ATO warns dodgy tax and investment schemes on the rise

Scammers with fraudulent tax and investment schemes are preying on cash-strapped Australians, promising a windfall but delivering financial ruin. Here’s how to protect yourself.

Scammers are capitalising on the cost-of-living crisis to target vulnerable Australians.

Scammers are targeting cash-strapped Australians with fraudulent tax and superannuation schemes but it’s possible to avert heartache and financial ruin if you can spot the warning signs.

Seizing on the cost-of-living crisis, scammers have been out in force via social media attempting to lure people into online tax and investment schemes that offer to help improve your financial situation.

But in reality, these arrangements are not only illegal, but in many cases can lead to substantial financial losses.

ATO acting deputy commissioner Sarah Taylor says promoters of these schemes are often opportunistic and target vulnerable people.

“Protect yourself and your money by getting advice from a registered tax practitioner before committing to anything,” Taylor said.

An example of one of the many tax schemes that has come to the attention of the ATO involves the use of a not-for-profit foundation.

The promoters advise that if you set up a not-for-profit organisation, you can divert income into this newly-created entity and avoid paying income tax. Substantial fees are charged as advisory and establishment costs and after it is done, the scammer disappears.

The ATO says: “These schemes are not effective and the individuals will still have to pay the tax on the income.”

Other schemes target super as this is an asset that most people will have tens of thousands, if not hundreds of thousands of dollars in, and is ordinarily locked away until age 60 or a retirement date is met.

Schemes that purport to show a legal but little-known way for people to access super early, can be a lucrative way for the scammers to entice victims.

ATO acting deputy commissioner Sarah Taylor.

In addition to charging above market fees to establish a SMSF, the scammers request copies of the victims’ identification documents, something they can use for a follow-up scam involving identity theft.

And to be clear, there are several legitimate ways to obtain early access to super on grounds such as financial hardship, but there is a well-defined process which starts with contacting your existing super fund.

Creating a SMSF and rolling funds into it to withdraw is not the correct way to access super early, and failing to follow the process can lead to fines, additional tax, interest and being disqualified from being a SMSF trustee.

In a variation of the early release of super scam, promoters will tap into the aspirations of young Australians wanting to enter the property market.

And given that the average time to save a deposit for a home is 10 years, there is no shortage of potential victims.

The typical ruse involves the promoter advising that you can roll your super over to a SMSF and after investing all the SMSF funds in a special property investment trust, a third-party company will lend you the same amount of money that can be used for your first home deposit.

The ATO has concerns around the sham nature of the arrangement, the provision of a current-day benefit to a super member and the potential breach of the sole purpose test.

‘‘We don’t want to see honest people lured into unlawful tax schemes with false promises of high returns and tax savings – if an offer seems too good to be true, it probably is,” says the ATO’s Taylor.

“We take targeted action against unlawful tax schemes that promote tax avoidance behaviours and against those who promote these schemes.”

Although the ATO suggests that people seek advice from a registered tax practitioner, do not take it for granted that your accountant is actually licensed to provide you with tax and accounting services that you have engaged them to do.

In 2024, one accountant was fined $1.8m for preparing 3359 tax returns without a licence while another was sentenced to five years’ jail for misleading clients by stealing and laundering about $600,000 from more than 100 clients.

Responding to tax and investment opportunities seen on social media platforms can be fraught with danger.

And back on the tax schemes, the ATO recognises that many of these schemes are originated by criminals, but they also know that there are some individuals who choose to skirt around tax laws and have identified several areas of concern.

Cash from overseas taxable income and taxable gains transferred to Australia disguised as gifts or loan repayments are on the ATO’s radar.

Large and frequent amounts are likely to make their way onto the reporting system of the ATO and if the ATO deems your overseas cash transfers to be taxable income, you will be issued with an amended notice of assessment and the money transfer amounts get taxed at your marginal tax rate, unless you can prove otherwise.

When a hobby is passed off as a business activity, the ATO is looking. For instance, an amateur photographer who purchases high-end photographic and computer equipment and then claims it in their personal tax return becomes a high audit risk if they do not display the correct indicators of running a business.

The ATO will look at things such as whether they keep business records, whether they advertise their services to the public or just to family and friends, whether there is a business plan and whether they are making a profit or loss on the purported business activity.

Responding to tax and investment opportunities seen on social media platforms can be fraught with danger. And if you find yourself already sucked into one of these schemes, speak with family, friends and seek external professional advice.

James Gerrard is principal and director of financial planning firm financialadvisor.com.au