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  • Tax planning vs tax avoidance

    The difference between tax planning and tax avoidance largely comes down to intent. Tax planning is organising your clients’ tax affairs in the most tax effective way within the intent of the law. In contrast, tax avoidance schemes involve the deliberate exploitation of the tax system.

    Schemes are designed to avoid tax, eroding the integrity of the tax and super systems. We take them seriously. They attract our scrutiny to determine whether or not they are within the law.

    See also:

    Our risk management approach

    Our risk treatments are tailored and proportionate to the level of assessed risk and the conduct of those involved.

    A low risk approach may focus on review and education only. Whereas in contrast, a high risk approach may include comprehensive audit or civil investigation actions.

    We may also make an application to the Federal Court seeking to impose penalties under the Promoter Penalty legislation to treat the most aggressive promoters to maintain the integrity of the tax and super systems and ensure community confidence in the treatment of these arrangements.

    Identifying tax avoidance schemes

    As a result of our focus on tax avoidance arrangements over the past ten years we’ve identified a range of recurring themes or behaviours in high risk arrangements.

    These are:

    • aggressive marketing of tax services
    • aggressive marketing of tax products
    • contingency fees impeding objectivity of advice - eg. a fee agreement where the taxpayer has little or no upfront expenses and no payment to the adviser is required unless and until the taxpaying entity obtains or retains a tax benefit.
    • percentage fees impeding objectivity of advice - eg. a fee agreement where the taxpayer pays the adviser a percentage of the tax benefit/refund where a more aggressive tax stance may provide an additional upside potential payment.
    • value billing linking the price of the product to its perceived value to your client rather than the cost or ordinary charges relating to the provision of the service.
    • promoters ineffectively using disclaimers in their marketing - eg. qualifying their claims in an attempt to distance themselves from perceived or real culpability (you should seek advice) but without realistic expectations of participants actually following up.
    • misrepresenting facts in private binding and product ruling applications - eg
      • incomplete or deliberate vaguely worded applications
      • using third party private binding rulings ‘after-the-fact’ to fit the events, stating facts to match the ruling so there is a difference between form and substance, that is, what is said and what is reality
    • misuse of ATO advice – eg in an attempt to deflect or defeat the regulator or communities’ identification of a scheme promoter’s role or activities in a tax avoidance arrangement; the deliberate action taken to twist the interpretation of ATO products such as taxpayer alerts, website content, or targeted mailouts to suspected scheme participants to achieve this outcome
    • mistaking a position as reasonably arguable – eg contending an aggressive interpretation of the law or excessive 'blue sky' projections that may indicate non-commercial performance or low/no risk outcomes
    • Incorrect implementation of product ruling arrangements
      • selective application or material variation of the elements in a product's design
      • expanding the range of the product outside the parameters of the ruling (scope creep).
    Last modified: 13 Sep 2016QC 50067