Lodging inaccurate or dishonest tax returns or business activity statements with the Australian Taxation Office is a criminal offence warranting serious penalties ranging from 1 to 10 years imprisonment and heavy fines.
If the issue is simply that you cannot afford to pay, you will not be imprisoned. However, tax fraud, also known as tax evasion, is a serious crime with the maximum penalty including a term of imprisonment. This is fraud though, which involves the illegal abuse of the tax system, rather than a simple inability to pay.
Punishment for lying on a tax return
Banney said while it might seem tempting to lie on your tax return, it came with serious consequences. “Lodging inaccurate information with the tax office is a criminal offence which can, in extreme cases, call for up to 10 years' imprisonment or hefty fines,” she said.
There are several red flags that can trigger an Australian Taxation Office (ATO) audit. These may include home office expenses, work-related travel expenses, and private health insurance claims. If you are self-employed or run a small business, it's essential to be aware of these triggers if you wish to avoid an audit.
When the ATO investigates a tax discrepancy, it seeks to determine whether fraud or tax evasion have occurred, or whether you have made an honest mistake. The ATO will look at whether you: Knowingly made false or deceptive statements. Withheld information to influence a tax outcome.
ATO Audit Time Limits
As the Australian tax system is a self-assessment system, later reviews and audits have time limits in which the ATO can backtrack: For simple income tax assessments – 2 years from the date an assessment is issued. For more complex tax assessments – 4 years from the date an assessment is issued.
What documents might the ATO seek when conducting a review? They might request lodgements or information you have made with the ATO that is the subject of its investigations, including financial statements, schedules, agreements/contracts, tax reconciliations and other source documents.
Your Australian bank account statements are accessible to the ATO. The ATO is endowed with extensive legal authority, which allows it to access your personal bank information. Because of these capabilities, the ATO is able to get your Australian bank statements straight from your financial institution.
Keep documents for at least 5 years
Most audits are conducted on the previous year's tax return, but auditors can go back to previous tax returns if they believe you have largely understated your taxable income. By keeping all your documentation from the last five years you are able to back up any claims you have made.
“Each year, the ATO contacts around 2 million people about their returns. In most cases, audits are not our first action,” Foat said. She explained that audits were triggered if the ATO found a discrepancy in your tax return, which required further review to ensure the information you had provided was accurate.
Possible Penalties
If you are found guilty of Tax Evasion, the maximum penalty is 200 penalty units or 2 years imprisonment or both. In the case of a corporation or business, the fine can be significant. However, the presiding magistrate will take a variety of circumstances into account when sentencing your case.
If you have linked the ATO to your myGov account, we will send most of your personal ATO letters directly to your myGov Inbox, rather than through the post. You will get email or SMS notifications from myGov to let you know there are new messages in your myGov Inbox. These myGov notifications will not contain links.
Odds of being audited by the IRS
Last year, 3.8 out of every 1,000 returns, or 0.38%, were audited by the IRS, according to a recent report using IRS data from Syracuse University's Transactional Records Access Clearinghouse.
For this reason, we sometimes check the accuracy of the information you give us. We do this by selecting some tax returns, activity statements and other documents for checking. If we check your affairs it does not mean we think you are dishonest. Even if we find a discrepancy we accept that mistakes can be made.
Debt may be forgiven for reasons such as if the creditor's obligation to pay the debt is waived or released, they will no longer be required to press the debtor so stringently for repayment.
We can issue a garnishee notice to a person or business that holds money for you or may hold money for you in the future. This requires them to pay your money directly to us to reduce your debt. We'll send a copy of the notice to you.
To make sure things stay on track, the ATO contacts around 2 million tax payers each year to review their tax returns, although not all of these people will be subjected to a full detailed audit.
We endeavour to complete most income tax audits within 18 months. The timeframe and scope of each audit is determined following discussions with you at the beginning of the case. This depends on the number of specific issues, level of complexity and other circumstances we encounter.
It depends – but most audits wrap up well within a year
This time limit is how long the IRS has to charge you (or, “assess”) additional taxes on the return that's being audited. The statute expires three years from the due date of the return or the date you filed it, whichever is later.
To detect Centrelink clients failing to declare assets, we match all beneficiaries against trust data from the tax return database.
Employers. Employers and other payers who make payments under the Pay As You Go (PAYG) withholding system must report to us about the payments they make. We also collect personal information relating to payments made to contractors and suppliers if they do not quote an Australian business number (ABN).
The Tax Office has launched a program aimed at drawing information from both banks and intermediaries such as PayPal and Bill Buddy to help it catch out tax cheats.
The ATO is given strong legislative powers to ensure it can fight tax evasion and fraud. The Tax Office has the power to forcibly enter a property and search for documents without a warrant. If tax officials want to take items away from the property, they need to be accompanied by police with a warrant.
We collect, hold, use and disclose personal information about: super guarantee obligations and entitlements of employers and employees. self-managed super fund members, trustees and directors of corporate trusts, so the funds can be registered, administered and regulated.
It only takes a few minutes to make a tip-off and you can remain anonymous. If you know or suspect phoenix, tax evasion or shadow economy activity report it by: completing the tip-off form (the form is also available in the Help & support section in the ATO app) phoning us on 1800 060 062.