• GST fraudsters caught out

    Goods and services tax (GST) fraudsters are more likely than ever before to be caught out this year, as the ATO plans to increase its audits on GST refund claims by small businesses and investigate cases of serious evasion.

    As a result of the funding provided in the 2010-11 Federal Budget, the ATO will be completing an additional 11,500 cases in 2011-12 investigating the systematic or deliberate under-reporting of GST and potentially fraudulent GST refund claims. Last financial year 28 people were prosecuted for more than $17 million worth of GST-related fraud offences.

    Recent prosecutions

    • A West Australian company director received a three year jail sentence for understating cash business sales by over $5.6 million and underpaying GST obligations by $514,000.
    • A NSW man operating a cash sales clothing retail business selling counterfeit surf wear was sentenced to six-and-a-half years jail for GST and income tax fraud. He failed to disclose income of more that $3.8 million over two years, and did not pay GST of over $700,000 due during the same period.
    • A Brisbane insurance broker was sentenced to two years jail for $155,000 worth of fraudulent GST business activity statement claims.
    • A NSW man was sentenced to five years jail for fraudulently claiming more than $680,000 in diesel fuel rebates and GST refunds he was not entitled to.

    Scenario: Know your responsibilities as a director of a company

    All persons mentioned in this scenario are fictional.

    Gary had always been good at making a quick buck. Whether it was a hot tip on the horses or a quick sale of some shares, he loved the thrill of watching his bank balance grow.

    When Gary turned 50, he decided it was time to embark on a career change to boost his nest egg. He had been researching the Queensland property market extensively over the past 18 months and tipped it to boom within five years.

    Using the payout from his previous employer, he formed Gary McDougall Properties, purchased a large block adjacent to the Tweed River and went about calling in favours from some mates in the construction industry to build five free-standing townhouses on the cheap.

    Gary had sold all five properties 18 months later and was living the laid-back Queensland lifestyle.

    Realising he had found his calling, Gary replaced Gary McDougall Properties with the more aptly-named Sun, Surf, Sand Properties and found his next potential property: a run-down cottage that was zoned for re-development on the north coast.

    Over the next two years, Sun, Surf, Sand Properties kicked into overdrive, building a complex of 16 apartments with many allocated to buyers off the plan.

    Unknown to Gary, the ATO had flagged him as a taxpayer who may pose a risk of liquidating his company after reporting the property sales.

    Through an audit, the ATO uncovered that Gary had failed to pay the GST on the five townhouses developed by Gary McDougall Properties which amounted to $1.21 million. It was no surprise that the ATO set up a meeting with Gary and Sun, Surf and Sand Properties' in-house accountant, Jen.

    The case officer from the ATO advised Jen and Gary they could help themselves by voluntarily paying what Sun, Surf and San Properties owed to the ATO.

    Over the next six months, Gary and Jen met several times with the ATO and negotiated a payment plan of monthly instalments. During this time, Jen continued to lodge activity statements for Sun, Surf and Sand Properties but did not pay any GST, which increased the debt.

    At a further meeting with the ATO, Gary and Jen agreed to sell off some unencumbered apartments and paid the debt of $1.34 million in full. Because they chose to cooperate with the ATO, legal action was avoided.

      Last modified: 20 Mar 2012QC 28265