Possible tax evasion schemes involving tax deductions through the purchase of offshore 'emission units' that do not actually exist have been flagged by the Australian Taxation Office (ATO).
The ATO issued a taxpayer alert under the belief the arrangements were not legitimate. It warned participants they could face a large tax debt, significant penalties, or even prosecution for their involvement.
Tax commissioner Michael D'Ascenzo said the offshore entities selling the 'emission units' may operate in tax havens.
He cast doubt on the legitimacy of carbon reduction actions and said entities claimed to allow participants to deduct the entire price of the carbon units in the first income year after paying only a minimal deposit.
The number of 'emission units' purchased may not relate to a participant's carbon emissions, the ATO said. D'Ascenzo said they had seen examples where, for an initial deposit of $21,000, taxpayers had claimed $140,000 in deductions.
"The combination of offshore 'emission units' which may not exist, transactions with entities located in tax havens and large tax deductions generated from small upfront payments with little financial risk are all indicators common to tax avoidance," he said.
The ATO will contact and invite participants to volunteer disclosure of their involvement in the arrangements to reduce the penalty they may face.
It is also considering contacting the promoters of the schemes to remind them of the promoter penalty laws.