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  • Video transcript – Recognising tax avoidance schemes

    This transcript is for the video Recognising tax avoidance schemesExternal Link – presented by Paul Clitheroe.

    So it’s great to hear you’ve had a successful year. But, you’re obviously up for a fair bit of tax to pay. That’s where we can help you. As you saw in our prospectus, we’re offering an investment opportunity that takes advantage of the mining boom. Many wealthy people are jumping on board. Look, the way we’ve set this up, you only have to put down ten percent of the investment now, but you can claim a hundred percent of the costs involved in the first year as a deduction.

    What you’re seeing here is a promoter pushing what’s known as a tax avoidance scheme. And the trouble is tax schemes are not legal. That’s because they are all about avoiding tax. They’re not really about investment at all. You’ll almost certainly won’t get the big tax deduction you’re promised. In fact, you’re likely to get hit with a big tax bill for the tax you were trying to avoid, plus significant penalties and interest. You’ll probably also lose your initial investment.

    For example, put $20,000 into a scheme like this, and it could end up costing you $80,000 in back taxes, penalties and interest. All up $100,000 gone.

    Here’s some more tell-tale signs. See if you can pick them.

    So here is what happens. We make you a partner in a mining exploration lease arrangement. Big capital gains to be made and guaranteed returns. All of this with zero risk.

    Okay. Two classic clangers right there. Firstly, you can be absolutely sure the returns are not guaranteed, and secondly, believe me, there is risk, and lots of it.

    We’re actually able to take advantage of a loophole we’ve recently discovered in the tax act. For obvious reasons I’ll need you to keep this to yourself. And we need to act fast. Because of that, I’m going to ask you to sign some paper work. Now this is a document about funding the investment with a loan. Look it’s a non-recourse loan and you probably won’t even have to repay it.

    Look, this really is classic salesmanship. Trying to give an impression of exclusivity and urgency to make you act now without getting any external advice. And anyone who tells you the contents of what you’re signing are not important, is really trying one on.

    So your money moves from this point, through here, here and here and ends up here. Which this diagram clearly shows.

    Clear? You have got to be joking. This scheme is as clear as mud. It’s deliberately complex and confusing. These promoters rely on people pretending to understand what are often incomprehensible schemes.

    Now look. I am all for legitimately reducing your tax. But the trouble is, even for experienced and sophisticated investors, it can be really difficult to realise you’re getting sucked into a tax avoidance scheme. Tax schemes and their promoters can look and sound very professional, can have very slick marketing material, they can advertise in respectable publications and they can spin a very convincing story.

    So, here are my tips.

    Always seek independent advice from someone not connected in any way to the scheme. Your registered tax agent or the ATO are good starting points. The ATO can even tell you if they’ve reviewed the arrangement and whether the promised tax benefits area actually available. Investment in tax arrangements that seem to be set up with the sole purpose of obtaining a tax benefit, deferring income or hiding income, should also ring warning bells.

    If you think you are caught up in an illegal tax scheme or you’ve been approached by a scheme promoter contact the ATO right away. If you’ve got any doubts, act. Getting the right advice can save you a lot of trouble, and believe me, a heap of money.

      Last modified: 07 Oct 2016QC 50274