The ATO is cracking down hard on GST frauds after finding a large number of taxpayers falsely claiming GST refunds.

The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.

The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.

Falsely claiming a GST refund

GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office. It involves more than careless or accidental mistakes, and is undertaken in a deliberate or deceitful way.

In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.

Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.

Rules for claiming GST credits

It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.

You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.

GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.

Purchases that do not include GST in the price (such as bank fees and stamp duty), imported goods if you are not the importer, and purchases between entities within a GST group are all ineligible for GST credits.

Warning signs for GST fraud

The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The ATO has huge data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.

Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.

A key point to remember is the ATO does not offer loans or administer COVID-19 disaster payments. Advertisements offering a way to get these types of loans from the ATO by registering fake businesses are a scam.

If you are caught

The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.

If you are involved in a fake GST arrangement, the first step is to contact the ATO or your lawyer so they can assist you to work through various options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.

Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.

If you have fraudulentaly obtained a GST refund it is crucial to engage the services of tax lawyers who have a comprehensive knowledge of the laws in the area, as well as the guidelines, practices and procedures used by the ATO in making determinations regarding whether to prosecute and, if prosecuted, when to withdraw and downgrade charges.

The team at Waterhouse Lawyers is very experienced in representing clients who are suspected or charged with GST refund fraud, and will be able to provide you with expert advice and formidable representation throughout the process.