Taxation Law - Some Criminal Consequences of Tax Evasion

Although the majority of taxpayers abide by their obligations there are a number who don't. A range of penalties and sanctions which can be brought to bear including civil, administrative and criminal.  Many people think if you don't pay your tax and ignore the problem it will go away, which couldn't be further from the truth. Interestingly sometimes once fully compliant taxpayers encounter difficulties they also put their head in the sand hoping that things will sort themselves out without taking any active steps to address the problem.  Obviously there is an obligation to correctly quantity your tax and pay the appropriate amount.  These obligations extend right across the full range of taxes, whether e.g. luxury car tax, fringe benefits tax, GST, capital gains tax or income tax. 

The Commissioner of Taxation has made it clear that the ATO will do everything possible to assist those people who are trying to do the right thing but it will bring a firm hand to bear if they identify taxpayers who are trying to shirk their obligations.  The ultimate sanctions are criminal which have been historically dealt with under the Crimes Act 1914, the Commonwealth Criminal Code 1995, as amended, and the Crimes (Taxation Offences) Act 1980.    Although there are any number of criminal sanctions the most common fit under the general heading of Obtaining a Benefit by Deception.  More specifically there are three key offences:

1. Obtaining a financial advantage by deception from another person being a Commonwealth entity which carries a term of imprisonment for up to 10 years.
2. General dishonesty where a person does anything with the intention of dishonestly obtaining a gain from another person being a Commonwealth entity which carries a penalty of imprisonment for up to five years.
3. The obtaining of a financial advantage from a person from a Commonwealth entity which carries a period of imprisonment for up to 12 months.

Although there are a range of matters which are prosecuted the most common appears to relate to defrauding the Commonwealth by preparing false activity statements in order to generate a refund to which the person is not entitled.  Essentially the elements of these types of cases break down into two elements:

1. Do you understand that what you are doing is wrong?
2. Would the community consider it wrong?

Obviously where fraud or deception are involved the answers to both these questions would be yes, and any person practising these types of behaviors would urgently need to obtain expert tax advice to forestall imposition of the harshest criminal penalties. 

The reason why defrauding the Commonwealth through preparing false activity statements is so widespread is because it forms part of the self-assessment regime where these statements are generally prepared on-line and can be manipulated by persons with mischievous intent.  So far this year there have been a number of examples:

1. A Newcastle man was sentenced to three years jail for tax fraud of $111,000 and an attempted tax fraud of $228,000.   He was found guilty of one count of obtaining a financial advantage by deception and four counts of attempting to obtain a financial advantage by deception.  Judge Coolihan said "the tax system operates on a system of trust and honesty, any frauds committed the public purse are treated seriously."  The taxpayer will serve 18 months before eligible for parole. 
2. A former Sydney company director was found guilty of nine counts of defrauding the Commonwealth and three counts of attempting to illegally obtain a financial advantage.  He lodged fraudulent business activity statements based on false tax invoices and obtained refunds totaling $1,746,582.  The sentencing judge pointed out the taxpayer's actions amounted to systematic fraud such that the severity of the offence had to be reflected in sentencing so that it sent a message to the community that this sort of action will not be tolerated.  The taxpayer will serve five years before being eligible for parole.
3. A self-employed Southport businessman was sentenced to seven years jail for activity statement fraud of $722,000. He pleaded guilty to four fraud charges of defrauding the Commonwealth.  He lodged 19 fraudulent quarterly activity statements which involved falsifying invoices and internet banking records to claim refunds.  The sentencing judge described the offences as calculated and deliberate.  The taxpayer will serve 3½ years before being eligible for parole. 
4. Three South Australians were sentenced to a total of 12 years jail for tax fraud of $6.8M.  The principal offender and two associates committed 69 fraudulent activity statements claiming refunds of 30 registered business with over $4M of refunds being paid.  The principal offender will serve five years jail before being eligible for parole. The other two were treated more generously by the court.
5. An Adelaide man was jailed for two years and 10 months for tax fraud of $323,912.  He pleaded guilty to 18 counts of obtaining a financial advantage by deception and six counts of attempting to obtain a financial advantage by deception.  He lodged personal and company activity statements containing inflated GST credits to claim $233,187 in fraudulent refunds.  The judge described his behavior as sustained and deliberate offending which breached the self-assessment system.  The taxpayer will serve 12 months before being eligible for parole.

All the above matters involved dishonesty.  The term "dishonest" is defined by the Commonwealth Criminal Code as -

1. dishonest according to the standards of ordinary people; and
2. known by the defendant to be dishonest according to the standards of ordinary people.

The test is simple and is easily understood by the community and where people are involved in dishonest or fraudulent activity leading to the obtaining of a benefit by deception which involves a Commonwealth entity they need to understand that the ATO will take very firm action which will include prosecution.  Don't wait to be detected and prosecuted - mitigate the consequences of this type of behavior and seek independent expert tax advice - call Frank Egan of LAC Lawyers on (02) 9904 6800.