Tax Fraud & Tax Evasion Charges

An ATO penalty is not a criminal charge — and the line between them is everything

The most important thing on this page is a distinction almost nobody draws clearly. When people search "tax evasion penalty", two completely different systems answer to that name:

• Administrative penalties, imposed by the ATO itself — money, not prosecution. No court, no conviction, no criminal record;
• Criminal prosecution, conducted by the Commonwealth Director of Public Prosecutions under the Criminal Code — a criminal trial, a conviction, and imprisonment as a live possibility.

The overwhelming majority of tax shortfalls — including careless and even reckless ones — are dealt with on the administrative side. Prosecution is reserved for conduct the Commonwealth can prove was dishonest: not a wrong number, but a lie. Understanding which track your matter is on, and what moves a matter from one track to the other, is the genuinely useful thing this page can tell you.

The administrative side: ATO penalties

Where a tax return understates a liability, the ATO imposes a shortfall penalty calculated as a percentage of the tax avoided, scaled to culpability: 25% for failing to take reasonable care, 50% for recklessness, and 75% for intentional disregard of the law — adjusted up for obstruction or down for voluntary disclosure, with interest charges on top. These can be heavy sums. But they are debts, not charges. They are imposed by assessment, disputed through objection and review, and they leave no criminal record.

One feature of the administrative system deserves a flag: a 75% intentional-disregard penalty involves the ATO forming a view that you meant to underpay. The same facts that found that penalty can found a referral for prosecution — which is why audit responses in serious matters should be made with legal advice, not just accounting advice.

The criminal side: the Commonwealth Criminal Code

Criminal Code (Cth), s 134.1: obtaining property belonging to a Commonwealth entity by deception. s 134.2: obtaining a financial advantage from a Commonwealth entity by deception. s 135.1: general dishonesty — dishonestly obtaining a gain from, or causing a loss to, a Commonwealth entity. Each carries a maximum of 10 years' imprisonment.

There is no offence called "tax fraud". Criminal tax matters are prosecuted under the Commonwealth Criminal Code's general dishonesty offences, with the Commonwealth as the deceived party. The workhorses:

• Section 134.2 — obtaining a financial advantage by deception: the usual charge for false returns, fabricated deductions, undeclared income and fraudulent refund claims (GST refund frauds are routinely charged here);
• Section 134.1 — obtaining property by deception: where money was actually paid out by the Commonwealth;
• Section 135.1 — general dishonesty: the flexible charge for schemes that caused a loss to the revenue without a neat "obtaining" — and the section under which tax evasion schemes, off-the-books cash economies and asset concealment are often charged;
• Section 135.4 — conspiracy to defraud the Commonwealth: for schemes involving more than one person, common in promoter and phoenix matters.

In each case the prosecution must prove dishonesty beyond reasonable doubt — dishonest by ordinary standards, and known by the accused to be so. Error, sloppiness, aggressive but arguable positions, and reliance on professional advice all live on the lawful side of that line, and they are real defences, not technicalities.

Penalties: the two systems side by side

ATO administrative penalties (no conviction, no record)

• 25% of the shortfall — failure to take reasonable care;
• 50% of the shortfall — recklessness;
• 75% of the shortfall — intentional disregard;
• Plus interest charges, with uplifts for obstruction and reductions for voluntary disclosure.

Criminal prosecution (CDPP, conviction and record)

• Sections 134.1, 134.2 and 135.1 — up to 10 years' imprisonment per offence, and/or a fine of up to $198,000 (600 penalty units, Cth) for an individual;
• Section 135.4 conspiracy — up to 10 years' imprisonment;
• Plus reparation orders for the tax evaded, alongside the sentence — the debt does not disappear into the punishment;
• And in serious matters, proceeds of crime action against assets, which can run in parallel.

Commonwealth sentencing weighs general deterrence heavily in revenue fraud, and substantial, sustained frauds regularly attract full-time custody. But the full range remains available — from non-conviction orders for genuinely minor matters through recognizance release orders (the Commonwealth's suspended-sentence mechanism) — and outcomes turn on amount, duration, sophistication, cooperation and repayment. Every matter turns on its own facts.

What moves a matter from audit to prosecution

There is no dollar threshold in the legislation. In practice, referral to criminal investigation and the CDPP is driven by the character of the conduct:

• False documents — fabricated invoices, doctored records, false declarations: the clearest marker of dishonesty;
• Sustained schemes — structures, false identities, or systematic concealment, as against a one-off understatement;
• Cash economies run off the books — particularly with parallel records;
• Refund fraud — claiming money out, rather than underpaying money owed, is treated more seriously;
• Conduct continuing after audit contact — or obstruction during it.

The corollary matters more: cooperation, early disclosure and repayment pull in the other direction. Matters are kept on the administrative track every week by the way the audit phase is handled. That is the window in which advice changes the trajectory rather than just managing it.

Defences

• No dishonesty — error, carelessness, or an arguable position taken openly is not fraud;
• Reliance on advice — returns prepared on professional advice, with the facts fully disclosed to the adviser;
• No deception — the ATO was not misled, or the statement was true or honestly believed;
• Attribution — in business and partnership structures, proving whose dishonesty the documents reflect;
• Quantum — the alleged evasion is an estimate built on assumptions, and it is contestable.

How Lenz Legal approaches tax fraud matters

These matters are won early or fought late. Early, the work is keeping the matter administrative where that is honestly open: managing the audit response, structuring voluntary disclosure properly, and ensuring nothing said or produced converts a tax dispute into a criminal brief. Dean works alongside your accountant or tax adviser — the accounting and the criminal exposure need different eyes, and matters go wrong when one is asked to do the other's job.

Where prosecution comes, the defence is forensic: dishonesty tested against the documents and the advice actually given, the Crown's quantum challenged, and negotiation over charges and agreed facts conducted before positions harden. Where a plea is the right course, cooperation, repayment and the subjective case are put in the form Commonwealth sentencing actually rewards.

If the ATO has raised an audit with serious findings, investigators have made contact, or a brief is being prepared — get advice before your next response. The trajectory of these matters is set early, and usually in writing.

Tax fraud — your questions answered