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  • Protecting the integrity of the system

    We focus on protecting the integrity of the tax and superannuation systems from aggressive tax planning schemes, and those who criminally defraud the system or deliberately avoid their tax obligations.

    Aggressive tax planning

    We continue to see schemes which seek to allow participants to inappropriately obtain concessions or other tax benefits being marketed discreetly to relatively small client populations. We have detected a growing number of non-traditional advisors promoting these boutique schemes.

    In 2016–17, we have increased our focus on raising awareness of schemes through education programs targeted at intermediaries and a communication strategy aimed at the broader community. We do this to discourage participation in aggressive tax planning schemes.

    Our compliance program included the commencement of 11 promoter penalty reviews and two civil investigations into schemes which involved approximately 4,200 participants. As these reviews and investigations progress, we anticipate that some promotors will seek to enter into enforceable voluntary undertakings with us. Enforceable voluntary undertakings provide an enduring mechanism to protect against aggressive tax planning. Promotors agree to cease the current scheme, avoid participation in future aggressive schemes and to work with the ATO to correct the tax position of the existing participants.

    We continue to have 26 enforceable voluntary undertaking arrangements in place covering approximately 50,000 participants.

    We also resolved 341 participant audit cases. Where appropriate, we seek to assist participants to rectify their own incorrect tax position, and we wrote to a further 300 participants during the year to encourage self-correction.

    Serious financial crime

    We play a lead role in the multi-agency Serious Financial Crime Taskforce. The intent of the taskforce is to maintain integrity and community confidence in the Australian financial framework by promoting nation-wide collaboration, intelligence sharing and a whole-of-government response to serious financial crime. Other participating agencies include the Australian Federal Police, the Australian Criminal Intelligence Commission, the Australian Securities and Investments Commission and the Commonwealth Director of Public Prosecutions.

    Risk priorities for the taskforce include illegal phoenix activity, trust fraud, international tax evasion, superannuation and investment fraud, identity crime and professional facilitators who facilitate serious financial crime. In 2016–17, the taskforce raised over $258 million in liabilities and collected $126 million in cash. At 30 June 2017, there were 27 joint-agency operations in progress.

    The taskforce has had a leading role in the international investigation into what is known as the Panama Papers leak. In collaboration with international partners, the taskforce gained access to data sets which verified high-risk entities and transactions relating to Australia. Significant progress has been made by taskforce members with search warrants executed by the Australian Federal Police and Australian Criminal Intelligence Commission, as part of ongoing criminal investigations. We conducted 15 unannounced visits as part of an overt domestic response comprising of 300 audits and reviews. We have finalised 162 of these audits and reviews during the year, leaving 138 in progress at year end. A letter campaign inviting taxpayers to make direct contact has resulted in 53 taxpayers making voluntary disclosures of omitted income estimated at in excess of $40 million. Liabilities raised during the year totalled $3 million and cash collections, including some prepayments related to voluntary disclosures, totalled $4.5 million.

    In 2016–17, we commenced our participation in a joint international investigation into Swiss banking relationship managers who are alleged to have actively promoted and facilitated tax evasion in Australia, and identified a number of Australians that require further examination in respect of offshore activities.

    Illegal phoenix behaviour

    Illegal phoenix activity occurs when controllers of a company intentionally and dishonestly circumvent their obligations, including tax and superannuation. These controllers deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. Often, a new company is then established to conduct the same type of business.

    This behaviour impacts many aspects of our community – business through creditors not receiving payments for goods or services, government through lost revenue and employees through lost wages and superannuation entitlements. It also gives illegal phoenix companies an unfair advantage over honest competitors.

    As the lead agency for the Phoenix Taskforce, we work with 25 other government agencies to develop strategies and treatments to ensure we support proper business practice and take action against illegal phoenix behaviour.

    We tailor our strategies according to the level of risk we identify. Our top phoenix targets program focuses on the worst offending operators and their advisors, identified jointly by taskforce agencies. Agencies share intelligence to consolidate understanding of the phoenix-related behaviours. Our phoenix risk model, together with sophisticated data-matching tools, identifies suspected illegal phoenix operators, and helps us to monitor their activities and target our compliance activities. Litigation is also used strategically, such as appointing provisional or special purpose liquidators to stop the alienation of assets from phoenix entities and to investigate suspicious transactions.

    We focused on raising community awareness about illegal phoenix activity by helping employees, contractors, business owners and perpetrators to recognise, reject and report this behaviour. This included an advertising campaign, use of social media, media releases and improvements to our web content. These initiatives support the community to spot the warning signs of illegal phoenix activity and encourage reporting of suspicious behaviour. As a result of these communications, there was a 24% increase in referrals to the Tax Evasion Referral Centre compared to last year. The referrals are a valuable source of intelligence supporting identification of candidates for compliance action.

    Our compliance program undertook 680 reviews and audits, resulting in liabilities of $326.8 million and cash collections of $133 million, which is significantly higher than 2015–16. There was also one prosecution which resulted in a criminal conviction with a custodial sentence of five and a half years.

    In many instances, businesses undertake legitimate business-rescue activities to recover from poor business outcomes. We work with these businesses and their industry bodies to educate and advise how to comply with the law. We deployed early intervention strategies, including phone calls and letters for at-risk taxpayers who fell behind their lodgment and payment obligations.

    Organised crime

    Organised crime can involve a range of criminal activities, such as the illicit drug trade, organised fraud and money laundering. Our focus on organised crime is to help to remove the wealth from these activities and return it to the government.

    As crime groups increasingly become sophisticated global networks, we continue to combine our expertise with other agencies to address this behaviour. In 2016–17 we have contributed to joint agency taskforces focusing on outlaw motorcycle gangs and illicit tobacco.

    As a result we have successfully:

    • secured 900 lodgments of outstanding income tax returns
    • prosecuted 160 taxpayers for non-lodgment, with fines imposed of over $410,000
    • raised over $15 million in liabilities from audit activities
    • collected over $8 million in payments
    • made 15 seizures and destroyed 120 tonnes of illicit tobacco, with an estimated duty value of $90 million
    • progressed 12 illicit tobacco investigations, and
    • brought six illicit tobacco prosecutions before the courts.

    Refund fraud

    Our priority has been to detect identity crime to prevent refund fraud impacting the tax and superannuation systems. Organised crime syndicates engage in attempted refund fraud often using stolen identities.

    A range of controls and systems are in place to detect and prevent refund fraud. Analytical models are used to assess income tax returns, business activity statements and other tax forms. We share data and intelligence with our partner agencies and obtain information about suspected fraud from the community. Education and support is provided to individuals whose identity has been stolen so that they can continue to engage in the tax and superannuation systems.

    In 2016–17, we stopped over 26,500 income tax returns and denied $89.6 million in attempted fraudulent refund claims as part of our refund integrity program. We also examined more than 23,300 business activity statements, preventing $294 million of incorrect or fraudulent GST refunds from being paid out. Over 19% of businesses that had a GST refund amended or denied by us were subsequently deregistered. Where appropriate, those engaging in refund fraud are referred for consideration of criminal investigation and prosecution.


    Criminal prosecutions play an important role in helping us to maintain the integrity of the Australian tax system and ensuring people meet their tax obligations.

    During 2016–17, we completed 154 criminal investigations and referred 35 briefs of evidence to the Commonwealth Director of Public Prosecutions. Thirty people were convicted and sentenced for serious criminal matters during the year, with sentences ranging from three months to seven years imprisonment. At 30 June 2017, we had 137 criminal investigations in progress. This includes 20 fraud related criminal investigations as part of the Serious Financial Crime Taskforce. An additional seven investigations relating to proceeds of crime were also under way at 30 June 2017 as part of that taskforce.

    Using our own prosecution resources we pursued tax administration offences, including non-compliance with lodgment obligations, making false or misleading claims on ATO forms, keeping false records and failing to respond to questions when required to do so. In 2016–17, we successfully prosecuted over 1,650 individuals and 445 companies. This resulted in more than 20,000 criminal convictions, $15 million in fines, costs and reparation orders, as well as eight suspended jail sentences.

      Last modified: 30 Oct 2017QC 53692