The Back to Back Loan Tax Evasion Scheme

In the papers recently there was a story about a tax scheme which involved overseas borrowings and artificially inflating deductions and hiding income.

This is how it might have worked.

Person X deposits $1mil in a bank offshore.

The bank then lends $1mil to Person A in Australia. The security for the loan is the term deposit.

The bank might charge 6% pa interest and there is a $60,000 payment in interest to the bank.

Person X claims a tax deduction for using the borrowed money to invest so they may save $28,200 in tax.

The bank takes a 0.3% commission or $180 and the $60,000 is then passed over to Person X who is now about $28,000 better off.


The ATO has been pursuing one family group for 14 years and will potentially recover $200 million in unpaid or avoided taxes

See a recent newspaper article:

ATO closes in on Israeli bank over tax fraud claims

ATO closes in on Israeli bank over tax fraud claims

 

Do you mean Person A is Person X?

 

Good pick up, but I think they will try to disguise it a bit!

 

Many tax schemes use round robin arrangements and the Wickenby era ones used offshore entities since it was believed that it added a leg that allowed the non-commerciality to be masked. Common features include loan agreements with different timings of cashflows and a loan back. This is why Austrac look for movements both in and out of the country and profile parties to such acts (eg How the panama law firm in the panama paper scandal was detected although this was detected by a journalist and then shared with tax authorities wikileaks style) Treaties between countries now also share data unlike ever before. Several more recent cases also involve China and its territories. The ATO and China doent have data sharing but Federal Police seem willing to ask the Chinese about illegal currency movements often masked as a business and if there is co-operation so be it. If there isnt justice could be harsh and no cost.

 

2 questions:

1) Where’s the $28,200 tax figure from?
2) The bank rebating the interest, doesn’t that make them complicit and knowingly engaging in tax evasion/theft?

 

a) 47% of $60k - don't get hung up on the figures, I just make them up
b) it probably does. that is why they are also being sued.