Tax Evasion – Promoters, Participants And Professionals

Frank Egan – LAC Lawyers asked:


Currently the taxation landscape in Australia is in a state of great flux. Although legislation is constantly being updated a comprehensive review of this whole area has not been carried out. The whole area is unnecessarily complex and both the Australian Taxation Office and the courts have been left to do the best they can to provide meaningful interpretations of the law in this area. As sometimes happens there is a divergence between the two views and the ATO has come in for strident criticism as to the manner in which it has prescription medications online sought to impose its view on taxpayers contrary to the findings of both the Federal and High Courts.

Accountants are the masters of tax compliance and are the gatekeepers of the taxation system. Unfortunately the very nature of the compliance programs which are they forced to serve make life difficult for them. In recent years many firms have moved up-market into comprehensive tax planning whilst audit activity by the ATO all but dropped out of sight. As this occurred a number of promoters pushing so-called tax effective schemes including everything from tea tree oil plantations to emu farming burst onto the Australian taxation scene. Many of these promoters had either a finance or accounting background and pushed the legitimacy of their arrangements mainly to accountants and their clients.

As matters would have it both the government and the ATO realised that there was a threat to the revenue and something needed to be done. Michael Carmody, former Commissioner for Taxation, started to tighten up on audit activity as Phillip Egglishaw from Strachans increased his involvement in Australia as well as overseas. Interestingly by this time many professionals considered that the most effective form of tax planning was tax evasion given the laxity of audit activity by the ATO. A number of professionals were pushing the idea that if the taxpayer evaded their tax then at worst all they would have to do is pay part of it and tell the ATO to go away by cracking hardy and refusing to pay penalties and interest. Often this tactic worked brilliantly for the taxpayer but there has been a quantum shift which is rapidly readdressing this imbalance.

The Gerard case was a great embarrassment to both the Government and the ATO and other authorities serving the tax system. In that case the tax liability of the taxpayer was substantially compromised with the only real fallout for the taxpayer being that he lost his seat on the Reserve Bank of Australia. Whilst this matter was proceeding Phillip Egglishaw came to prominence in the Australian press when his Melbourne hotel room was raided by the Australian Crime Commission in February 2004. Various documents together with his laptop computer were seized and although the information was alleged to have been deleted or encrypted and safe from the probing eyes of the authorities approximately 97% of it has been recovered, becoming the centrepiece of the one of the most widespread and thorough taxation investigations ever mounted in this country including the infamous bottom of the harbour schemes. While all of this was going on the Ronan matter erupted. Ida and her two sons were found guilty of a $15M tax fraud. It was one of the longest most keenly fought criminal trials in New South Wales leading to a guilty verdict and the incarceration of all three even though Ida was 71 years old. Mrs Ronan was sentenced to imprisonment for 8 years 6 months from the 28th January 2005 with a non-parole period of 4 years 6 months to expire on 27th July 2009. Each of her sons was sentenced to 8 years 6 months from the 28th January 2005 with a non-parole period of 5 years 6 months to expire on the 27th July 2010. It is understood that the ignominity of their circumstances was further exacerbated by having to pay legal fees for an amount similar to their taxation liability perhaps as much as $17M.

Recently the press has covered the names of a number of individuals who are of interest to the ATO and in some cases to the authorities including Michael Brereton, a prominent Melbourne taxation lawyer; Paul Hogan; John Cornell; the Hargraves brothers and Daniel Aran Stotan, company directors of the Gold Coast; and Dale Kathleen Wright, a Brisbane divorcee claiming $210 week in government benefits after allegedly secretly depositing $1.5M in offshore accounts. We know from the press that these are not the only persons who are of concern to the Australian Taxation Office, the Australian and Federal Police and the Australian Crime Commission. The heightened prominence of these investigations and the amount of press that they are receiving is indicative of a change in sentiment by the Australian Taxation Office to ensure that all tax evaders are caught wherever possible and that tax evasion no longer remains the preferred mechanism for tax planning. The Tax Office is targeting promoters, participants and professionals. It is looking for prominent people whom it can make an example of and where appropriate refer them to the Commonwealth Director of Public Prosecutions for criminal prosecution and gaol.

What does the future hold for non-complying taxpayers who entered into arrangements via their professional advisers with promoters either in Australian or overseas through tax havens or something similar in order to minimise their tax where those arrangements are not subject to any form of foreign tax and have no underlying tax rationale which effectively legitimates them? In today’s environment the taxpayer, whether as a person, company, trust or any other structure will fall foul of Part IVA of the Anti Avoidance provisions of the ITAA1936. The consequences are serious and they involve paying the full amount of the omitted tax, penalties and interest including the confiscation of assets under the Proceeds of Crime legislation and a prison term for a substantial number of years at least similar to the Ronans or as circumstances would have it for even longer periods of time. It should not be forgotten that with taxation offences the law provides for periods of imprisonment for up to 10 years and where money laundering is involved for periods of incarceration up to 20 years. There are very few taxation advisers who have a comprehensive knowledge of tax as the vast majority of the work is serviced by accountants who mainly attend to compliance matters. Apart from this there are only a few accountants and lawyers who practice exclusively in this area and no tax accountant can offer any form of professional advice about the criminal consequences of tax evasion. As for the remainder there are very few tax lawyers who either have a comprehensive knowledge of the operation of the criminal law in this area and/or the experience which goes with dealing with the Australian Federal Police, the Australian Crime Commission and the Commonwealth Director of Public Prosecutions. The wrong advice may not only cost the taxpayer their livelihood but also their liberty.