The ATO is warning people to be cautious about arrangements promoting the generation of deductions from the purchase of offshore "emission units" that do not exist at the time of the arrangement.
The ATO says it believes many of these arrangements may not be legitimate, and warns those involved may face a large tax debt, substantial penalties or even prosecution.
"These arrangements, entered into with an offshore entity which may be incorporated in a tax haven, claim to allow participants to deduct the entire purchase price of the offshore 'emission units', while making only a small initial payment," Tax Commissioner Michael D'Ascenzo said.
Under these arrangements, participants who are carrying on a business, contract with an offshore entity to purportedly purchase offshore 'emission units' generated through offshore carbon reduction activities.
The arrangement claims to allow participants to deduct the entire purchase price of the offshore 'emission units' in the income year that they enter the arrangement.
Participants are not necessarily 'liable entities' under the Clean Energy Act 2011, and may not have a legal obligation under that legislation in respect of their carbon emissions. The number of the offshore 'emission units' contracted for under the arrangement is not necessarily related to participants' carbon emissions.
"We have concerns about whether the full purchase price of the offshore 'emission units' is incurred in the income year in which the arrangement is entered into and whether any expenses incurred by the participants under the arrangement are deductible," Mr D'Ascenzo said.
"We have seen examples where, for an initial payment of $21,000, taxpayers have claimed $140,000 in deductions. The terms of the arrangement indicate that the taxpayers may not be obliged to pay the full amount of the purchase price.
"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.
"We may be contacting participants involved in these arrangements asking them to review their circumstances and inviting them to make a voluntary disclosure. We may also write to the people who are marketing such arrangements requesting they stop promoting the scheme, warning them that the promoter penalty laws may apply".
Anyone who has participated in these arrangements, and makes a voluntary disclosure before they are contacted by the ATO, will be entitled to a reduction in penalties.
Taxpayers wishing to make a voluntary disclosure should visit the ATO website or call the ATO on 1800 177 006.
Anyone with information about people or companies who may be promoting arrangements covered by this alert should call the ATO on 1800 177 006.