoter may claim you can make a charitable donation and obtain a tax deduction for an amount that is significantly greater than the actual cash amount you outlay.
  Mortgage management plans – A promoter may market an arrangement as a way to ‘pay off your home loan faster’ by promising you a way to claim tax deductions equivalent to the interest payments on your home loan. Sometimes these arrangements involve refinancing your home loan and taking out further investment loans or even living in the home and renting it through a trust.
  Early access to superannuation – A promoter might promise you a way to ‘unlock’ your superannuation savings before retirement age for personal expenses. Early access to superannuation is only possible in very limited circumstances, such as specific medical conditions or severe financial hardship.

There are many other arrangements that promote tax benefits that can only be gained by exploiting the law. That is why you should investigate any tax planning arrangements you are offered to make sure the offered benefits are available under the law.
How do I investigate?

The following checklist will help you investigate an arrangement before you invest in it.

  Check the provider’s licence details – people who offer financial products and advice must work for a business that holds an Australian Financial Service Licence issued by the Australian Securities and Investment Commissions (ASIC). You can check licence details free of charge via the ASIC website.
  Check if there is a product disclosure statement or prospectus – as a potential investor you must be given one of these. If you haven’t received either, contact ASIC by email.
  Obtain independent advice from an adviser who has no connection with the seller or the investment scheme.
  Check if the scheme has an ATO product ruling – many tax-effective investments have product rulings. A product ruling provides you with a legally binding assurance that the tax benefits set out in the ruling will be available, as long as the scheme is carried out as described in the ruling. Find out more by visiting our website or by phoning us on 1800 177 006 (or ask your adviser to do this).
  Taxpayer alerts are early warnings of significant and emerging tax planning issues we are assessing. Check taxpayer alerts on our website or phone us on 1800 177 006 to find out if the scheme has any of the characteristics described in the alerts.
  Apply for a private ruling to confirm the tax effects of the arrangement. Private rulings are binding, as long as the scheme is carried out as described in the ruling. For more information on how to apply, visit our website.

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For more information you can read Understanding tax-effective investments (NAT 73759).
What are the risks of participating in a tax scheme?

You have the responsibility to declare all your assessable income and claim only the deductions and offsets you are entitled to in your annual income tax return. You need to be careful before entering into arrangements that affect your tax affairs. There are serious consequences if you enter into an arrangement that is later shown to be a tax scheme.

If you invest in a tax scheme, you are risking your original investment plus you could have to pay back any missing tax with interest and penalties long after the promoter and your money are gone.
What do I do if I am involved in a scheme?

If you believe you are involved in a tax scheme you should contact us. You can ask for an amendment to your income tax assessment. By making this voluntary disclosure you may be entitled to a reduction in penalties for any tax shortfalls.

If you have concerns about a promoter or a tax scheme, call our Schemes Hotline on 1800 177 006. You can do this anonymously.

We will investigate further and take action to stop the promoter marketing the scheme if it seems outside the law. This will help stop other taxpayers from investing in the scheme.

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More information

For more information about:

  tax planning and schemes, visit our website
  making a voluntary disclosure, refer to Voluntary disclosures – approved form (NAT 72121).

To get a printed copy of our guide Understanding tax-effective investments (NAT 73759):

  visit our website at www.ato.gov.au/investing
  phone our publications distribution service on 1300 720 092
  visit one of our shopfronts.

For financial tips and safety checks, visit the Australian Securities and Investment Commission (ASIC) website.

To help you recognise, report and protect yourself from scams, visit the Australian Competition and Consumer Commission (ACCC) SCAMwatch website.

Last Modified: Thursday, 9 June 2011

Here is another link on the ATO website:

http://www.ato.gov.au/content/74269.htm

Don’t take the bait
 
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Dodgy schemes can come back to bite you

The brochure Don’t take the bait is also available in Portable Document Format to download [PDF 263 KB].
Protecting yourself from tax schemes

Promoters of some tax planning arrangements are simply fishing for your money. Their bait is the promise of high investment returns and generous tax breaks.

Take the bait, and you could be the one that’s bitten. You could lose your money and you might have to pay back any missing tax, plus interest and penalties.

This information we provide here can help you determine whether an arrangement is genuine tax planning or a tax avoidance scheme.

Tempting bait

It can sometimes be hard to tell a good investment from a bad one. Promoters can come with convincing sales pitches, and it can be difficult to tell if you’re getting sound advice. It can be confusing, with promoters offering you big tax deductions, especially towards the end of the financial year.

These are a few lines that you should be wary of:

  ‘There are no risks. We guarantee the returns.’
  ‘You don’t need credit or asset checks. We’ll lend you the money.’
  ‘Even if the investment doesn’t go ahead, you’ll still make a profit from your tax refund.’
  ‘There’s no need to ask the Australian Taxation Office if it’s okay.’
  ‘You can get up to 100% tax deductions.’
  ‘A top lawyer or accountant has looked at the investment and they think it’s great.’
  ‘We’ll put your money in a tax-free overseas account.’
  ‘You can run your business through your own offshore company.’
  ‘Trust us, the ATO is okay with it.’
  ‘It is complex but you don’t need to understand it, we will look after everything for you.’

Types of tax schemes

Some of the arrangements you might be offered and which you should check thoroughly are:

  putting your money in an offshore tax haven
  gaining early access to your superannuation funds
  investments funded by loans that you don’t have to pay back
  claiming inflated deductions for donation of goods to charity.

There are many more arrangements that may seem legitimate. However, anything that sounds too good to be true probably is. That’s why it’s important to investigate before you invest.

The following case studies provide examples of tax schemes.
Case study – early access to superannuation benefits

In this arrangement, a promoter claims they can ‘unlock’ your superannuation (super) before you reach your retirement age.

The promoter arranges for you to roll over your super into a self-managed superannuation fund (SMSF). This might sound tempting to anyone wanting to use the money for personal expenses such as a holiday or car.

The promoter withdraws the amount from the SMSF and pays it to you minus their fee. This is a scheme because gaining early access to super is illegal (except in very limited circumstances).

Anyone entering this type of arrangement could face prosecution, pay extra tax and penalties as well as losing money to the promoter for their fee, which in some instances has been as high as 30% of the super savings.
Case study – home loan unit trust arrangement

In this example a promoter claims they can make your home loan interest payments tax deductible.

Using a unit trust the scheme promoter sets you up to borrow funds to purchase a property. You then live in the property and pay rent to the unit trust at market rates, which the trust declares as taxable income.

The trust claims associated expenses and interest charges as deductions against the rental income and you claim a tax deduction for the interest payments on the borrowing.

Seems like a win-win situation. However this is actually a tax scheme because it involves getting a tax benefit from borrowings for private expenses – your home. You would not be entitled to claim the interest payments as deductions and you risk having to pay penalties and interest.
Investigate before you invest

Before you commit to any investment, you should make sure you have answered the following questions.
Do I have an independent opinion on the investment arrangement?

You should get independent advice to make sure the investment is sound, including any potential tax savings. This is particularly important for overly complex arrangements. The person selling you the investment is not an independent adviser. Remember that because our tax system is based on self-assessment you are responsible for your tax return, even if it is prepared by your tax agent.
Does the salesperson work for a licensed business?

People who offer financial products and advice must work for a business that holds an Australian financial service licence, issued by the Australian Securities and Investments Commission (ASIC). To check licence details free with ASIC:

  visit www.moneysmart.gov.au/investing
  phone 1300 300 630.

Does the investment have a product disclosure statement or a prospectus?

As a potential investor, by law, you must be given either a product disclosure statement or a prospectus. If you don’t get a current product disclosure statement or prospectus, you should advise ASIC. To contact ASIC:

  email infoline@asic.gov.au
  phone 1300 300 630.

Has the Australian Taxation Office issued a product ruling on the arrangement?

Many tax-effective investments have an Australian Taxation Office (ATO) product ruling. A product ruling provides you with legally binding assurance that the tax deductions set out in the ruling will be available provided the arrangement is carried out as described in the product ruling. To find out if the arrangement has a ruling, contact us or an independent tax adviser.
Has the ATO issued a taxpayer alert for this arrangement?

Our alerts provide warnings about some of the tax scheme arrangements you might be offered. You can check our taxpayer alerts on our website at www.ato.gov.au/investing
Worried you’re in a tax scheme?

If you believe you’re involved in a tax scheme you should contact us on 1800 177 006. You can ask for an amendment to your income tax assessment. By making this voluntary disclosure you may be entitled to a reduction in penalties.
Reporting promoters

There are laws in place to deter promoters of tax avoidance schemes. These laws carry harsh penalties.

If you have concerns about a promoter or a tax scheme, call our Schemes Hotline anonymously on 1800 177 006.

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More information

For more information about tax schemes and how to protect yourself from unscrupulous promoters, refer to:

  Tax planning – investigate before investing (NAT 72936)
  Making tax-effective investments (NAT 73470)
  Understanding tax-effective investments (NAT 73759)
  Illegal super schemes – Beware of offers to withdraw your super early (NAT 14542)

To obtain free printed copies of our publications or for more information:

  visit our website at www.ato.gov.au/investing
  phone our publications distribution service on 1300 720 092
  visit one of our shopfronts.

You can also get other independent advice from:

  ASIC – provides information about investing and financial products, as well as posting warnings about known tax schemes and investigating unlicensed financial advisers. Visit the ASIC website at www.moneysmart.gov.au
  Australian Competition and Consumer Commission (ACCC) – provides warnings about known investment scams through the SCAMwatch website at www.scamwatch.gov.au