Be aware of the “taxpayer alert”
Have you ever read or heard about a “taxpayer alert” being issued by the ATO?
Taxpayer alerts are the ATO’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 ATO has been made aware of and knows will get people into trouble.
Taxpayer alerts are the mechanism by which the ATO 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.
If you do an internet search with those words, the search engine will most likely take you to an ATO web page which lists more than 100 taxpayer alert documents, grouped by year and going back to 2002.
The main purpose of these alerts is to let people know about emerging issues that are of concern, and spell out what’s under the ATO’s scrutiny (it could be a tax scheme or arrangement, or particular transaction).
The alerts should also highlight the aspects that most worry the ATO.
Not every potential concern becomes 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
Taxpayer alerts are not law or part of the ATO’s public rulings
The taxpayer alerts are not law and are also not to be confused with the ATO’s “public rulings”. But once investigations are done and consideration is made about where the ATO stands on an issue, a “ruling” or a “determination” will be made and distributed, or an alert will be withdrawn if it’s subsequently found not to be of concern to the ATO. Generally, a notification will be published either way.
Where a subsequent tax ruling has been issued or a decision has been made, the alert will have a link to that.
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 ATO or request a private ruling on the issue (although the ATO does not always have to issue a private ruling).
A taxpayer alert should also name the tax officer involved, so you can contact that officer for advice or ask us to do this for you.