Alerts Not Alarms

Every so often you may hear or read about something known as a "taxpayer alert" being issued by the ATO. These are early warning signals from the ATO to warn the public about areas of concern. This could include dodgy investments, fraudulent schemes or tax minimisation tactic, which could get people in trouble. Alerts will typically highlight aspects of the most worry to the ATO.

Taxpayer Alerts allow the ATO to let the general public know if there is a potential problem, or a higher risk that normal in the area of tax planning. To put more simply, it's the taxman's version of a "kangaroos next 10km" road sign.

If you google those words, it will likely take you to an ATO web page where over 100 taxpayer alerts are listed, grouped by year and dating back to 2002.

However, not every potential concern will become subject to a taxpayer alert. Nor will everything mentioned in an alert end up being a real problem. Sometimes, after further research, it may end up being of very little concern at all. If this is the case, a follow up notification will be sent to let everyone know.

The following are examples of what may lead to the trigger of an alert, or at least have some concern raised:

• Schemes involving tax havens
• No real underlying business purpose
• Passing income through a tax-exempt body - eg. a charity
• Arrangement that seem contrived
• An economic return that seems to rely largely on tax benefit
• Having mechanisms in place for exiting an arrangement before income is generated.

These alerts aren't law and shouldn't be confused with the ATO's public rulings. However, once investigations take place and considerations are made on where the ATO stands, a ruling will likely be made and distributed. On the other hand, the alert will be withdrawn if it ends up being of no concern. Either way another notification will be published.

If a subsequent tax ruling has been made or a decision reached, the alert will link to it.

If you are thinking of entering into a tax arrangement of scheme that ends up being the subject of an alert, you can ask for a formal determination from the ATO, or request private ruling on the issue. A taxpayer alert should also name the tax officer involved. Therefore, you can contact them for advice.