The Australian Taxation Office (ATO) has issued a new taxpayer alert regarding arrangements involving circular financing linked to early-stage investor tax offsets.
This taxpayer alert (TA 2024/1) was issued in response to a new tax avoidance scheme. Under this scheme, an investment opportunity in a start-up company is promoted to individuals by the scheme operators. The operators assure interested individuals that the start-up qualifies as an early-stage innovation company (ESIC) and that they can claim the early-stage investor tax offset (tax offset).
The operators lend the individual money to buy shares in the start-up and then funds are moved around between the start-up, the individual investor, and the operator to access the tax offset.
ATO is concerned that these start-ups don’t qualify as ESICs.
These types of circular financing arrangements where participants inappropriately claim a tax offset and associated deductions can see honest individuals caught up in a tax avoidance scheme with serious consequences.
Promoters of these types of arrangements may face serious penalties under Division 290 of Schedule 1 to the Taxation Administration Act 1953. TA 2024/1 doesn’t apply to genuine investments in qualified ESICs.
Further, promoter penalty law changes that came into effect from July 2024 mean those entities found to be promoting schemes could face significant penalties for each contravention of these laws.
