What makes an arrangement a tax scheme?
A tax scheme is an arrangement where the intention is to avoid or defer tax obligations. There are many different types of tax schemes, and many of these arrangements use a number of complex transactions, moving funds through several entities such as trusts. The aim is to avoid or minimise tax which would otherwise be payable.
Schemes may involve distorting the way funds are being used to incorrectly claim tax deductions or sometimes offer ways to release superannuation monies quickly.
The way an arrangement is structured can indicate whether it is a tax scheme. Arrangements with the following features will be monitored by the ATO:
• Deferring income so the tax is paid in a later period than it should be
• Not declaring income or hiding income (for example in an offshore location)
• Arrangements that are set up for the sole purpose of obtaining tax benefits and have no underlying business purpose.
• Arrangements changing private expenses into business expenses so they can be claimed against income.
• Arrangements that artificially create or inflate deductions
• Arrangements that change the nature of the income so less tax is paid, for example changing capital expenses into revenue expenses.
• Arrangements moving income to a trust or partnership for no other reason than to split the income amongst individuals in a lower tax bracket resulting in less tax being paid.
Not only can involvement in a tax scheme risk your original investment, but it may also mean having to pay increased tax along with penalties and interest. If you voluntarily tell the ATO about your involvement in a tax scheme, you may be eligible for a reduction in any penalties you incur. The tax lawyers and tax accountants at The Quinn Group can assist you in making a voluntary disclosure to the ATO and help minimise any penalties and interest you may incur. Submit an online enquiry today or phone 02 9223 9166.