Businesses involved in illegal false invoicing arrangements
The Serious Financial Crime Taskforce (SFCT) is warning businesses about using illegal financial arrangements such as false invoicing to cheat the tax and super system.
What is false invoicing?
False invoicing arrangements involve issuing invoices where no goods or services are provided. This can look like:
- an entity (the promoter) issues invoices to a legitimate business but no goods or services are provided
- the business pays the invoices, by cheque or direct transfer, and the promoter returns most of the amount paid to the owners of the business as cash
- the promoter keeps a small amount as a commission
- the business then illegally claims deductions and GST input tax credits from the false invoice
- the owners of the business use the cash they have received for private purposes or to pay cash wages to workers, and don’t properly report the amounts in their tax returns.
Overview of SFCT operating model
The SFCT is equipped with the resources, sophisticated data matching, analytics capability, and intelligence sharing relationships to uncover even the most elaborate financial crime.
While most Australian businesses do the right thing, a small minority try to evade the tax system. This behaviour undermines the integrity of the tax and super system and disadvantages honest businesses who are doing the right thing.
We will effectively deal with those who engage in false invoicing, or other illegal financial arrangements, working with partner agencies where appropriate. Those who try to evade the tax and super system will get caught and face the full force of the law.
What should you do?
If you are a business involved in a false invoicing arrangement or other illegal financial arrangement, we strongly encourage you to come forward and make a voluntary disclosure rather than wait for us to contact you. We may be able to reduce your penalties.
Concerned members of the community who suspect a business or individual is involved in a false invoicing arrangement, can confidentially report a tip-off online or phone us on 1800 060 062.
If you prefer to speak with us in a language other than English, you can phone the Translating and Interpreting Service (TIS National) on 13 14 50.
Accessing the SFCT False Invoicing Intelligence Bulletin
To read the bulletin download the This link will download a fileSFCT False Invoicing Intelligence Bulletin (PDF, 118KB). This will download a file factsheet.
Examples
Example: courier business doesn’t deliver the goods
Hannah runs a courier business using contracted drivers. Her turnover is good but she is eager to increase her profit margins by any means that she can.
While seeking new drivers, Hannah is put in touch with Dennis, who owns another courier business. He agrees to help her increase her profits through a false invoicing arrangement. Dennis makes it clear that the arrangement is not legal but assures Hannah the ATO won’t find out as he’s done it before and hasn’t been caught. Hannah, wanting to boost her bottom line, is keen to be involved.
Dennis sends Hannah a ‘false invoice’ which indicates an entity has charged her for providing contracted drivers. However, no drivers turn up because Dennis never arranged any. Even though no services have been provided, Hannah pays the full amount through an electronic transfer. Dennis then arranges for most of the payment to be returned to Hannah in cash, keeping a small amount for himself as a commission.
Hannah uses the:
- the false invoices to submit fraudulent activity statements and income tax returns where input tax credits and deductions are falsely claimed
- the cash to pay for non-business expenses, including an expensive new car for her personal use.
Jamie is an investigator at the ATO. She comes across transactions from Hannah’s business that don’t look quite right. Hannah’s records show that she has incurred over $300,000 in business expenses in her latest reporting period. This is much more than she has ever incurred in a single period before.
Jamie has also received other information about the false invoicing arrangement, including from a community 'tip off' provided by a member of the public.
Jamie contacts Hannah, but Hannah decides not to come clean about her involvement in the false invoicing arrangement. A full audit of Hannah’s tax affairs is performed, uncovering the link between Hannah, Dennis and the false invoicing arrangement.
Hannah will be liable to repay the money she fraudulently obtained including additional penalties and interest and is now subject to a criminal investigation.
Example: plasterer tries to patch things up
Henry owns a plastering business. After a particularly difficult year, he confides in one of his suppliers that he is eager to improve his profit margin. The supplier tells him about a ‘special’ invoicing arrangement promoted by another plastering supplier named Chris.
Henry contacts Chris to learn how the arrangement works. Henry thinks it sounds questionable, but agrees to the arrangement so that he can boost his profits.
Chris provides Henry with a few plastering supplies, then provides him with a false invoice.
The invoice: is from an entity that doesn’t appear to be connected to Chris says the entity provided 10 times as many items as Henry actually received.
Henry decides to pay the full amount of the invoice through an electronic transfer. Chris keeps the money owed for the supplies he actually provided, plus a bit more as a commission. He then returns the extra money to Henry in cash.
Henry then uses the false invoice he received to claim business deductions and GST credits on his business activity statement (BAS).
Henry receives a refund for his BAS and asks Chris for another false invoice.
One of Henry’s contractors overhears Henry discussing the arrangement over the phone and reports Henry’s suspicious behaviour to the ATO's tip-offline.
The tip-off is referred to an ATO investigator and Henry’s and Chris’ tax affairs are reviewed.
Henry is found to have fraudulently claimed GST credits and business expenses of over $200,000 that he was not entitled to.
Henry decides it is in his best interest to make a voluntary disclosure about his involvement in the arrangement.
He tells the investigator about how the arrangement worked and who was involved.
Henry is liable to pay back all the money he fraudulently obtained, however his penalties are reduced because of his voluntary disclosure.
As a result of the investigation, the false invoicing arrangement is dismantled. Chris is required to pay tax on the income he has hidden using the arrangement. Chris also faces further consequences, including potential prosecution, because of his role in promoting the arrangement.
If it seems too good to be true, it probably is.
End of example
Media releases
Suspected criminal operation accused of laundering $1 billion