ATO cracks down on gold tax scam


For some years a particularly brazen tax fraud has been growing exponentially in Australia, involving such colourful characters as gold refiners, jewellers and even criminal gangs.

Now there's evidence that the scope of the scheme is being extended to catch private taxpayers, who are being offered fast and easy returns based on a scheme that's in line with tax law.

But, as investors in previous tax schemes that have gone pear-shaped can probably testify, all that glitters is not always gold.

There are two levels to the scam. In its first iteration, individuals buy gold bullion (which is GST free, according to Australian law), then melt it, smash it up or add low levels of impurities so that it is regarded as scrap metal and can be sold on to precious metal refiners with 10% GST added.

The individuals then keep the GST instead of sending it to the government (and often disappear offshore with the loot).

The other level to the scam involves the party that bought the supposedly "scrap" gold. They can - in accordance with current law - claim a GST refund from the tax office on the purchase of the impure gold. They will then refine it and feed it back into the system.

So the same gold goes round and round multiple times, constantly re-refined, each time generating a financial benefit to both the trader and the refiner.

This is a so-called "carousel" arrangement. There's also evidence that in some cases the scheme has been packaged such that no gold actually changes hands at all and it is essentially stripped down to a paper trail and an exchange of funds between parties.

It may be this variant of the scheme that is now being hawked to some private taxpayers with no previous involvement in the precious metals business.

In all cases, criminal syndicates appear to be involved as facilitators in the process.

The scam originated in the UK in 2003, which at that point had essentially the same tax rules on gold trading as we do.

But when the UK government got wise to the endless carousel of recycled gold, and the massive VAT leakage to the government, it changed the law to broaden the tax-free scope of precious metals such that gold was only taxable where it was used for jewellery. That stopped the scam.

Unfortunately, Australia didn't follow suit and the result is a tax leakage from the Australian government estimated at over $550 million.

While the treatment of gold bullion and "scrap" gold is essentially in line with the law, the constant recycling of the same gold makes the scheme fraudulent, as does the involvement of a wide variety of shady characters who help to grease the wheels of the scheme. As a result, the government is cracking down hard on those involved, including stopping GST refunds and pursuing some participants with criminal charges.

Leading the assault is the Serious Financial Crime Taskforce. Among the agencies involved in the taskforce are the Australian Federal Police, the Australian Securities and Investments Commission and the ATO.

"These artificial arrangements are established to obtain a benefit from the tax system of which there is no entitlement and are tax crimes" the taskforce said in a recent alert.

"The taskforce views schemes that exploit GST rules using artificial arrangements to be fraud."

So if your accountant - or someone you encounter around the barbecue - tells you about a great way to make quick bucks out of gold this summer, you might want to give them a wide berth. A fraud charge is probably not something you want attached to your name.

Mark Chapman is director of tax communications with leading tax accountants H&R Block.



Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is the author of Life and Taxes: A Look at Life Through Tax.
Mark Leigh
January 11, 2017 5.08pm

Why not mention the huge damage the ATO move has caused to an Australian industry - AS REPORTED IN other media such as The Australia? The scammers are only a few bad apples, yet you make no mention of the fact that refiners have to pay GST on scrap and are obliged to buy from customers who sell. There are many other points you left out such as the solution the ATO made 2 days before Christmas last year was the solution refiners proposed 3 YEARS AGO. The ATO refused, refused to learn from the UK experience. It is they who have been incompetent and cost the country dearly.

February 12, 2017 5.45am

Spot on Mark. The ATO have known about this scam for years sat back and done nothing , then when the pressure is on blames everyone else without taking any responsibility themselves. Has anyone within the ATO been held accountable? Incompetence or is there more to this. They sit back and do nothing and allow God know who to make millions, they implement a scheme that they reject 3 years ago. They withhold Innocent businesses GST pushing businesses to the brink justifying this by saying that they don't know who the scammers are. They tell the industry that they are taking advice from people within the industry. I don't know who they are getting advice from but given that they say that they don't know who the scammers are,is it possible then that potentially they are taking advice from people who have been heavily involved in this scam?You couldn't write!!!!!!

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