ATO slow to act on TikTok tax fraud, but cracks down hard as scammers face lifetime of debt
All taxpayers should be simultaneously alarmed and reassured by the almost unbelievable TikTok tax fraud.
Alarmed because we have all lost $1.6 billion in fraudulent GST refund payments but reassured because the fraud could have been much worse – at least another $2.7 billion and possibly much more.
That such a fraud could spread virtually unnoticed through the community and involve more than 56,000 people ranging from outlaw bikie clubs to welfare recipients is fairly amazing but while the Australian Tax Office was undoubtedly slow to cotton on to the problem, those taking part in the scam are now in a world of pain.
In case you missed out on the details, the scam was remarkably simple which is why it could be communicated on a short clip on TikTok.
A few clicks of the mouse and you can be rich
You simply used or set up an Australian Business Number (ABN), then claimed GST refunds on fictitious expenses for your fictitious business.
The most common claim was for a refund of $50,000 for equally fictitious business set up expenses of $500,000 using your MyGov account.
If the claim sailed through – which many did early, although there was progressively more scrutiny as the years went by – then the money simply popped up in your bank account a couple of weeks later.
As you can imagine, the arrival of such a sum in the account of a welfare recipient was latched on to fairly quickly for a range of far from fictitious expenses so the chances of the ATO making a full recovery are very slim.
The ATO already know your name
However, the ease of the scam – which works because of the ATO’s self-assessment system – was also its biggest downfall, because the recipients were almost all very easily identified through tax and banking records.
Once the ATO has your name, tax file number, ABN and address, the gig is effectively up and the audit is about to begin.
That means the scammers who thought they had got away with a handy windfall, will now be operating under a significant tax debt that will literally take a lifetime to clear for many of them.
That includes $300 million in penalties and interest charges, a figure which may continue to escalate given that the ATO’s Operation Protego has already stopped a further $2.7 billion in claims but that there may be many more waiting to be discovered.
Of course, the reason why the loss to taxpayers has been estimated to be $1.2 billion – the biggest tax fraud in the country’s history – is down to the fact that many of these scammers will never be able to pay back their debts.
The party hangover will last for decades
In simple terms, the money has gone and the ability of those who pursued the scam to repay is very limited.
For them, the party is just a distant reminder but the hangover will last for decades.
Quick to apply interest and penalties
One of the concerning things about this scam is that the ATO appears to have been quite slow to pick up on something that should have been obvious to anyone with a TikTok account and some time on their hands.
Perhaps it is reassuring that very few of the ATO’s more than 20,000 staff had time to surf TikTok but they should have been aware of a rash of unusual GST refund claims from newly arrived businesses in country areas with not much more than an ABN as assets.
Indeed, while the ATO has been crowing about its speed in shutting down the scam which started in 2020, it appears it was the banks that actually identified the scam and started freezing some accounts due to the size of the amounts arriving in the accounts of welfare recipients.
It is clear the ATO then quickly took action, although there are still doubts as to whether some smaller claims are yet to be identified as part of the scam.
What the whole messy business does show is that scamming the ATO might not be difficult but that in the longer term it packs a sting in the tail that is much more dramatic than the benefits to be gained from a simplistic and easy to identify outright fraud.