Here is an interesting article from the media.
I hope the ATO cracks down hard on the tax dodgers. Some of the people facing $200K to $300K tax fines and penalties might have to sell properties to pay the tax bills. Probably thousands of people in due course.
The sting that keeps on stinging
Terry McCrann
26jul05HAS this developed into the mother of all stings? Or at least as the greatest since, well, the Paul Newman-Robert Redford movie?
It’s almost as if our local tax fiend Michael Carmody borrowed the idea from one of the great FBI stings.
Run a big advertising campaign that the First National Bank for Idiots is now lending on low-doc loans. Anyone wanting to borrow a few hundred grand, but is unable or unwilling to show they have any income to actually service the loan, please apply now.
Then wait for them to troop in the door, and hit ’em with a tax audit. And watch the millions — billions? — roll in.
But wait, I forgot. The Tax Office didn’t have to do a thing. The so-called mainstream financial institutions have been falling over themselves to ‘run’ the sting themselves, ‘for’ the Tax Office.
The banks and the non-banks have all embraced so-called low-doc loans. But to varying degrees, some have ’embraced’ more than others.
In its March Financial Stability Review, the Reserve Bank noted that while the major banks had only recently entered the low-doc market, a “number of regional banks” had been “more active”.
“In the case of one regional bank, low-doc loans account for nearly 30 per cent of its outstanding (my emphasis) housing loans,” the RBA added drily.
Simply put, low-doc loans are made on limited formal financial information from the borrower, including, especially, on income. And so, ability to service the loan.
The RBA wrote they were designed mainly for the self-employed. But added, again with dry understatement, they “may also be sought by borrowers who have understated their income for tax purposes”.
So picture this: banks and other lenders — albeit to varying degree — happily pumping out low-doc loans, in the middle of a property boom and strong economy where hardly anyone ever seems to default.
It’s almost as if they were running big ads: Tax Avoiders and Evaders, do we have the home loan for you.
Whoops! The Tax Office has said thank you very much and pounced. Comparing low-doc borrowers with the incomes disclosed on their tax returns.
If they have them. Carmody’s just disclosed that of about 350 taxpayers, selected randomly from eight lenders, around 50 per cent — yes, half — had not lodged returns, and the average was three years outstanding.
The Tax Office swung into action; borrowing that dryness from the RBA, it noted that “most of this (my emphasis) group” were now “up to date”.
More than (only?) $1.3 million in tax had been raised. But Carmody added that the Tax Office was reviewing the “accuracy of the returns that have been lodged”.
That $1.3 million might not seem a big return. But consider two things: numbers and the powers of the Tax Office. And that it has really only started ‘harvesting’ its (the banks?) great sting.
Not many borrowers would probably have realised the Tax Office could effectively ask financial institutions for the names of low-doc borrowers; and then simply compare them with its own database.
They might now — so the ‘sting’ might have run its course. Except that perhaps anywhere up to 100,000 low-doc borrowers are effectively already locked in.
Locked in historically, and so those borrowers’ names are now ‘on’, so to speak, the Tax Office books.
Even if they’ve long repaid the loans and departed the specific bank’s books. The Tax Office can take its time processing them.
Here’s another — rather chillingly — dry quote from Carmody’s statement. That random selection data “was obtained using the access powers in the tax law”.
The Tax Office also has a second front — “a risk-based approach” — targeting “certain” low-doc borrowers where concealment of income was a significant concern.
These high-risk cases were identified using a range of information which led the Tax Office to zero in on clients of “certain mortgage brokers”.
A field of about 400 high-risk clients were identified, and 140 were selected for the “first round” of audit activity.
Note carefully: these cases were chosen because the broker involved was also a tax agent who had been identified as high risk from “our profiling of tax agents”.
Then, chilled and dry: “The broker/tax agent was also subject to audit.” Bottom line: $23 million in tax and penalties.
Now let’s be naughty. Let’s say — without any basis at all — that 10,000 low-doc loans prove ‘tax fruitful’. That could generate $1.5 billion to $2 billion in tax.
And this sting, unintended as it was, and with a use-by date now that it’s been made public, will nevertheless be the gift that keeps on giving.
Those pinged now will be ‘watched’ in the future. While the Tax Office has built up some very useful intelligence and profiling.
A somewhat related article in The Australian newspaper today:
“A SECRET database of suspect financial transactions by tens of thousands of Australians is being maintained by federal regulators.
The database is being shared with state and federal law enforcement agencies, privacy advocates claim. The Australian Transaction Reports and Analysis Centre (Austrac) had built a database of more than 50,000 suspect transactions in the past 10 years, they said.
While individuals were denied access to details about any suspect transaction for which they were reported, the database had been opened to an unprecedented number of government departments and agencies, the Australian Privacy Foundation warned.
Because the suspect transaction database is excluded from material available under freedom of information laws, individuals were not even allowed to find out if they had been reported for a suspect transaction, APF spokesman Nigel Waters said.
“This has really turned into a secret blacklist,” he said. “It has been building up for more than 10 years. People would be horrified if they knew just how big this blacklist has become.”
Shadow Attorney General Nicola Roxon asked whether Austrac should be forced to open its suspect transaction database to public scrutiny.
“It’s worthy of a closer look to see whether individuals should be given access to this sort of information that government has on them,” Ms Roxon said.
The Privacy Foundation is concerned that scope creep in recent years had meant data held by Austrac was now being used for purposes for which it was never intended.
Mr Waters, a member of the Austrac Privacy Advisory Committee, said Austrac had been intended as a financial intelligence unit to fight major and organised crime, with just a handful of federal agencies – including the Taxation Office, Federal Police and old National Crime Authority – allowed to access its databases online.
In recent years the number of state and federal agencies with online access to the Austrac databases had grown to 28 – including state police and anti-corruption authorities and Centrelink, according to the latest Austrac annual report. The number of suspect transactions being reported to the agency had also grown dramatically in recent years.
The 11,400 suspect transaction reports to Austrac in the 2003-04 financial year was 42 per cent higher than for the previous year.
Austrac activity had increased since 2001 as the agency was used as a tool to fight terrorist financing in addition to its existing role as government’s anti-money-laundering authority.
Under the proposed anti-money-laundering legislation, lawyers, accountants, real estate agents and jewellers will be forced to report suspicious cash transactions of more than $20,000.”
Before switching to finance, I spent 6 years in the Aust Federal Police. I was an Austrac ‘expert’ and read suspicous transaction reports daily. These are reports usually filed by banktellors, or foreign exchange office staff. They can report anything suspicious, like a customer sending money overseas and looking very nervous; someone coming in with $9800 each week to deposit etc (thinking they will not be reported).
This has nothing to do with loans, usually. But a mortgage broker, or bank officer etc could submit a suspect transaction report if htey were suspicous of the identity, or other of the client.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There is also nothing ‘SECRET’ about the AusTrac database. It has been common knowledge for many years. The funniest thing about it is that, as Terry pointed out, people seem to think it only applies to transactions of 10k or more. It actually applies to any suspicious transaction. It can be for any amount.
TMA
http://www.email4money.info
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