From viral dances to a $4.6 Billion tax scandal, TikTok has unwittingly taken centre stage in Australia’s largest case of tax fraud to date. Accountants and banks point fingers at the ATO’s prolonged inaction.
In 2021, TikTok exploded with influencers explaining how to get a “loan” from the government.
1. Obtain a MyGov ID.
2. Acquire an Australian Business Number (ABN).
3. Register this fictitious business.
4. Submit fabricated Business Activity Statements.
5. Request a 10% refund from the tax office.
The scheme’s simplicity left many wondering how it took the ATO over a year to detect.
It actually didn’t.
Banks were raising red flags to the ATO about the rising pattern of GST fraud (and freezing suspect accounts) since 2020, months before it went viral.
A bank executive reveals: “We notified the ATO, and they didn’t want anything to do with it.” Not until, several bank executives contacted the Reserve Bank informally in early 2022 to express concern about the rising fraud.
The RBA met tax officers in mid-February 2022. The ATO insists it then moved “swiftly and decisively”.
The Tax Office’s position is that it couldn’t share what it was doing because of taxpayer secrecy, but within the agency, there appears to have been disagreement over which section should handle the investigation.
“When our combined intelligence first discovered the rapidly escalating fraud attempts in early 2022, we swooped in quickly,” Deputy Commissioner Will Day, head of small business, told the Financial Review.
While fraud generally involves identity theft to provide a false name, people were committing the fraud under their own names. Once caught they were left with a huge and increasing tax debt – which means an end to any future tax returns.
“In the worst case you will go to jail,” says Day.
“One of the men with really high debt ended up having a heart attack,” the accountant says.
Since commencing Operation Protego in April 2022, $2.7 billion in fraudulent refunds and raised liabilities in the order of $1.9 billion have been reportedly stopped. This includes $300 million in penalties and interest.
And yet…
Despite the ATO’s reassurances, accountants in western Sydney warn it’s nowhere near under control.
“They keep changing [the scam],” an accountant says. “I saw more clients today that [the ATO] didn’t pick up. One guy got $50,000, then another $35,000, then another $25,000.”
“He hasn’t had to pay it back. He got this at the end of 2022. This isn’t being picked up as fraudulent activity.”
The Financial Review notes that the ATO has targeted accountants who expressed concern that the fraud was ongoing.
There’s reason to suspect the total is higher than the $4.6 billion figure the ATO is citing – as more previously unreported payouts come to light. Protego has done limited investigation of fraud claims made before 2022.
Tony Greco, the Institute of Public Accountants’ general manager for technical policy, states: “This was always going to happen, it was just a matter of time. It has exposed a vulnerability in the system I’ve been talking about for five years.”
“That’s $2 billion of wasted taxpayer money, and an easy fix that would help accountants improve the integrity of the tax system.”
Mr Greco called for a dual approach:
ATO has revealed that more than half a billion dollars have been claimed by fraudsters between July 2021 and February 2023.
The fraudsters exploited a weakness in the identification system used by the myGov online portal to hack into genuine taxpayers’ ATO accounts, redirecting tax refunds and other claims to their own bank accounts.
The technology investment boost and skills and training boost for small businesses are now law.
Small businesses can now deduct an additional 20% of the expenditure incurred for the purposes of business digital operations or digitising its operations on business expenses and depreciating assets as well as 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia.
Please be aware that Early Stage Innovation Companies (ESIC) are required to complete an Early Stage Innovation Company report if they issue new shares to one or more investors during a financial year that could lead to an investor being entitled to access the early-stage investor tax incentives. This information must be reported to the ATO 31 days into the following financial year (which is generally 31 July).
