Tax return fraud: what it is and how to avoid it

Definition: what is tax return fraud?

When a business or individual gives the Australian Taxation Office (ATO) false information to obtain a more favourable tax outcome, they are committing tax return fraud. For some, it can be as simple as overstating business expenses, thus offsetting tax liabilities, but in other cases, tax return fraud can be as complex as stealing another person’s identity and attempting to collect a fraudulent return under that person’s name.

Many people joke about the fear of accidentally messing something up on their tax filing, but tax return fraud is an intentional act, and it will be met with harsh consequences.  The ATO has a responsibility to taxpayers to prevent tax return fraud to protect taxpayers across the country. If you are a victim of tax return fraud, the ATO can help.

Multiple methods: types of tax return fraud 

Tax return fraud can take many different forms. As technology changes, fraudsters have to maintain a fresh approach to tax return fraud. At a high level, the main types of tax return fraud are identity fraud, misrepresenting income or expenses, and claiming fraudulent GST refunds.

Identity fraud

Filing tax information or attempting to get a refund under the name of a different person involves identity fraud and tax fraud. Scammers who use this method can create a number of different challenges for the victim of the situation. The victim could have to answer for the fraudulent tax return, be criminally charged, and face fines or fees down the line – until the truth about the situation comes out.

Misrepresenting income/expenses

One of the more common types of tax return fraud is when individuals or businesses – both of which have to file – present false information to the ATO. This can look like understating personal income or business revenue to deflate tax liabilities. On the flip side, this type of tax return fraud can also consist of overstating business expenses or personal deductions to reduce the amount of taxes owed.

Fraudulent GST refunds

GST refund fraud occurs when someone creates a fake business, lodges a fraudulent Australian Business Number (ABN) application, and submits Business Activity Statements (BAS) to collect a GST refund. Australia recently experienced a social media-driven wave of this type of tax return fraud.

Case study: $4.6 billion in fraud

Tax refund fraud is taking a new shape thanks to social media. In 2021, the ATO fell victim to tax fraud on a massive scale. Social media campaigns convinced more than 56,000 people to register fake businesses and file fraudulent returns, all using the official MyGov account filing system.

Dubbed the “biggest tax revenue fraud…in the history of the ATO,” by the deputy commissioner, John Ford, this scandal ultimately cost the ATO $1.6 billion. When it comes to who foots the bill, Aussies are the hardest hit. To stop the rampant tax refund fraud, the ATO employed a team of 600 tax officers to review claims and clean up the mess left in the collective scam’s wake.

Taking steps: what to do if you encounter ATO refund fraud

If you have any suspicion that you or your business are victims of tax fraud, don’t take a “wait-and-see” approach. Instead, cycle through the following steps:

1.     Reach out to your tax advisor for advice and guidance.

2.     Call the ATO Identity Support Centre at 1-800-467-033.

3.     IDCARE, Australia’s national identity and cyber support service, can help you navigate what comes next. IDCARE can give you the tools and resources to monitor your personal data and ensure no further fraudulent activity occurs.

4.     Reach out to your banks, insurance providers, and even your employer to alert key institutions about your situation.

5.      Keep a close eye on your bank statements and other financial documents to make sure any fraudulent activity is caught early.

6.     Change your passwords! Email, MyGov, banking logins, and more can all lead to poor outcomes if scammers access the information in those accounts.

7.     Freeze your credit to restrict your attacker’s ability to open new lines of credit under your name. 

Here to help: working with the ATO

Whether you’ve had your identity stolen or simply need to correct information associated with your tax filing, the ATO can be a source of immense help. Although the approaches to managing tax identity theft and updating some income information will be very different, the ATO can help in many different ways.

It can help extend timelines and deadlines, making it possible for you to file a replacement return. The ATO can also reduce or void interest that was charged to you because of fraudulent tax refunds claimed by an identity thief. If you are having difficulties paying outstanding debts, work with the ATO to set up a payment plan. Finally, they can provide support to you or your tax return preparers during the audit process.

Taxpayers: refund fraud’s silent victims

On the surface, it may seem like one suspicious tax return isn’t that big of a deal. After all, it will only inconvenience the ATO, right? Wrong. False tax returns and tax fraud overextend crucial resources during tax season, but the issue goes even further.

When insufficient tax dollars are collected, the Australian public is the one who pays the biggest price. It’s private citizens and businesses – both of which are critical to the country’s economy – who have to make up the monetary gap left behind by fraudulent tax returns.

In summary

• Tax return fraud occurs when false information is provided to the Australian Taxation Office (ATO) to gain tax benefits. It ranges from overstating business expenses to tax identity theft.
• In 2021, the ATO faced a significant tax fraud incident involving over 56,000 fake businesses filing fraudulent returns.
• Victims of tax fraud should take immediate action by contacting tax advisors, the ATO Identity Support Centre, and IDCARE for assistance. Monitoring financial accounts, changing passwords, and freezing credit are crucial steps to mitigate further damage.