06 – Tell the truth, and all the truth…
Jim and Chris are accountants who use www.legaledocs.com.au, probably Australia’s best and best value document creation service. Jim and Chris are Greek Australians, and are proud of their dual heritage and citzenship. They and their clients are cost conscious (that’s why they are successful and that’s why they use www.legaledocs.com.au), and they often ring MLA Lawyers for a free second opinion on a client strategy.
They asked MLA Lawyers what the chances were that the ATO would find out their client was getting rent income from an inherited property back in Greece. Her grandfather died leaving her a small rented factory, and she had not bothered the ATO with details of the rent income. She left it in a Greek bank account (sounds risky!) and used it to pay for holidays back to the Old Country.
Our response was it had nothing to do with chances. The risk of detection was irrelevant. They were obliged ethically and professionally to advise their client to disclose the Greek sourced income and to pay Australian tax on it as required under the Australian tax law.
This should be done in writing, firmly and quickly. Don’t mince words. Tell your client what she has to do.
Yes, you might lose your client. That’s not the point. Never lie for a client.
You might ask what this has to do with an e-book on tax for financial planning clients? The answer is “everything”.
It’s common for a client to lie about their tax affairs. For example, undisclosed cash income from a café business. Fake payments to fictitious suppliers. I can go on and on. My point is this: if you go along with a tax fraud you become complicit in it. Your client’s crime becomes your crime. You put your neck in their noose. You are in trouble.
What should you do?
You should tell your client that they must comply with the law and disclose the income or stop the fake claim, or whatever, as they case may be. Perfect compliance is not negotiable. It has to be perfect.
You should offer to help them correct their position. This may include helping them lodge corrected income tax returns or taking other remedial steps. It may involve representing them in ATO negotiations.
If your client does not accept your advice and does not agree to correct things you must cease to act for that client immediately. If you do not you breach numerous laws, become exposed to numerous penalties and in an extreme case can even end up in gaol.
A non-compliant client is a bad client. You don’t want the hassle. Don’t waste your time and don’t get involved.
Should you report your client?
This is a difficult question with complex implications and its resolution is outside the scope of this e-book. In summary, you should refer this question to an experienced legal practitioner.
We now turn to happier matters.