An opinion of 'fraud' or 'evasion' means
the ATO is not subject to the usual two or four year periods it
otherwise has to amend an income tax assessment. Instead, the
amendment period is unlimited which can result in amended
assessments over many years, and potentially a significantly higher
tax liability as a result.
But how should a taxpayer respond when the ATO has formed an
'opinion' of either 'fraud' or 'evasion'?
Recent decisions in the Full Federal Court and Administrative
Appeals Tribunal highlight the rules for taxpayers challenging
assessments issued following a finding of 'fraud' or
Who needs to prove what?
The recent decision of Binetter v Commissioner of
Taxation  FCA FC163 sets out the following
The taxpayer has the onus of disproving fraud or evasion.
The ATO does not have to prove anything.
ATO officers will often give reasons for why an opinion of
'fraud' or 'evasion' was formed, but they do not
have to. The taxpayer will not have done enough by simply showing
the ATO's reasons were insufficient or inadequate. The taxpayer
must actually prove there was no fraud or evasion.
The taxpayer has to do this on the balance of
Evidence from the taxpayer is a start, but corroborating
evidence is critical.
Particular problems arise for 'unexplained deposits'.
These are amounts the ATO often identifies as deposits in a
taxpayer's bank account that are assumed to be income –
unless there is a credible explanation for why the amounts are not
The decision in Binetter gives the taxpayer some
problems if the taxpayer cannot remember what the deposit
represents. If the ATO forms an opinion of 'evasion', the
taxpayer has to prove there was no evasion, which generally
requires an explanation of the deposit.
In the reported cases, the 'unexplained deposits' are
significant sums of money, where it seems reasonable to expect an
explanation from the taxpayer as to why these amounts are not
income in the circumstances.
Hopefully common-sense prevails so that a relatively small
deposit received many years ago does not support an amended
assessment issued following an opinion of 'evasion'.
Otherwise, this type of amended assessment would effectively be
unchallengeable if the taxpayer cannot recall what the deposit was
for. This was noted in the AAT decision Nguyen v Commissioner
of Taxation  AATA 1041.
Taxpayers' circumstances will vary significantly and it
would not be unusual to see taxpayers receiving sums of money
outside the four year amendment period that the taxpayer cannot
explain. The further into the past, the more likely that the
taxpayer's memory will be fallible and that corroborating
evidence will be unavailable.
How do you respond in an audit context?
If the ATO proposes a finding of fraud or evasion, it is
important to respond:
promptly – before the ATO works through its internal
process to form the 'opinion' of 'fraud' or
with evidence from the taxpayer, which is corroborated by other
by applying the evidence to the actual tests of either
'fraud' or 'evasion'.
We often see a taxpayer or their advisers not provide a
comprehensive response in the first instance. If evidence is later
provided, the ATO often looks at it sceptically –
particularly if the ATO earlier invited the taxpayer or adviser to
provide evidence and they chose not to for some reason.
What is evasion?
We have seen the ATO form opinions of 'evasion' because
there was a 'blameworthy act'. This is not the test. The
'blameworthy act' must be a type of act or omission in the
sense used in Denver Chemical Manufacturing Co. v Commissioner
of Taxation (NSW)  ACA 25.
In that case, the High Court provided the following
I think it is unwise to attempt to define the word
'evasion'. The context of s.210(2) show that it means more
than avoid and also more than a mere withholding of information or
the mere furnishing of misleading information. It is probably safe
to say that some blameworthy act or omission on the part of the
taxpayer or those for whom he is responsible is contemplated. An
intention to withhold information lest the Commissioner should
consider the taxpayer liable to a greater extent than the taxpayer
is prepared to concede, is conduct which if the result is to avoid
tax would justify finding evasion.
'Evasion' therefore requires something more than a mere
'blameworthy act'. It is important that the evidence meets
the explanation of 'evasion' as set out by the High
Cooper Grace Ward is a leading Australian law firm based in
This publication is for information only and is not legal
advice. You should obtain advice that is specific to your
circumstances and not rely on this publication as legal advice. If
there are any issues you would like us to advise you on arising
from this publication, please contact Cooper Grace Ward
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Depending on the type of ETP, the employee's age and years of service, the amount may be taxed in various different ways.
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