You all know about the ATO.
Many of you need to learn that there is also another organisation called the Tax Practitioners Board (TPB).
This is the accountant’s version of AHPRA.
New rules mean accountants may have to report you if you do not follow them. Or the TPB will send us accountants to jail.
PSI rules are not easy to understand. But most medical professionals know the term, and most know the rules do not favour them when it comes to taxes.
Over the years, I have seen many potential medical professionals who do not follow PSI rules or try to claim expenses that cannot be claimed. We tell them that. As I believe in honesty and integrity (one of Medisuccess’s core values), we will tell a medical professional that if they change accountants and come to us, there is a chance that they will end up paying more taxes. We also tell them we will still provide other values, such as advice on reducing work hours and wealth building, which will outweigh the extra tax. Still, we know from experience that for every 10 potential medical professional clients we see in this situation, 8 will quietly go away and not engage us.
This, then, is Medisuccess’s version of getting ghosted. And that, to be honest, is fine with us.
Anyway, the new rules, which we accountants are fighting but are likely to become law next year, mean that medical professionals who do not follow PSI rules will be reported, probably by their accountants.
It gets worse because the accountant cannot tell you/ tip you off that they have reported you or may have to report you. You may only find out when you get a nasty letter from the ATO. Even then, it will say that you are being audited, not that your accountant has stabbed you in the back. You will then pay your accountant additional fees to fight the ATO in the hope of winning. Which you will not.
In 15 years of being a tax agent, I have rarely seen a medical professional win against the ATO when it comes to a PSI audit. And if you are a contractor, you have no chance of winning.
I know what you are thinking. What about privacy and confidentiality? The TPB got the government to change the law, which now says that a client cannot sue their accountant if the accountant reports that their client is undertaking or has undertaken a criminal act.
But it gets worse for us accountants because if we do not report a client and get caught, we go to jail. So, the choice for the accountant is:
a) dob or stab your medical professional client who is not following PSI in the back or
b) go to jail themselves.
Which do you think works in the accountant’s favour?
Then what happens? Well, if you get reported, there is a chance you can go to jail. Shock. Horror. But worse terror.
And I know what you are thinking. I am scaring you. They will not send a medical professional to jail.
In fact, the rules do not have to change for you to go to jail. They increase your chances.
That is because tax law states that committing a false return, knowing you are breaking the tax law, is a criminal offence.
Recently, the ATO sent three people to jail in not one but two cases. Two of them were taxpayers. The third? The accountant.
We all know the Labour Government needs money. We also know the ATO has been told to collect debts aggressively. The ATO is a different animal than it was just a year ago. We are seeing very aggressive behaviour from the ATO. It is brutal, and any form of compassion has been left at home.
Here is an example of case 1. A businessman who completed incorrect BAS and tax returns was convicted as a criminal. They claimed expenses knowing or should have known they could not.
This is not dissimilar to a medical professional receiving PSI income and then diverting it to a spouse (as wages or distribution) or a bucket company, especially if they have been informed/ told/ educated that they cannot do that. Also, remember that ignorance of the law is not a defence. Saying you did not know is not likely to save you.
Back to the case of our businessman, over the years, this businessman claimed over $1M in GST refunds and tax deductions. This seems a lot, but the figures also add up for a medical professional. For a doctor to divert PSI income of $100,000 to a spouse and $100,000 to a bucket company (not unusual), that is a tax saving of $100,000 a year, which should not have been received. Over ten years, that has become a $1M fraudulent tax claim. Add fines and interest, and the bill will swell to $2M.
The businessman was sentenced to 6 years and 6 months in prison. Yes, you read that right. A criminal offence and jail term. If he were a doctor and got reported to AHPRA or tried to renew a registration, what do you think AHPRA would do?
Case 2? This one scares the crap out of us accountants because not only did the taxpayer go to jail, but so did the accountant. This case consisted of fraud (claiming GST and expenses when you could not), but the scary bit was that the taxpayer was operating a false invoice scheme.
Again, I know what you are thinking. Medical professionals don’t do that, but they do. It is not unusual to see spouses of medical professionals invoicing a medical practice or their spouses’ entity for work, which has not happened. Or they are paid a ‘salary’ for no work to get a deduction.
So now you know why I have no problems with eight potential clients walking away out of every 10. I like my freedom. I like having a coffee in my garden on a Sunday morning with my family, and I like the idea of going to the beach or on holiday.
And if you are happy to save a few (or a lot of) dollars in tax at the risk of going to jail, that is up to you. You have the right to take that risk. I just won’t be joining you.
In both cases, Assistant Commissioner Jade Hawkins said the same thing. ‘This matter proves it doesn’t matter where you try to hide, the ATO will find you and make sure you are held accountable for your actions.’
Ms Hawkins noted that those who deliberately steal from the community will face consequences.
‘They knew they were not entitled to those funds, but claimed them anyway.’
‘Not only did these offenders gain an unfair advantage over other businesses, they stole money that is used for essential community services such as schools, hospitals and transport,’ Ms Hawkins said.
We know most people do the right thing, but those who deliberately cheat the system will be held accountable.’
These are exceptionally strong and determined words.
I have always been a believer in getting a good night’s sleep. If you believe that, make sure you are dealing with PSI income correctly. More importantly, make sure your accountant is dealing with PSI correctly.
Because if you don’t, you may find both of you end up standing in front of a judge trying to explain something that cannot be explained and then spending a few years eating porridge.
Dealing correctly with taxes is step 3 of our 9 steps to working less, earning more and creating astonishing wealth if you would like more information contact hitesh@medisuccess.com.au or call 07 3172 0819.
