Taxation Law - Some Aspects of Voluntary Disclosure Not Readily Understood

There are any number of letters doing the rounds of taxpayers reminding them of their taxation obligations. One area on which the Tax Office is focusing on is the cash economy and they are focusing on identifying businesses who fail to accurately record and report all their business transactions. The ATO’s approach includes data matching, preparing your turnover and tax return data to business norms, identifying industries and opportunities for cash economy activity and reviewing information provided by the general public. 

Approximately 92,000 of these letters have been despatched to various taxpayers and they indicate that, according to their records the taxpayer operates a business in an industry where there are a significant number of cash transactions and a risk that cash sales are not being properly recorded on activity statements and income tax returns. 

These letters invite the taxpayer to review their records and determine whether they have met all of their taxation obligations and should they identify any issues they invite the taxpayer to make a voluntary disclosure so they may be eligible to have their penalties substantially reduced and in some cases reduced to nil. The ATO warns that if a taxpayer disregards their advice they may be selected for audit and penalties may apply. What is never mentioned is that if there is a significant amount of tax non-compliance involving diverted or undeclared tax then there may well be a significant degree of criminality which will lead to referral following investigation by the AFP to the CDPP who will then decide whether to prosecute the taxpayer.

Essentially if a taxpayer receives this type of letter and fails to make a voluntary disclosure where their tax affairs are non-compliant then they may lose protection afforded by it allowing the ATO to maintain that any further subsequent activity by them has been obtained by audit allowing them to impose very significant financial penalties and as appropriate to refer the matter to the CDPP where the matter exhibits a significant degree of criminality. Normally these cash economy schemes are fairly simple as all that is required is for the taxpayer to take cash, not declare it and where the level of income declared falls below the benchmarks accepted by the ATO they become a person of interest who may well receive one of these letters and/or an unannounced visit from the ATO whether it be an enquiry, a review, investigation or a fully-blown audit. 

One of the things which is not well understood about making a voluntary disclosure is that taxpayers are often invited to participate in this by filling out a voluntary disclosure questionnaire which is process-driven and without the involvement of a tax professional. The problem here is that because the questionnaire requires the taxpayer to reduce matters to writing they end up making admissions which may significantly hamper their opportunity to access reduced penalties and/or to avoid the consequences of referral to the CDPP. It must be pointed out that the Tax Office is not trying to trap taxpayers as to a large extent they are extremely fair when dealing with them but as a consequence of what is involved they have to apply the law according to the spirit and the letter of it which may place certain taxpayers in significant jeopardy if they do not obtain the services of a competent tax lawyer to assist them to achieve the best possible outcome in the circumstances. 

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