Australian Taxation Office
15-Oct-2020 By - team

Is not paying taxes a reason for jail time in Australia?

In Australia, you can go to jail for lodging incorrect tax returns or incorrect business activity statements with the Australian Taxation Office (ATO). Tax fraud is a serious criminal offence that carries a maximum penalty of 10 years imprisonment.

Ignorance of the law is not a defence. Neither is failing to get proper legal advice. The law in Australia requires taxpayers to get legal advice on their tax affairs, understand their legal obligations under the law and meet their tax obligations by the required deadline.

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There are very heavy fines and penalties, including imprisonment, for failing to meet your tax obligations in Australia.

Tax law in Australia is extremely specific about what type of conduct constitutes a criminal act. The most common taxation offences provided for under Commonwealth Legislation include obtaining a financial advantage, tax fraud, conspiracy to defraud, and tax evasion. Each of these is a crime in its own right, violating a specific section of the Criminal Code Act 1995 (Cth) (‘the Act’) and thus subject to criminal investigation and prosecution.

Understanding which crime falls under which section of the Act and what penalties may be imposed on violators can help you understand the massive risk you take when engaging in any form of tax evasion or fraud. This can also help you determine if you need the assistance of a financial expert to put your affairs in order, or of a law firm to defend you against allegations of a criminal act against the Commonwealth or other taxpayers.

It may have started innocently enough. You forgot to pay your taxes for one year. Then one year turned into several years. You don’t have the money to pay what you owe, and now you’re wondering if you can go to jail for not paying taxes.

The short answer is maybe. You can go to jail for not filing your taxes. You can go to jail for lying on your return. But you can’t go to jail for not having enough money to pay your taxes. To better understand these distinctions, let’s take a closer look at when you risk jail time for failing to pay your taxes.

 

Criminal Vs. Civil Proceedings

Making an honest mistake on your tax return will not land you in prison. For that matter, the most tax liability is civil, not criminal. If you’re audited, and it turns out you owe, a civil judgement is placed against you to collect the remaining money.

You can only go to jail if criminal charges are filed against you, and you are prosecuted and sentenced in a criminal proceeding. The most common tax crimes are tax fraud and tax evasion. Tax evasion occurs when you use illegal methods to avoid taxes. Claiming more children than you have is an example of fraudulent action. Tax fraud involves an intentionally trying to deceive the IRS. This is different than a taxpayer being confused by the tax form and placing numbers in the wrong line.

 

Actions That Can Land You in Jail

The IRS much more forgives with people who can’t pay as opposed to non-filers who don’t pay. So late filing penalties are much higher than late payment penalties. The IRS will not put you in jail for not being able to pay your taxes if you file your return. The following actions will land you in jail for one to three years:

 

  • Tax Evasion: Any action taken to evade the assessment of a tax, such as filing a fraudulent return, can land you in prison for five years.
  • Failure to File a Return: Failing to file a return can land you in jail for one year, for each year you didn’t file.
  • Helping Someone Evade Taxes: Helping someone else get out of paying their taxes can carry a three to 5 year prison sentence depending on what action is alleged.

 

Statute of Limitations for Criminal Charges

If the government is going to file criminal charges against you for failing to pay your taxes, it needs to act fast. Depending on the exact nature of the alleged wrongdoing, criminal charges must be brought within three to six years of the violation.

Remember, the clock doesn’t start running until you file your return. For example, if you owe the IRS money on a 10-year past due return you never filed, you can still be criminally charged with tax evasion. However, if you filed a return 10-years ago but never paid the associated taxes, you cannot be criminally charged.

 

Can’t Pay? Consider a Payment Plan

If you owe more in taxes than you can afford to pay, you have better options than simply not paying.

  • Individual Installment Agreement: If you owe less than $50,000 in tax, interest and penalties combined, you can set up a plan that allows you to pay down over time, with regular monthly payments. If you owe more than $50,000, you can still arrange an instalment agreement, and there’s just more paperwork involved. You’ll need to provide the IRS with detailed information on your assets, such as real estate and investment accounts, as well as household expenses.
  • Offer In Compromise: This is an agreement between you and the IRS to settle your tax liability for less than the full amount owed. It’s generally not an option when the IRS thinks you can pay down your debt through a payment plan. This analysis is known as establishing your “reasonable collection potential.”

 

If you earn more than the tax-free threshold which currently stands at $18,200, you’re required to lodge a tax return. In some cases you may even be required to lodge if you earn less than that amount – we can help you determine whether you’re required to lodge, so, if you haven’t lodged a tax return, it’s not too late.

Generally, you need to lodge an income tax return every year. However, for a long list of reasons – too busy, overseas, or found that it was just too complicated – you may not have got around to it. If you haven’t lodged a tax return for a few years or you have one outstanding or overdue – no matter your reason – get up to date for peace of mind. If you don’t lodge, the ATO can apply several sanctions and penalties to force you to lodge or penalise you for lodging late. Our tax consultants can help you with your all your neglected returns, just call 13 23 25 or find your nearest office today and book an appointment.

 

What if I don’t need to lodge a tax return?

If you earned less than $18,200 and didn’t pay any tax, you may not be required to lodge a tax return. However, it’s important to submit non-lodgement advice to the ATO, which explains that you don’t need to lodge and ensures they don’t list you as having an outstanding return. Without non-lodgment advice, the ATO will assume you need to lodge and may take compliance action to force you to. We can prepare and lodge your non-lodgement advice.

 

What’s the fine if I don’t lodge a tax return?

Firstly, the ATO will issue you a Failure To Lodge (FTL) penalty if the due date doesn’t lodge your tax return. This fine is calculated at the rate of one penalty unit for each period of 28 days or part thereof that the document is overdue, up to a maximum of five penalty units. The value of a penalty unit is currently $210, which makes the maximum penalty which can be applied for an individual – $1050.

The penalty is normally applied automatically but is not normally applied to returns with either a nil result or which generate a refund. Where a penalty is applied, the ATO will sometimes remit it where it’s ‘fair and reasonable to do so,’ such as in the event of natural disaster or serious illness.

 

Are there penalties for lodging a late tax return?

Where penalties have failed to get you to lodge a return, especially where you have several years outstanding, the ATO can issue you with one or more default assessments. This is basically an estimated assessment of your income, based on data held by the ATO.

As these are estimates, they’re rarely correct and often show a higher tax liability than you would actually owe as they don’t take deductions into account. You’re able to appeal a default assessment; however, you must be able to show what your actual tax liability is. Simply arguing that the ATO’s figures aren’t correct isn’t enough.

 

Will I get prosecuted if I don’t lodge a tax return?

Even though it’s not common, the ATO can and does prosecute for failing to lodge tax returns. The maximum penalty which can be applied on prosecution is $8,500 or imprisonment for up to 12 months.

 

Will I get audited if I don’t lodge a tax return?

If you lodge late, it’s widely believed you’re at increased risk of being reviewed or audited by the ATO. If you use H&R Block to lodge your late tax returns, your tax consultant will be equipped and ready to answer questions if the ATO raise them.

 

What should I do if I haven’t lodged my tax return?

If you’ve got one or more tax returns outstanding, the ATO will catch up with you. Take preemptive measures against this and get your tax returns up to date ASAP. We make the catching-up process as painless as possible. Where there is a possibility penalties can be remitted, we’ll make a case on your behalf to the ATO.

If you have missing income information, we can often fill in the gaps by obtaining pre-filled information sent to the ATO by third parties such as banks and employers. Where you haven’t kept records of deductions, we’ll work with you to establish what you can claim.

 

Taxation Offences

The most common offences are fairly straightforward, and typically not committed by accident. However, if you think you may have inadvertently committed a crime, you should contact a lawyer directly.

If you simply misfiled a tax return, or an error was made leaving you with unpaid taxes, it may be a simple matter to resolve, with a lower chance of serious liability. Deliberate fraud or false statements, on the other hand, can lead to charges of tax evasion. Punishment under Australian law can be severe for tax fraud.

The main offences for prosecuting tax evasion are contained in sections 134.1(1), 134.2(1), 135.2(1), and 135.4(3) and (4) of the Act.

 

Section 134.1(1): Obtaining property by deception

The Commonwealth may allege an offence under this section if you used deception to obtain property belonging to a Commonwealth entity dishonestly, and that you intended to deprive the Commonwealth of that property permanently.

“Property” is generally defined as the funds owed in tax, but can also be other financial assets. In other words, failing to pay taxes by way of falsifying information in your tax return can be construed as obtaining property by deception.

In light of these considerations, the prosecution must prove beyond a reasonable doubt both that your actions were deliberately deceptive and that they resulted in your obtaining property, such as funds or financial assets that would otherwise belong to a Commonwealth entity.

property investin

 

If anyone of these elements is unproven by the prosecution, you would be found not guilty of this form of tax evasion. If you are found guilty of obtaining property by deception, the maximum sentence is ten years in prison under the act.

 

Section 134.2(1): Obtaining financial advantage by deception

The Commonwealth may allege an offence under this section if it is suspected that you used deception to obtain a financial advantage from a Commonwealth entity dishonestly.

The prosecution must prove two elements beyond a reasonable doubt first, that your actions were deliberately deceptive. Secondly, these actions resulted in you gaining a financial advantage from a Commonwealth entity. Common examples of this offence include claiming a benefit you are not entitled to for yourself or another taxpayer.

If the prosecution fails to meet the burden of proof for any of these two elements, you would be found not guilty of this form of tax evasion. However, if you are found guilty of obtaining financial advantage by deception, the maximum sentence is ten years in prison under the Act.

 

Section 135.2(1): Obtaining financial advantage

This criminal offence is an alternative to the more serious section 134.2(1) offence. It may be alleged against you if it is suspected that you obtained a financial advantage from a Commonwealth entity.

The prosecution must prove two elements beyond a reasonable doubt. First, that you knew or believed you were not eligible to receive the financial advantage. Secondly, that you deliberately engaged in conduct that resulted in obtaining a financial advantage for yourself from a Commonwealth entity.

If the prosecution fails to meet the burden of proof for any of these two elements, you would be found not guilty of this form of tax evasion. If you were found guilty of this offence, the maximum sentence is twelve months in prison. This is significantly lower than the maximum sentence of ten years imprisonment under section 134.2(1) as discussed above.

If the prosecution case for tax fraud appears to be strong, your defence lawyer is likely to attempt to have the more serious offence under section 134.2(1) withdrawn and substituted with the less serious offence under section 135.2(1). This would reduce the maximum sentence the Court can impose on you from ten years to twelve months.

Accountant At Work

 

Section 135.4(3): Conspiracy to defraud

This criminal offence may be brought if it is suspected that you conspired with another person with the intent to cause a loss to a Commonwealth entity dishonestly.

Under section 135.4, the prosecution does not have to prove that you knew that the defrauded party was a Commonwealth entity. Both you and any other offender involved in the conspiracy may share joint liability.

If you are found guilty of conspiracy to defraud, the maximum sentence is ten years in prison.

There are certain things you can do to avoid investigation by the taxation office. These include but are not limited to keeping your bank accounts in order, maintaining appropriate disclosure to authorities, and filing your taxes truthfully and in a timely manner. If you face criminal prosecution for tax evasion, the team from Russo Lawyers in Brisbane can help you deal with charges of tax evasion.

 

Can I go to jail for not paying my tax debt?

The answer is, no, you can’t go to jail just because you haven’t paid your tax debt.

But there are a couple of tax-related issues that could see you in jail. So let’s have a chat about those.

The first thing is, you could go to jail if you haven’t lodged your income tax returns, your BAS or some other tax-related document on time. The tax office can and does prosecute people for this, and I have represented a lot of people in this situation.

Usually, you couldn’t go to jail for your first offence – but if you’re a repeat offender, then it is possible that you would see the inside of a jail cell. You might be able to be released on something like a good behaviour bond or similar, which means you wouldn’t spend any time in prison. But if you don’t lodge your tax returns, then there is a potential to end up in jail.

The second kind of offence is a set of offences that are really about how you deal with the Commonwealth Government. So these can apply to things like tax, but also other things such as Centrelink payments.

There are quite a few of these offences – but they’re things like ‘obtaining a financial advantage by deception’.

Probably best illustrated with an example. A good example of this is where somebody lodges a BAS in which they claim huge GST credits for expenses that they haven’t actually incurred. The idea here is that they’re looking to get a big GST refund, but they haven’t actually spent any money on GST. So in that situation, they would be getting a financial advantage through deception.

These offences don’t come up very often – hopefully, that’s because people aren’t actually doing this very often – but they’re very serious. They’re a lot more serious than the offences for not lodging tax returns, and you’re absolutely much more likely to spend time in jail for one of these offences. So don’t do it.

So there you have it – you can’t go to jail simply because you haven’t paid a tax debt, but other tax-related issues could see you spend time in jail.

DISCLAIMER
THIS WEBSITE CONTAINS GENERAL ADVICE ONLY AND IS NOT PERSONAL FINANCIAL OR INVESTMENT ADVICE. ALSO, CHANGES IN LEGISLATION MAY OCCUR FREQUENTLY. WE RECOMMEND THAT OUR FORMAL ADVICE BE OBTAINED BEFORE ACTING ON THE BASIS OF THIS INFORMATION. INFORMATION CONTAINED HEREIN HAS BEEN SECURED FROM SOURCES EWM ACCOUNTANTS & BUSINESS ADVISORS BELIEVES ARE RELIABLE, BUT MAKE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF SUCH INFORMATION AND ACCEPT NO LIABILITY. WE SUGGEST THAT YOU CONSULT WITH A TAX ADVISOR, CPA, FINANCIAL ADVISOR, ATTORNEY, ACCOUNTANT, AND ANY OTHER PROFESSIONAL THAT CAN HELP YOU TO UNDERSTAND AND ASSESS THE RISKS ASSOCIATED WITH ANY INVESTMENT.

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