How To Avoid Jail Time When It Comes To Tax


Attached is "Stay Out Of Jail Card"

There are some days (very few) in my life when I hate what I do. It does not happen very often, but when it does -- I have a heavy heart. Normally, I write my blogs with a bit of humor, but this week I am going to be a bit more serious. But read on and the advice you will get will guarantee to keep you out of jail.

We hear all kinds of horror stories about how strict the ATO is and how unreasonable they are. Some of this is true. Over the last 12 months or so, I have seen a hardening of ATO attitudes.

But let's not forget that the ATO has the right to ensure that every business pays its tax liabilities.

About a month ago, I received a call from a business owner who was being investigated by the ATO. They had  not been honest on their BAS returns and their bookkeeping records was, to put it mildly, a mess. This was because their advisor had never actually sat down with them and told them how to keep and maintain records. So they did the best they could.

The ATO began the audit of the business for the previous two years. Before the meeting, I asked for the records covering a six month period and found that the BASs was totally wrong. BAS refunds were claimed when in fact payments should have been made.

Armed with this information, I advised my new client that they should come clean -- which they were happy to do and did in the ATO meeting.

There was one problem. Unknown to me, they had been in communication with the ATO and provided documents that were not entirely kosher. Unfortunately for them, the ATO knew this. And this totally blew away any credibility they had.

Now I would never justify false declarations, but when the BASs were completed, my client was under extreme cash flow pressures. He basically used the ATO to help his business survive and put food on his table. He was basically stealing from Joe Hockey to pay Mr Orgin to ensure he had some electricity.

The ATO may have some sympathy with this, but as far as they were concerned  a false statement on many BAS returns together with paperwork that was not quite correct are leading them to prosecute my client which could lead to jail time for my client. Not nice, really.

Yes, my client was wrong. Yes, he lied, and yes, he made false declarations. A moment of absolute madness and absolute stupidness has got him in an awful lot of bother. But now that I have got to know him, should he be sent to jail? I am not sure about this. But my thoughts are irrelevant on this matter.

My Personal Opinion

Being an expert in tax, I deal with the ATO and investigations routinely and every time I get involved -- I come to the same conclusion. The nuts and bolts of this episode has left me without doubt that a business owner who completes their own BAS will get it wrong somewhere along the line. And the reason I say this is because there is no way a business owner can know the Australian GST and employee tax code. But it actually gets worse because the ATO assumes and the law says you do or should know the rules.

Let me tell you a secret. I don't advise on certain GST matters such as property GST because I don't know enough about the matter. And I am a tax agent! So how a business owner who has never been educated beyond 10 minutes with their accountant know how the entire GST tax code works is beyond me.

So what should you do? Honestly? Get someone else to do your bookkeeping. Now I know what you are thinking. I am scaring you. I probably am. But when I mow my lawn, it never looks as good as when my gardener does it. That’s because he is an expert. I am not. It is no different for your books. Also, if I do my mowing, I won’t go to jail. There are just some things you do not do.

Why Should You Hire a Bookkeeper?

A good bookkeeper will tell you when you are doing something wrong. Get a tax agent as your bookkeeper. The ATO will find it almost impossible to send you to jail unless they can prove you acted dishonestly.

Yes, it costs more. But you know what? Each year, you take out Business Contents Insurance knowing that there is a  probably a very small chance you will make a claim. I have paid for 15 years now and have never claimed. So if you had to pay to get your bookkeeping done knowing it will give you a good a night’s sleep and keep you out of jail, what is that really worth to you?  My client has not slept for a week now and his thoughts are constantly about his impending prosecution. This is something I would not want my worst enemy to endure.

So here are a few questions to ask to see if your chances of an audit are high:

  • Have I lodged all my returns on time?
  • Do I owe the ATO money?
  • Has my bookkeeper or accountant checked my figures with the ATO benchmarks?
  • Am I operating in what the ATO would classify as a high risk industry?
  • Is the income declared on my tax return consistently low?
  • Am I operating in a cash business?

If you do not know the answers to any of the above, speak to your bookkeeper or accountant. If they cannot answer the questions, move to someone who can. So please friends -- get yourself a good bookkeeper, sleep well and stay out of jail.

Hitesh Mohanlal

Director at WOW! Advisors & Business Accountants

14 years ago I lost a family member aged 38. I realised then there were important things in life than business and money. This tragic event drives everything I do. I am the founder of WOW! Advisors & Business Accountants, MediSuccess and CrystalClear Bookkeeping. I authored Double Your Profits and Halve Your Working Hours for Medical Practitioners.' I am Australia's leading Strategist & Business Adviser with a passion to bring smiles to the faces of medical professionals. As a result of the work I have done & based on my approach I has been recognised on Fox, NBC, CBS and ABC. Most business owners work long hours & recent surveys show that work life balance, income and wealth creation is the major area of concern. My ethos is to work with business owners improving their accounting and taxes but particularly to improve profits/ personal income and wealth whilst cutting working hours in half so that they can enjoy an awesome lifestyle with plenty of time for family, fun and philanthropy. I specialise in the medical sector. I have worked with over 3,500 businesses in Australia, America, UK, Japan and Europe. I soon realised that over 78% of business owners: - Found understanding figures too hard. - Were never taught how to run a business. - Spent money on areas they did not need to. - Paid more tax than they needed to. So we design strategies to specifically deal with the above but also: - Move business owners from being a business operator to a business owner so the business can run on its own. - Create investments, assets and wealth which generate income so that if you are unable to work or retire income is still generated. I am so passionate about saving tax and improving profit that since March 2019 for every $100 we save/ make for clients I am committed to make 20 impact across the world. Currently over 1,000,000 impacts have been made.

Comments (1)
Jef Lippiatt

Jef Lippiatt, Owner at Startup Chucktown

I can't relate specifically to Australian tax law as I don't live or operate there. What I can say is that keeping track of tax here in the United States isn't much easier. I'm great at complex math, but not at staying on top of tax law changes or what needs filed where. I'm looking into getting a bookkeeper myself.