Taxation Law - Some Traps and Pitfalls with Taxation Interviews

The subject matter of taxation is information and where information is not provided or is coloured this amounts to making a false statement. Various parts of taxation law address these issues and more particularly the Taxation Administration Act 1953. The problem always becomes whether a statement is true or false, and if true there is no issue. Where false then penalties are imposed. Statements or declarations are made each and every time something is submitted to the Tax Office. If it is false then it will involve deception in either the obtaining of or the attempt to obtain a benefit by deception. Every time a taxpayer is interviewed by the Tax Office irrespective of the medium adopted they are making statements and in many cases making admissions. In other words a taxpayer is at risk either deliberately or inadvertently because of something they have said or something which has been misconstrued in what they have said.

Butterworths Australian Legal Dictionary 1997 states:

“Statement. An oral or written declaration, allegation or assertion of matters of fact ….” The same author defines an admission as “a confession or acknowledgement ….”

Criminal Law. A previous representation made by a party to a proceeding which is adverse to the interests of the person in the outcome of the proceedings: ….... Where an admission and a qualification are inextricably bound together a court must either accept or reject the whole of the material : Gardner v Duve (1978) 19ALR695 …… Conduct may also constitute an admission : Chamberlain v R (No2) (1984) 153CLR521:51ALR225 …..”

It should always be borne in mind that at some stage during the course of a taxpayer’s life they may be called upon to explain their circumstances to the Tax Office. Where this involves minor amounts or adjustments there is normally no harm done but where circumstances indicate that an enquiry or an informal meeting may become something more then the taxpayer needs to ensure that they are properly represented otherwise they may end up making statements or admissions which may be used against them. Where the taxpayer realizes they are tax non-compliant and that this may involve fraud or evasion then they cannot afford to attend any interview without proper legal representation from a full-time tax lawyer. Accountants are not equipped to deal with this environment as they have no understanding of evidence and they cannot offer the protection of legal professional privilege as the accountant’s concession granted by the ATO is struck down in these cases.

To put matters simply there are questions, there are answers and there are admissions. One of the most dangerous forms of questions is a leading question being where a question is put to a person that either directly or indirectly suggests a particular answer to the questions or assumes the existence of a fact which is either in dispute or may be called into dispute about which there is no other evidence in existence at that time. In other words the taxpayer may be asked a question which is against the taxpayer’s interest or which incriminates the individual. The problem with leading questions is they usually imply an assumption on the part of the questioner which they are seeking to have the interviewee adopt. A simple example is:

Q:    I notice that you spend a fair amount of time overseas?

A:    Yes.

Q:    I notice that you spend a fair amount of time going to Bermuda?

A:    Yes.

Q:    I understand that you have met X at a number of race days whilst in Bermuda?

A:    Yes.

Q:    How many times have you met X in Bermuda, who is a well-known promoter of tax exploitation schemes?

A:    About 15 times over the last five years.

Q:    I understand that you’ve been to his office on multiple occasions?

A:    Yes.

Q:    So what you’re really saying to me is that you’re a client of X and that you’ve been to his office on a number of occasions which clearly indicates to me that you’re involved in some form of offshore arrangement?

A:    Yes.

Q:    I understand these offshore arrangements involve a number of companies and trusts and that you have not been declaring all income derived from this source on your Australian income tax returns?

And so it goes on. Whenever questions of this particular type are asked the client is always in jeopardy as these questions lead to answers and in many cases to admissions which are self-incriminating. One of the biggest problems with leading questions is that they can be perceived as highly suggestive of the answer which the interviewer is trying to obtain and in many cases suggest issues to the interviewee which might not otherwise have been arisen had the taxpayer been properly and competently represented at the interview. The message is clear. Where you are involved in any form of taxation dispute which requires you to attend for interview and it is likely that it will be recorded always make sure you are represented. For competent professional taxation advice and representation call Frank Egan of LAC Lawyers on (02) 9904 6800.