Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
12 July 2012
A lot of people love 'tax time'. If you're expecting a tax refund, it can be a race to lodge your return as quickly as possible after the end of the financial year so you can buy that new laptop you've had your eye on, or pay for a family holiday.
If you've entered into a legal tax planning arrangement, this can definitely help to maximise your refund or minimise the tax you need to pay. But what if you're having doubts that the arrangement you entered into is actually 100% legitimate. It's that nagging feeling that you should have looked into things a bit more before signing on the dotted line; that it all sounds too good to be true.
Your boss tells you what happened to Leo, his brother. Leo invested in a complex arrangement from a seemingly reputable company, on the recommendation of a friend. As an experienced investor, Leo didn't think he needed to get independent advice. He was wrong, and he ended up with a big tax bill when the arrangement turned out to be a tax avoidance scheme.
And what about your hairdresser, Donna, who was told she could claim a large amount on her tax return as a deduction for donation of goods to charity, even though she'd only actually paid 10% of the amount. As a committed philanthropist, Donna just wanted to help the cause. However, she found herself involved in a tax avoidance scheme and ended up having to pay back a lot of money to the ATO.
If you're uncertain that an arrangement you're involved in is legal tax planning, it's much better to check things out before lodging your tax return.
And if it does turn out the arrangement you're in is a tax avoidance scheme and this will affect returns you've lodged in prior years, you can voluntarily disclose this information to the ATO. You'll still have to pay the tax you owe, but you can reduce any penalties that are imposed.
The ATO's guide Investigating tax-effective arrangements describes common types of tax avoidance schemes, to help you recognise them. The guide has been recently updated to include more schemes and case studies, such as those involving charity donation schemes, retail financial products and 'mortgage management' arrangements. It also describes a number of schemes that are targeted to businesses and self-managed superannuation funds.
The guide outlines what to do if you suspect you are involved in a tax scheme, including how to complete a voluntary disclosure to the ATO. Don't end up in the same situation as Leo or Donna. If you are having any doubts about an arrangement you're involved in, or you want to check things out before you get involved in something, it's definitely worth the read.
For more articles on the difference between legal tax planning and tax avoidance, see:
Last Modified: Thursday, 12 July 2012