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Common Triggers for Tax Fraud Investigations and the Possible Penalties

In Western Australia, tax fraud charges are rarely the result of a small bookkeeping error. In most cases, matters escalate after long and intricate audits that reveal discrepancies, irregularities and a potentially dishonest intent.

Understanding what triggers an investigation can help individuals and business owners assess their own risk and seek legal advice if concerns arise. Below, we’ve explained seven of the most common “red flags” that lead to criminal tax fraud prosecutions.

For more information or to discuss your situation, book a free consultation with Chambers Legal.

1. Significant Undeclared Income

The failure to declare income, especially when amounts are substantial or ongoing, is perhaps the most common trigger of tax investigations.

Undeclared income could take the form of cash heavy businesses failing to report their earnings or offshore income being left out of tax reporting. Other examples include omitting investment income from returns or failing to disclose side income.

The ATO has access to complex data matching systems and will compare bank records with employer reports and other documentation. Should income appear inconsistent with lodged returns, further investigation will be initiated.

2. False or Inflated Deductions

Claiming illegitimate or excessive tax deductions can also lead to prosecution. Common examples include claiming personal costs as business expenses, submitting false invoices or receipts and claiming deductions for a service never provided.

Many instances of false or inflated deductions are simply mistakes, but if the incident appears to be intentional, the matter will likely be referred for prosecution under fraud laws, which carry significant penalties.

3. GST and BAS Irregularities

Inconsistencies in a Business Activity Statement (BAS) is another common trigger for prosecution. “Inconsistencies” could include wrongly claiming GST refunds or submitting BAS statements with falsified figures.

Particular scrutiny is given to large or repeated GST refund claims, especially if there is no genuine business activity supporting them. Due to the impact it has on the government, there is a higher than average sentence for GST related tax fraud.

4. Using False Identities or Documentation

Having multiple TFNs or altered financial documents that conceal income will significantly increase the likelihood of prosecution.

Criminal punishments, rather than administrative, are common for this type of tax fraud. That is because courts treat the planning and dishonesty associated with false documentation as an aggravating factor.

5. Patterns of Non-Compliance

A single irregularity rarely leads to prosecution. Repeated non-lodgement, discrepancies or warnings, however, can elevate a matter. When deciding whether to escalate to an investigation, the ATO will consider:

  • Whether previous audits identified similar issues

  • If the person or entity has ignored previous compliance notices

  • If the person or entity has failed to engage with the ATO during reviews

  • If the person or entity has continued their conduct after being warned

If the ATO believes there has been a sustained and deliberate pattern of non-compliance, they will refer the matter to prosecutors.

6. Third Party Tip Offs and Whistleblowers

Tax fraud investigations aren’t always initiated by ATO audits and assessments. They can also be triggered by reports from employees or partners, competitors and financial institutions.

The ATO places high value on these tip offs, especially when supporting documentation is provided. They can trigger a more intense audit or criminal investigation.

7. Data Matching and Technology

The ATO has access to advanced data analytics and can cross reference information from:

  • Banks

  • Employers

  • Centrelink

  • Property transactions

  • Online marketplaces

  • Other sources

Further investigation will be deemed necessary f an audit reveals inconsistencies between reported income and external data.

How Chambers Legal Can Help

If you have been contacted by the ATO about potential fraud, it is critical you speak with a criminal defence lawyer as soon as possible. Experienced representation will help you understand your legal exposure and explore whether the matter can be handled administratively.

At Chambers Legal, we assist clients through each stage of the process. Our team will review the evidence and communicate with investigators on your behalf. Should the case proceed to court, we will prepare a strategic and calculated defence.

Importantly, we understand the mental and emotional toll of facing a criminal charge. To best support you throughout the process, we stick to values of transparency and integrity – all legal advice is provided in writing and paired with proper cost notice.

Tax fraud prosecutions are serious, but with strong representation and a clear understanding of the evidence, you can have a significant affect on the outcome.

Speak to a Tax Fraud Lawyer in Perth

If you are facing a tax fraud allegation, do not delay in contacting a lawyer. Chambers Legal will help you understand your rights and respond appropriately as we work toward achieving the best possible outcome.

Book a free, 15 minute phone consultation to discuss your circumstances and protect your position.

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