Whilst legitimate means exist to reduce tax obligations, private individuals may be prosecuted at the federal level for a range of illegal tax avoidance activities.
What is illegal tax evasion?
At the heart of all tax offences is depriving the Commonwealth government of funds it is entitled to.
Tax offences take many forms, from simple failures to lodge filings, to not declaring foreign-earned income. Importantly, many federal tax offences carry absolute or strict liability. As such, negligence or a lack of intention to commit the offence rarely absolve an offender of guilt.
The following legislation governs the most common tax offences:
Criminal Code Act 1995 (Cth)
s134.2 – obtaining a financial advantage by deception.
Absolute liability – no defences are available.
s135.1 – general dishonesty.
An offence is committed if a person intentionally obtains a gain, or causes a loss, at the expense of a Commonwealth body such as the Australian Taxation Office (ATO).
The above offences carry a maximum penalty of 10 years’ imprisonment.
Taxation Administration Act 1953
- Subdivision 284B – Penalties relating to statements
- These penalties largely concern misleading information provided on tax forms or in other statements to the ATO.
- Offences under this section carry administrative penalties.
- If the false information leads to a smaller tax bill than warranted, you may be liable to pay the remaining tax + up to 75% of the shortfall amount.
- If the error does not create a shortfall, a fine of up to 60 penalty units ($19,800) may be issued.
Potential defences
The ATO recognises that inadvertent errors are often made in tax filings.
Though recklessness or negligence are not necessarily defences to tax offences, a grace period exists for individuals and corporations to voluntarily file an amended tax form. No strict time period exists, though the ATO advises doing so ‘as soon as possible’.
For false or misleading statements on a tax statement, ‘failure to take reasonable care’, ‘recklessness’, and ‘intentional disregard’ are generally not valid defences. However, the ATO will consider the cause of any taxation error, and adjust penalties accordingly.
Can I be charged for an offence committed by my tax agent?
A strict set of conditions must be met for an individual to avoid penalties for false or misleading statements made on their behalf by a tax agent.
The ATO’s ‘safe harbour’ provisions state that a person will not be liable if all of the following are satisfied:
- The statement was made by your tax agent; and
- You provided your agent with all the necessary and correct information for a compliant tax filing; and
- Your agent failed to ‘take reasonable care’; and
- The statement was made on or after 1 March 2010
Importantly, ‘intentional disregard’ or ‘recklessness’ by the tax agent do not absolve an individual of liability, even if they provided the tax agent with all relevant information.
