Compliance
Tax evasion
Tax evasion is the deliberate, illegal act of avoiding tax, for example by hiding income, falsifying records or claiming fake expenses. It is a criminal offence with severe penalties.
Tax evasion means deliberately breaking the law to pay less tax than you owe. Unlike mistakes or aggressive but lawful planning, it involves dishonesty. Typical examples include not recording cash sales, falsifying invoices, claiming GST credits for purchases that never happened, using false ABNs, hiding assets or income and paying workers off the books to avoid PAYG withholding and super.
GST is a common target for evasion because the system relies on businesses collecting tax from customers and passing it on. Examples include charging GST to customers and keeping it, claiming credits on invoices from fake suppliers, and failing to register when required in order to avoid charging GST. The ATO has data-matching systems and analytics to find unusual patterns, such as inflated refunds or turnover that does not match bank deposits.
The consequences are serious. Evasion can lead to the highest level of civil penalties, based on a high percentage of the tax shortfall, plus interest on the unpaid amounts. In addition, there are criminal offences under tax and criminal law. These can result in prosecution, fines and imprisonment. Records that were falsified or destroyed can make the penalties worse. The usual time limits for the ATO to amend assessments are extended in cases of fraud or evasion.
The ATO also works with other agencies, including law enforcement, in addressing serious financial crime. Enforcement can include freezing assets, recovering money and pursuing company directors personally. Tax practitioners who assist evasion can be investigated by the Tax Practitioners Board and may lose their registration. Taxpayers cannot excuse evasion by blaming an adviser if they knew what was happening.
Taxpayers who realise that past returns or BAS were incorrect can still take steps. A voluntary disclosure before an audit generally results in a better outcome than being discovered, although serious situations may call for legal advice before approaching the ATO. The ATO takes into account cooperation and genuine efforts to put things right.
It is helpful to distinguish evasion from avoidance and honest error. Honest mistakes made after taking reasonable care generally attract no penalty, though the tax is payable. Avoidance involves schemes that may be challenged under anti-avoidance rules. Evasion is deliberate dishonesty and is the most serious. If you are unsure about the right treatment of an item, asking for advice is always better than guessing.
This page is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered tradesperson is paid $55,000 in cash across a year and decides not to record the jobs, so no GST or income is reported. The GST on those jobs is $55,000 divided by 11, which is $5,000. If the ATO discovers the unreported sales, the business owes the $5,000 plus interest, faces a penalty at the highest rate for intentional disregard, and may face prosecution.
Practical tips
- Record all sales, including cash, and keep supporting records.
- Never claim credits without a valid tax invoice for a genuine purchase.
- If you realise past returns were wrong, get advice about a voluntary disclosure promptly.