Every now and then you might read or hear about a “taxpayer alert” being issued. These are the Tax Office’s “early warning” signals to the public about a certain area of concern – it could be about fraudulent schemes, or dodgy investments, or perhaps about a tax minimisation tactic that the Tax Office has been made aware of and knows will get people into trouble.
Taxpayer alerts are the mechanism by which the Tax Office lets the general public know that there could be a problem, or a higher risk than usual, in an area of tax planning. It’s the taxman’s version of those “kangaroos next 10km” road signs, or “black spot” intersection signs.
The alerts are written principally to let people know about emerging issues that are of concern, and spell out what’s under scrutiny (it could be a tax scheme or arrangement, or particular transaction). The alerts should also highlight the aspects that most worry the Tax Office.
Not every potential concern makes it to being the subject of a taxpayer alert. Nor is it the case that every item that is mentioned in an alert ends up being a real problem. Further examination can uncover a simple benign matter that is of no concern whatsoever. And if this is the case, a notification will be issued to let everyone know.
The sort of features that may lead to an alert being triggered, or at least a concern raised, will typically include:
- arrangements that seem contrived
- no real underlying business purpose
- an economic return that seems to rely largely on the tax benefit
- mechanisms in place for exiting an arrangement before income is generated
- passing income through a tax-exempt body such as a charity
- schemes involving tax havens.
The taxpayer alerts are not law and are also not to be confused with the Tax Office’s “public rulings”. But once investigations are done and consideration is made about where the Tax Office stands on an issue, a ruling or a determination will be made and distributed, or an alert will be withdrawn and we’ll be told about it.
Anyone who is thinking about entering into a scheme or tax arrangement that ends up being the subject of a taxpayer alert can ask for a formal determination from the Tax Office, or request a private ruling on the issue. A taxpayer alert should also name the tax officer involved, so you can contact that officer for advice.
You can see the current taxpayer alerts that the Tax Office has issued by searching its website. Where a subsequent tax ruling has been issued or a decision has been made, the alert will have a link to that.