ATO warns about GST refund fraud: check your arrangements

The ATO-led Serious Financial Crime Taskforce (SFCT) has issued a warning to businesses against trying to cheat the tax and super system by committing GST fraud. While seeking ways to optimise your tax position is legitimate, it's important to steer clear of arrangements that could lead you into fraudulent territory. The recent warning highlights the dangers of related-party structuring arrangements that exploit GST rules, noting that getting caught can result in significant penalties.

Recognising the risks

The ATO has noted a worrying trend: businesses becoming entangled in sophisticated schemes that manipulate GST refund claims. These schemes involve complex arrangements between related parties, creating artificial transactions to claim high-value GST refunds. This can include false invoicing, misaligned GST accounting methods and duplicating GST credit claims for non-existent transactions.

While some business owners may unknowingly get involved in these practices, believing them to be legitimate tax strategies, the reality is that these arrangements are fraudulent. The SFCT is actively working to identify and prosecute those involved in such schemes.

Features of illegal arrangements

Understanding the characteristics of these fraudulent arrangements can help you avoid unintentional involvement. Problematic features can include:

• false invoicing: issuing invoices for goods or services not provided, or inflating invoice amounts;
• misaligned GST accounting: using different GST accounting methods within related entities to manipulate refund claims;
• duplicated GST credits: claiming GST credits multiple times for a single transaction;
• non-existent transactions: claiming GST credits for purchases or developments that never took place; and
• straw directors: using individuals to obscure the true relationships between entities.

These activities are particularly prevalent in the property and construction sectors, but the ATO says they are spreading to other industries.

Reminders to keep your business safe

The ATO has issued several reminders to help businesses avoid involvement in fraudulent activities:

• Registering for an Australian Business Number (ABN) and applying for GST refunds when you’re ineligible is fraud.
• The ATO does not offer loans or administer COVID disaster payments.
• If you're not operating a business, you don't need an ABN or to lodge a business activity statement (BAS).
• Backdating business registrations to apply for refunds is a red flag.
• False declarations can affect eligibility for other government payments.
• Sharing your myGov credentials can lead to identity theft.

Taking corrective action

If you suspect you’ve unintentionally become involved in a GST fraud scheme, it’s vital to act swiftly. The ATO encourages voluntary disclosures, which can lead to reduced penalties. Corrective actions include revising activity statements, cancelling fraudulent ABN registrations and setting up repayment arrangements.

Seeking advice from an independent tax professional can also help you ensure compliance with tax laws. Remember, if something seems too good to be true, it likely is.

Reporting and seeking help

If you have information about potential tax fraud, report it confidentially to the ATO. They take all reports seriously and offer whistleblower protections for those who come forward.

By staying informed and vigilant, you can protect your business from involvement in fraudulent schemes and contribute to a fair and equitable tax system. Maintaining the integrity of the tax system is essential for ensuring that funds are available for vital community services like healthcare and education.

Source: www.ato.gov.au/media-centre/ato-cracking-down-on-gst-fraud 
www.ato.gov.au/businesses-and-organisations/small-business-newsroom/taskforce-issues-gst-fraud-warning-to-dishonest-businesses