- Knowing what to do if the Commissioner of Taxation forms a fraud or evasion opinion is no academic exercise.
- Taxpayers bear the onus of proving the Commissioner’s fraud or evasion opinion is wrong.
- The Commissioner has the power to amend assessments indefinitely and severe penalties as well as possible jail terms can be the consequences.
Recently, football superstar Lionel Messi was sentenced by a Spanish court to a 21-month sentence for taxation fraud. While he probably won’t serve a day of that sentence behind bars, especially since there’s a live possibility of an appeal at the time of writing, it is a reminder of the implications of perhaps one of the more glamorised findings that tax commissioners around the world are empowered to make.
Closer to home the Crimes Act 1914 (Cth) deems tax evasion to be a serious Commonwealth offence, punishable on conviction by imprisonment for a period of three years or more. Further, individuals and corporates that engage in tax fraud activities can be perused by the Australian Federal Police and prosecuted by the Commonwealth Director of Public Prosecutions. Finally, tax agents and lawyers who are found to be complicit in tax fraud or evasion can lose their right to practice and face hefty monetary fines (Tax Practitioners Board v Su  FCA 235).
Under the self-assessment regime, taxpayers self-assess their taxable income. Generally, the tax return is accepted and the Commissioner’s assessment of a taxpayer’s tax liability is based on the information in the return as lodged.
The Commissioner has the power to amend the assessment at the Commissioner’s discretion subject to the statutory time limits imposed by the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’), s 170. In the case of most individuals and small business taxpayers, the Commissioner is empowered to amend assessments within two years. In the case of large business, taxpayers with complex affairs, or where the Commissioner relies on the anti-avoidance provisions, the Commissioner has a four-year period in which to amend a return after the notice of assessment has been issued to the taxpayer. In circumstances where the Commissioner has formed the opinion that the taxpayer has engaged in behaviour that amounts to either ‘fraud’ or ‘evasion’ the Commissioner may amend an assessment at any time.
For a legal practitioner, understanding what is meant by the terms fraud and evasion is no academic exercise.