On 22.11.18, the Assistant Treasurer announced the release of consultation paper released today is another step towards implementing the Government’s response to the recommendations of the Black Economy Taskforce final report.

This consultation comes in the context of the review that the Government announced, as part of the 2018-19 Budget, it would conduct, of existing criminal offences, and civil and administrative penalties, for black economy activity (see the Black Economy Taskforce’s Final Report and the Government Response – both released on Budget night: 8 May 2018).

In response to the recommendations, of the Black Economy Taskforce’s Final Report, the Government announced a whole-of-government blueprint for tackling the black economy including a series of measures it said it will continue to develop and consult on.

Key measures announced in the 2018-19 Budget included:

  • the establishment of an illicit tobacco package targeting criminal gangs,
  • introducing an economy-wide cash payment limit of $10,000 reducing the ease with which large anonymous cash payments can be used to avoid tax and reporting obligations,
  • changes to Government procurement requirements to incentivise tax compliance in supply chains; and
  • increasing the ability of enforcement agencies to detect and disrupt black economy participants.

This consultation is about the following further recommendations – designed to give a more ‘visible’, targeted and stronger approach to enforcement.

  1. Introduce new black economy offences and penalties, and changing existing offences to address the gap in the existing black economy offence and penalties regime. (Recommendation 8.4) Current black economy offences and penalties are not effective at capturing mid-range offenders, are limited to financial penalties and criminal offences, and are not optimally scaled to focus on egregious offenders. This is discussed at Parts II & III of the Consultation Paper.
  2. Reverse the onus of proof for some black economy offences to reduce barriers to prosecuting such offences. (Recommendation 8.3) The prosecution bears the legal onus of proof in criminal proceedings for certain black economy offences. The Taskforce found that gathering proof to the criminal standard can be difficult and resource intensive for prosecutors, leading to lower rate of successful prosecution against aggressive black economy offences. This is discussed at Part III of the Consultation Paper. [Making the State bear the ‘onus of proof’ on any penalty matter, is a fundamental tenet of our legal system for centuries now and tampering with this seems very unwise. Even for the civil matter of proving assessments of tax are excessive, the reverse onus is very onerous for taxpayers and produces bad behaviours within the Commissioner’s office. In my opinion, this should NOT be adopted.]
  3. Prevent gambling (and gifts) being used to shelter tax evasion by requiring taxpayers to keep records of their gambling activities once winnings, or gifts, exceed a threshold per year. (Recommendation 14.5) Cash, which is the product of gambling winnings or gifts, is tax free. Without electronic records and the requirement to produce records of the source of the winnings or gifts, some individuals claim taxable and/or black economy income is gambling winnings and therefore tax free. These individuals avoid paying tax at the expense of others. This is discussed at Part III of the Consultation Paper.

  4. Reduce the use of sham contracting arrangements by bolstering the sham contracting penalty provisions. (Recommendation 10.3) Sham contracting occurs where an employer knowingly or recklessly misrepresents an employment relationship as an independent contracting arrangement. This may be done to avoid statutory obligations, such as having to pay award wages, pay as you go withholding (PAYGW), payroll taxes, and superannuation contributions. This is discussed at Part III of the Consultation Paper. [Again, I would recommend extreme caution, here. The cases are filled with difficult situations, assessing which side of the line, between employment and contractor status, various arrangements fall. This is one of the reasons the Tax Profession lobbied against making Superannuation Guarantee Charge payments, one of the liabilities that Directors would be fixed with under the ‘Directors’ Penalty Notice’ provisions (in Div 269 of the TAA53). This fraught area resulted in entire business plan, of the start up: Foodora, failing, so it packed up and left Australia. To make mistakes about this very troublesome distinction a penalty, seems fraught – even if it is couched in terms of ‘knowingly or recklessly misrepresenting’ the nature of the arrangements. Again, the ATO seems to have taken a very dilute approach to a taxpayer ‘recklessly’ misrepresenting a tax position in their return, and the AAT has showed little appetite for pulling this behaviour up. This sounds unwise to me, given the fraught nature of the distinction.]
  5. More effective prosecution processes, including designating the Australian Taxation Office (the ATO) as a criminal law enforcement agency, and providing the ATO access to telecommunications metadata. (Recommendations 8.2 and 12.4) The ATO currently may only seek telecommunications data through the Australian Federal Police (AFP) as part of joint investigations, and this process takes several weeks. It is often impractical to seek to undertake joint investigations with the AFP, especially for low to mid-range black economy conduct. These delays allow black economy participants to operate for longer periods of time and, in some instances, avoid detection altogether. This is discussed at Part IV of the Consultation Paper. [This might seem wise, but needs to be viewed in the steady transfer of more and more to the the ATO (one could already be forgiven for thinking that the ATO will get responsibility for everything, in due course). Two things that come to mind are the transfer of responsibility for tracking down purchasers, of residential land, that are ultimately by foreign persons, in breach Foreign Investment Review Board (FIRB) rules, for possible divestiture orders. And the second is the proposal to make the ATO responsible for approving early release of superannuation benefits, on compassionate grounds – instead of the Department of Human Services (one might ask, what does the ATO know about being compassion – little, in my view, if the conduct of their ‘hardship relief’ department, is anything to go by).]
  6.  Reform proceeds of crime laws to extend the period for freezing orders from 3 days to 14 days and giving courts the discretion to freeze only specific transactions in relation to a bank account or person. (Recommendation 12.7) The Proceeds of Crime Act 2002 (PoCa) allows for complete freezing of bank accounts for up to three days. Obtaining the restraining order by enforcement agencies to extend freezing order requires providing additional evidence which takes more than three days, leading to the expiration of an existing freezing order. The complete freeze of bank accounts can also cause significant disruption in operation of the businesses/charities under investigation, and seeking variation on frozen accounts to allow reasonable transactions can be a consuming process. This is discussed at Part IV of the Consultation Paper.
  7. Provide the ATO with powers to compel information from third parties, such as powers to obtain bank information. (Recommendations 8.2 and 12.4) Gathering evidence to determine the culpability of possible black economy criminals is significantly diminished where key evidence is difficult to obtain. This allows those abusing the tax system to evade the authorities for longer, and sometimes, avoid detection altogether. This is discussed at Part IV of the Consultation Paper. [It is not entirely clear to me why the ATO needs any more powers of this kind. He already has the power to require production of information and documents, provided it is ‘for the purpose of the administration or operation of a *taxation law’ (s353-10 of the TAA53) and has full and free access to all places, without any fetter, as to purpose (s353-15). Perhaps there are purposes other than taxation purposes, in dealing with the ‘black economy’ but why, then, cede responsibility for these other purposes, to a revenue gathering authority?]
  8. Evaluate the possible expansion of the jurisdiction of the federal courts to hear more black economy offences. (Recommendation 8.2) Changes to existing black economy offences, the introduction of new offences and a rapidly changing black economy landscape creates a need for sound and coherent court processes to be dynamic and responsive.  This is discussed at Part IV of the Consultation Paper. [I observe, further, that the Federal Court might already have relevant criminal jurisdiction. I have not researched the necessary ‘jurisdictional’ requirements but most of the laws, that ‘black economy’ activity contravenes, is Federal. Also, the Federal Courts have been physically equipped with a dock and jury gallery, since ‘cartel’ behaviour was criminalised, under Federal competition legislation.]

Submissions close on 21 December 2018

FJM 5.12.18

[Treasury website: Minister’s Media Release, Consultation Page, Consultation Paper; LTN 226, 22/11/18; Tax Month – November 2018]


CPD questions (answers available)

  1. Is Treasury consulting on the the more visible enforcement recommendations in the Black Economy Taskforce’s recommendations?
  2. Is the announced ban on cash payments under $10k one of the issues, Treasury is consulting on?
  3. Is a ‘reverse onus of proof’ for various penalties one of the issues that Treasury is consulting on?
  4. Is creating penalties for misrepresenting ‘sham contracts’ one of the things that Treasury is consulting on?
  5. Is giving the ATO the power to compel even more information from third parties one of the things that Treasury is consulting on?


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