Reference no: EM133412610

Question: Tom and Frank are brothers and run retail business as a partnership in the outer suburbs of Melbourne. They sell a variety of goods. However, the bulk of their sales involve tobacco products, especially e cigarettes. The sale of e cigarettes to people below the age of 18 years is illegal in Victoria. They suspect many of the sales they have made have been to children who are 16 to 17 years of age. They have never checked the age of any customer before selling the cigarettes.

Over the last few years they have made substantial sums of money from their business. However, they have not lodged their individual returns nor a tax return for the partnership for the last 5 years. This is despite repeated advice by their accountant that they should do so.

In January 2022, they were both sent a letter from the tax office requesting them to submit the outstanding tax returns. Tom was divorced 2 years ago and the letter was sent to his former home, which is now occupied by his former wife and her new partner. He never received the letter.

Frank is single. He also sold his house and moved 2 years ago. He also did not receive the letter from the tax office. They have never informed the Tax Office about their change of address.

In April 2022, both Tom and Frank received a summons to appear in the Melbourne Magistrates Court to face charges of failing to comply with a directive from the Tax Office. They have also received a tax assessment showing they each owed $2,000,000 in taxes.

Tom has girlfriend based in Malaysia and with the borders opening he visits her regularly.

Tom and Frank are intending to set up a tobacco business in Malaysia, where the sale to tobacco products is not as regulated as it is in Australia.

Tom and Frank are naturally worried and stressed and have sought meetings with you their lawyer.

They have a series of questions:

1. How can they assess us if we did not lodge any tax returns?

2. What do we do about the summons to the Magistrates Court? Where do they get the power to do that? What is the penalty? Can we go to jail?

3. How can they prove what we earned? We are going to refuse to tell them. Can we do that? They cannot prove what our income is, so they cannot assess us. What do you think?

4. Can we appeal and challenge the assessment? How do we do that? Will it cost much money to fight the assessments? In our view the assessments are completely wrong!!

5 Did we have to lodge tax returns? We did not think that think that the illegal sale of e cigarettes to customers under 18 is taxable. It is illegal so it should not be taxable. What do you think?

6. Can they search our homes and business premises? We have a lot of stock we bought on the black market hidden under both our houses.

7. Our accountants have many of our business records. Can they access them? Can they question you as our accountant?

8. Your legal firm also has many of our business records. Can they access them? Can they question you as our lawyer?

9. My friend told me they can interview my former wife - can they? She hates me. I am guessing that she told the Tax Office where we live. She knows a lot about my business. We also have a former employee we sacked. She kept our books of account. Can they question her? Can they question my clients? Perhaps we can make up a fake set of records. What do you think? Anyway we do not think they can prove anything. We will just do nothing. What do you think?

10. Do we have to pay the tax? What happens if we do not pay? Do we go to jail? Can I get an extension of time to pay? What happens if they refuse to give us time to pay? Is there any legal way we can challenge it in Court if they do not give us an extension of time to pay?

11. A friend told me that they can stop me leaving the country. If that happens, I cannot see my girlfriend and set our new business in Malaysia.

12. Frank is single and is considering just selling his house and going to live in Thailand with his girlfriend. Can they stop Frank selling his house and depositing the money in Frank's Commonwealth Bank account and transferring it overseas?