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A trio of labour hire operators will spend at least four years in jail after they were found to have charged clients tax before withholding it from the ATO.
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Labour hire operators face jail for $4.6m illegal phoenixing scheme
13 September 2021
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10 minute read
An investigation headed by the ATO’s Phoenix Taskforce last week saw Seng Leng Heng, the ringleader of an illegal phoenixing scheme sentenced to eight years’ jail, along with Nathan Sarinn, and Nay Chy, who were sentenced to four and five years’ respectively for their involvement in conspiring to defraud the Commonwealth of $4.6 million.
Mr Heng, Mr Sarinn, and Mr Chy were found to have created a raft of labour hire companies geared toward staffing vineyards, fruit and vegetable growers, and meat processors across South Australia and Queensland that charged clients tax that was withheld from the ATO.
The companies failed to remit goods and services tax (GST) and pay as you go (PAYG) owed to the Tax Office, despite charging their clients for GST and including PAYG figures on employee payslips.
The men were found to be withdrawing funds from as many as six entities to evade paying tax debts upon liquidation.
Audits found the men to have been responsible for withdrawing $23.1 million in cash from the entities over a 25-month period, so that by the time an entity went into liquidation, there were insufficient funds for the ATO to recover outstanding tax debts.
Once one company was wound down, according to the ATO, the men would move to establish a new company, and repeat the process all over again.
ATO assistant commissioner Ian Read welcomed the sentence, saying the act was one of blatant fraud.
“This type of behaviour is blatant fraud against the Commonwealth, and we will not tolerate it,” Mr Read said.
“Phoenixing is an intentional act that requires planning and the alleged behaviour in this case demonstrates a deliberate attempt to defraud the tax and super system.”
The trio were found to have made attempts to cover their tracks by appointing shadow directors for each of the companies, which the ATO said were borne of exploiting relationships with employees, at least three of whom were on student visas.
“Today’s result demonstrates the ATO’s commitment to detecting and prosecuting tax crimes,” Mr Read said.
“We take our responsibility to protect the tax and super systems seriously.”
The ATO’s Phoenix Taskforce chair, Will Day, said illegal phoenix activity is an economy-wide issue that costs the Australian community billions of dollars every year.
“Tax crime is not victimless. Illegal phoenix operators gain an unfair advantage by never intending to meet their financial or tax obligations, not only disadvantaging honest businesses, but the whole Australian community who do the right thing,” Mr Day said.
“The taskforce aims to disrupt the business model of phoenix operators, bring them back into the system, or remove them from the business environment and penalise them.
“The ATO’s ability to identify and quickly crack down on this type of phoenix activity will be dramatically enhanced by the introduction of Director Identification Numbers, which will be required for all new directors from 1 November.”
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