Deputy commissioner Tim Dyce said while illegal schemes are usually designed to appear legitimate, even to experienced investors, there are some telltale signs to look out for.
“Tax avoidance schemes aren't always the ‘too good to be true’ types. They can be more sophisticated than many people realise,” he said.
In particular, the ATO has advised people to watch out for schemes involving complex structures and unusual financing arrangements such as round robin financing and non-recourse loans.
“If the main purpose of the arrangement is to reduce your assessable income by claiming deductions you are not entitled to, without any real investment, it is likely to be a scheme,” according to Mr Dyce.
In one case, promoters offered a ‘mortgage management plan’ promising to assist investors in repaying their home loan sooner, said the ATO. The scheme involved using the equity in their home to get additional loans for the purpose of claiming investment deductions equivalent to home loan interest payments.
It’s not just the design of the arrangement you have to look out for, but also what the promoter is promising and asking from you in return, warned the tax office.
“We often see promoters of illegal arrangements guaranteeing that their product is ‘no risk’. They’ll also encourage you to keep the arrangement a secret or discourage you from seeking independent advice,” said Mr Dyce.
The ATO encourages anyone unsure about a tax investment they have been offered to seek a second opinion from an independent and trusted tax professional.
“At the end of the day, when it all goes wrong, it will be you and not just the promoter, who will have to face the penalties,” Mr Dyce said.
The ATO has warned investors to be wary of promoters that:
• Offer zero-risk guarantees for their product
• Refer you to a particular adviser or expert. They may seek to persuade you by claiming the adviser has specific knowledge about the arrangement and the promised tax benefits
• Ask you to maintain secrecy to protect the arrangement from rival firms
• Discourage you from obtaining independent advice
• Do not have a product disclosure statement or prospectus for the product