What are the Penalties for Tax Evasion?

With the fast pace of modern life, who has time for tax returns?

Even Paul Keating claimed he was just too busy when he was caught out failing to fill in a tax return during his time as Federal Treasurer.

But tax evasion is a serious Commonwealth offence and can result in harsh penalties. Just ask Mr and Mrs Sakovits, a couple living on the Northern Beaches in Sydney.

They ended up with at least two and a half years jail time for tax evasion.

For years the pair participated in a money-laundering scheme with their accountant, who was the orchestrator of the whole affair.

Their lawyer argued in court that they were merely drafted into the scheme by the dodgy accountant who wanted to avoid tax on her own income. But this did not hold up in court.

Although not the masterminds behind the scheme, the Sakovits’ were still found guilty of tax evasion conspiracy.

They were sentenced to five years in prison each, but could be released after serving two and a half years on their own recognisance.

The judge in the case characterised their actions as a “breach of the community’s trust.”

The penalties for failing to lodge a tax return, or evading tax are harsh: since the system relies on people being honest, heavy penalties are intended to deter people from taking the risk of being caught.

The ‘incentives’ for being honest during tax time include penalties of jail time for up to 10 years, as well as heavy fines for those who aren’t.

Courts take a very serious approach to tax evasion because of the elements of dishonestly in this offence.

Courts have made it clear that people who commit tax evasion should not expect lenient treatment in court.

A criminal conviction and a failure to pay tax can have implications on future travel plans, as some countries have restrictions on visitors with criminal records, as well as your career.

Some careers, such as a career in law or accounting, may be off-limits to those who have had a serious run-in with the tax office.

There are two main offences under which tax evasion will fall:

1. Obtaining property or a financial advantage by deception belonging to a commonwealth entity
2. Conspiracy to defraud – where two or more people conspire to defraud

These two categories can include many different behaviours which all classify as tax evasion.

The Commonwealth Criminal Code outlines that a person will be guilty if they use deception to dishonestly obtain property belonging to the Commonwealth with the intention to permanently deprive them of it.

Dishonestly depriving the Commonwealth of property in order to cause a loss is punishable by five years imprisonment.

The Australian Tax Office (ATO) outlines some examples of tax evasion including:

•     Not reporting all of your income, including wages paid in cash;
•     Failure of employers to forward on tax to the ATO that has been withheld from employees wages;
•     Failure to pay employee superannuation;
•     Failure to lodge a tax return; or
•     Claiming deductions that you are not entitled to claim

It is usually going to be better to just pay up, rather than wait for the Tax Office to catch you out, which they think will be only a matter of time anyway.

Each year, the ATO recovers millions of dollars of unpaid taxes and banks are compelled to turn over the interest earnings of customers.

One way to gain the interest of the Tax Office is to make expensive purchases well beyond the means of your declared income.

The tax office even has a confidential hotline where people can dob people they know who aren’t paying their taxes.

When this service started back in 2007, it received about 120 calls per day.

As the Sakovits’ have found out, not declaring tax can be more costly than simply paying it in the first place.

It is always better to seek professional advice if you have any concerns or questions rather than just hoping the ATO never finds you.

If you are currently facing charges of tax fraud, speak to a criminal lawyer to find out your options.

Specialist lawyers who are experienced in defending and fighting against tax fraud charges will be able to ensure you receive the best possible outcome in your situation.