TikTok fraud frenzy: how bad finfluencers ran rampant

Excess regulation has made good financial advice too expensive at the same time social media is awash with bad advice scams worth billions. Here are the worst ones.

Financial literacy needs to be revamped in schools as it is clear that many people are entering the adult world with little financial education.

Out of the blue we have just seen a gigantic tax fraud hit the headlines and if you are not on social media, specifically TikTok, you might have missed it.

It involves 56,000 people from all walks of life. Everyday mums and dads through to Hells Angels gang members have been part of the 100 arrests with more expected to come.

How did 56,000 people from all around the country with seemingly no connection all try to defraud the ATO of $4.3bn in the exact same manner, of which $1.6bn was actually paid out to these people? The common threat was TikTok as the platform of choice for this fraud to take hold.

From late 2020, many people who post about finance matters on social media, known as finfluencers, have promoted an easy way to “borrow” money from the Australian government without any credit checks.

If you want questionable tax advice, social media can help you out there too.

The move was simple, all you had to do was apply for an Australian Business Number and then link it to your MyGov account. From there you could start to lodge fraudulent business activity statements and receive GST refunds from the ATO. The more fake expenditure you lodged, the more cash you would receive from the ATO into your bank account within 12 days.

The average amount claimed was $77,000 and although the ATO is onto it now with Operation Protego which launched in April last year, it is amazing that in the vast majority of cases, the fraud was committed in the names of the people committing the fraud, rather than using fake identities.

This means that a good part of the 56,000 people must have believed that the TikTok advice on how to obtain an easy short-term government loan via fake GST claims was not illegal – which could result in criminal prosecution – but rather simply bending the rules in their favour.

Going down the rabbit hole of TikTok scams from finfluencers, we find a separate video that has been viewed millions of times from someone who claims to be “good at finance”. Have you ever wanted to beat the banks and pay off your 20-year mortgage in five years without increasing your repayments? Well one TikTokker says there is a simple way to do it:

“The reason banks want you to pay interest monthly is because they rely on a thing called compound interest. But if you pay the bank $1 every day you will pay a big fat zero in interest”.

To be clear, this does not work – and although paying $1 a day will reduce three months off a $500,000 mortgage over a 20 year term, it will not stop the bank from charging interest on the remaining loan balance. The debunked idea is typical of the types of sensational claims made by the worst finfluencers in an attempt to gain followers and views in the highly competitive social media scene.

Back in 2021 when the cash rate was at a record low of 0.1 per cent, TikTok was filled with videos from finfluencers saying that it would be silly to pay down your mortgage at 2 per cent interest when you can invest in property and shares and make a potential 10 per cent return.

The problem with this advice is that it did not take into account people’s individual circumstances and their ability to withstand rising interest rates. Fast forward to 2023, we have a looming issue with people who overcommitted at cheap interest rates and cannot meet the current 6 per cent rates.

I wonder how many of these people who are struggling to pay their mortgage took the advice from TikTok finfluencers to increase their level of debt back when interest rates were low?

And if you want questionable tax advice, social media can help you out there too. One video promotes a way to turn $300 into a $20,000 tax deduction. All you have to do is purchase three original artworks from a relatively unknown artist, list one online for $10,000 and get a mate to buy it (but never pay for it). Then using the last traded sale as a valuation marker for your two other pieces, you now have two $10,000 pieces of art on your hands. The last step is to donate those pieces of art to a registered charity and then claim your $20,000 donation to charity as a 100 per cent tax deduction in your next tax return. Sydney accountant Luke Star strongly discourages this approach saying: “Following this strategy is akin to asking for directions to the express line for an ATO audit.”

Then there are the people on social media who live lavish lifestyles with private jets, fast cars and Rolex watches, and all you have to do to have it as well is pay thousands for a course to learn the secrets of the sharemarket.

ASIC has been swift in taking action to clamp down on unlicensed finfluencers by changing the rules last year and requiring them to be licenced, but the problem is like whack a mole. As quick as the regulator is to shut down one scheme, another pops up.

Compounding the problem is the lack of affordability in professional financial advice which prohibits many in their 20s and 30s from getting advice unless they shell out $3500 to $5000 on average. However as the Levy financial advice review recommendations are implemented, this should help reduce the red tape that advisers face and increase the accessibility of financial advice.

Lastly, financial literacy needs to be revamped in schools as it is clear that many people are entering the adult world with little financial education and have turned to social media to learn the foundations, which has been to the peril of many who have tuned in to the wrong people.

James Gerrard is principal and director of Sydney planning firm www.financialadvisor.com.

Originally published as TikTok fraud frenzy: how bad finfluencers ran rampant