• Scenario 3


    All persons mentioned in this scenario are fictional.

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    Bob runs a successful business, advising his clients how to structure their earnings in the most tax effective manner. As an accountant and lawyer, Bob is well-known and respected within the community.

    Recently a client invited Bob to a Melbourne Cup breakfast, which his client's company was sponsoring. Bob decided to attend since it would provide networking and future business opportunities.

    At the breakfast Bob got talking to Simon, the owner of a successful design firm, Simon's Simple Solutions. He also had a rural property with several racehorses. Simon said he bought his racehorses from the proceeds of his biggest design consulting job as a gift to himself. After spending $100,000 on the horses, he still made a $600,000 profit from eight months work. Simon joked that it was a pity the horses weren't tax deductible since he also faced a significant tax bill.

    Bob said he might be able help Simon with his tax problem. This was an offer Simon couldn't resist. He arranged to meet Bob later in the week to discuss his options.

    After getting the go-ahead from Simon, Bob set up an overseas design company which specialised in contract designer services, which Simon's business supposedly needed. In reality, the company provided no services and Bob was drafting false correspondence and invoices as part of his scheme to reduce Simon's tax bill.

    Unfortunately, Simon didn't know that Smart 2B Offshore, another 'advisory company' Bob had set up, was under investigation by the ATO as part of Project Wickenby - a massive crackdown on tax evasion, avoidance and fraud involving multiple government agencies.

    The ATO decided to investigate a number of Smart 2B Offshore transactions, which were made to known secrecy havens and discovered several transactions to companies controlled by Bob.

    Subsequent investigations uncovered Bob's involvement with tax avoidance schemes he had devised and promoted to a number of his wealthy Australian clients like Simon.

    A lengthy court case followed with Bob being found guilty of five counts of defrauding the Commonwealth. He was sentenced to three years imprisonment and was subsequently struck off as a legal professional and deregistered as an accountant.

    Meanwhile, Simon also found himself in hot water. He now faces tax fraud charges as well as large bills for unpaid tax, interest and penalties. Simon's reputation as an honest and diligent businessperson was damaged, and his financial position so strained he was forced to sell his racehorses.

      Last modified: 05 Jul 2011QC 23475