All That Glitters is GST Fraud
Spandau Ballet should be investigated by the ATO...
Nice quick one this week, because I can’t turn down an excuse to talk about tax fraud, financial crime and impotent governments.
As an Australian, I feel like complaining about our government is a rite of passage, and at the very least should be included in our immigration tests.
We are going to look into a scam that cost Australian’s 3/4th of a billion dollars in the least sexy way possible. GST.
Australia has a goods and service tax (GST). There is a similar tax in almost every country, VAT in England and Europe, GCT in Jamaica. The Americans do have a state-based sales tax but are one of a tiny handful of nations to lack a federal version. I can only assume the Trump administration will find a way to implement this soon, calling it the “Freedom and Baby Eagle July 4th Contribution”.
I digress.
GST should be relatively simple, a 10% tax on the sale of any goods, but it gets complex when you start to look at all the possible exemptions.
Many of the exemptions seem particularly arbitrary. Car batteries are exempt, but windshield wipers aren’t. Red bean paste is GST-free but turn that paste into a red bean cake and enjoy that 10% charge wacked on.
Far be it from me to glean provident wisdom in why there is a difference between the two, I lack the intellectual finesse to understand the difference.
Importantly for today’s story, gold bullion, those 99.5% pure bricks of gold you see cartoon robbers’ stuff into hessian sacks, are considered a form of currency and are GST exempt, but gold that has been melted down, or bullion that has been damaged in some way, is treated the same as gold jewelry, and has a 10% tax applied.
The other half of the shit sandwich is that before 2018, when you bought something with the intent to resell it, you could get a refund from the government for any GST paid.
Seems like a lot of fraud stems from governments handing out refunds. Thank God we handled Job Keeper payments in the pandemic so well…
Just using these two facts above, Aussie businesses were able to illegally finagle $700 million out of their government.
Imagine you knew someone shady, living in a country that you secretly hold bigoted stereotypes about.
They own some gold bullion, and the two of you have a plan to get rich quick.
This shady character, that we shall call Marshall Mathers for any millennials in the audience, will sell your Australian business that gold bullion, but before he does, he will melt the bar down.
By all rights, that gold is just as valuable as before but as it is no longer considered ‘bullion’ now you need to pay 10% GST on your purchase. This means that, whatever Marshall charged you for the gold, 10% should be paid to the tax office.
But here is the sneaky part. You melt the gold down again and forge it into ‘gold bullion’. Now it no longer charges GST, so you should be able to claim a GST refund from the government as part of everyday business.
You sell the gold back to Marshall, possibly at a slight 5% discount.
You are 5% better off than before, as is Marshall except that he owes 10% to the Australian government.
I hope you’re keeping notes, because here comes the highly complex step…
Marshal doesn’t pay the tax back.
He disappears into the wind, changing his name and pocketing the difference.
He probably comes back, back again, with a brand-new name and a suspiciously similar pile of melted gold bars that he wants to sell…
This is known as carousel fraud, probably because ‘merry-go-round-trickery’ didn’t sound particularly intimidating.
Though there are usually many more businesses to increase complexity and possibly keep the authorities confused, these scams all work by transferring highly valuable goods between businesses, racking up GST/VAT refunds for most organisations and leaving a large tax bill with some criminal enterprise that disappears into the night.
These scams are big business, with tens, if not hundreds of billions lost by governments ever year. The appeal, aside from the ridiculous amount of money that businesses can make, is that most of the actors involved are technically innocent. Like the tax avoidance in last fortnights article, nothing that the Australian business did was wrong. They simply bought something, resold it, and made a profit. It’s incredibly difficult to prove that anyone involved, aside from Mr. Mathers, were doing anything illegal.
Not that this stopped the Australian Taxation Office’s… let’s call it, spirited attempt to crackdown.
Convinced that the Australian gold resellers were in on the scheme, the ATO retrospectively demanded the GST refunds back.
Unfortunately for the ATO, the Administrative Appeals Tribunal agreed in early 2023, that attempting to collect unpaid taxes from a third party, simply because you weren’t able to collect them from the actual criminal was not a vibe, so it looks like, for now, there is still a real danger of businesses stealing taxpayer money using this kind of scheme again in the future.
… They can’t all be happy stories. Some people have been caught and arrested, if that makes you feel better? You aren’t getting the money back though.
