ATO issues warning on Ponzi schemes
The ATO has flagged Ponzi schemes as a focus area in its fight against tax crime and has warned investors on some of the warning signs.
In a recent update, the ATO stressed the importance of individuals protecting themselves from Ponzi schemes by being aware of some of the red flags and checking online resources about schemes from the ATO and ASIC.
The ATO explained that a Ponzi scheme is a form of fraud that attracts investors by promising high returns with little to no risk.
"New investors bring in money which pays dividends, or other types of payments, to existing investors. There is no actual investment offered by scheme operators,” it stated.
The ATO said that some of the warning signs of a Ponzi scheme include the rate of return looking too good to be true and a promise of consistent returns regardless of market conditions.
“Other warning signs might include the logistics of the investment being too complicated to explain, someone you know trying to recruit you and encouraging you to make a quick decision.”
The ATO noted that existing investors in a Ponzi scheme receive dividends funded by new investors are unlikely to suspect that it is not a genuine investment.
“This encourages these investors to target friends, family and other acquaintances into the scheme, often attracting more vulnerable groups and individuals with the promise of quick returns on their investment,” it warned.
“In some cases, recruiters attract new investors by saying their investment in the scheme is a way to avoid tax.
“Ponzi schemes need new investors and their money to survive. When scheme promoters fail to attract new investors, the scheme will collapse, leaving most new investors out of pocket and with little to no recourse to recoup their losses.”
The ATO said it is committed to disrupting all forms of financial fraud in the community that causes harm and undermines the integrity of the tax system, including Ponzi schemes.
“If you are unsure if a scheme is a Ponzi scheme, you can get a second opinion from a trusted financial or legal adviser,” the Tax Office said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.