Imagine being told that you could stop paying income tax simply by changing the name of your business, opening a new bank account and declaring yourself outside the Australian taxation system.
It sounds too good to be true. That is because it is.
Yet these arrangements continue to circulate, particularly among people attracted to sovereign citizen beliefs and other movements that claim individuals can choose which Australian laws apply to them.
The Australian Taxation Office has been warning about these arrangements for a decade.
In 2016, it issued Taxpayer Alert TA 2016/5, addressing people using supposedly tax-exempt private foundations to avoid paying tax on their wages, contracting income and business profits. I've brought this up today as its still happening some 10 years later.
The arrangements are surprisingly simple.
A person establishes what they call a private foundation, non-profit organisation or similar entity. They prepare documents declaring that the organisation is exempt from taxation and open a bank account in its name.
They then direct their employment income, consulting fees or business earnings into that account.
Some arrangements even involve making small donations to charities, supposedly demonstrating that the organisation exists for charitable purposes.
The remaining money, however, continues to benefit the individuals controlling the foundation.
The promoters of these schemes sometimes suggest that registering with the ATO is voluntary, that a foundation exists outside government authority, or that certain legal documents allow someone to withdraw from Australia's tax system.
None of these claims changes the law.
Australian taxation does not operate on personal consent.
If you earn taxable income in Australia, you generally have tax obligations regardless of whether you agree with the system.
Consider a carpenter earning $120,000 annually through contracting work.
If that carpenter establishes the Freedom Foundation and directs all customer payments into its bank account, the income does not magically become tax-free.
Likewise, an employee cannot avoid income tax by asking their employer to deposit wages into a foundation.
Australian tax law examines the actual circumstances, including who performs the work, who earns the income and who benefits from the money.
Calling something a foundation does not make it a charity. Calling a business non-profit does not automatically exempt it from taxation.
Genuine charities and eligible non-profit organisations have recognised legal purposes and must meet strict requirements to receive tax concessions.
They also serve an important role in Australian society, supporting vulnerable people, community organisations, education, culture and countless worthwhile causes.
Their reputation should not be undermined by people using charitable language to disguise ordinary commercial activities.
There is another danger.
Some people entering these schemes genuinely believe the promises made by promoters who offer an escape from tax obligations.
Unfortunately, believing poor advice does not remove the underlying tax liability.
The ATO can recover unpaid taxes, impose interest and penalties, and pursue criminal prosecution in serious cases of deliberate evasion.
The consequences can be financially devastating, particularly for small business owners who have already spent money they believed was tax-free.
There is nothing unlawful about legitimate tax planning. Companies, partnerships, trusts and other recognised structures can provide important commercial and taxation benefits when properly established and operated.
But there is an enormous difference between arranging your affairs within the law and pretending the law no longer applies.
You can choose how to structure your business, but you cannot choose whether Australian tax law applies to you.
And no amount of impressive paperwork will turn an unlawful tax scheme into a legitimate exemption.
The sovereign citizen connection is contextual commentary, not a classification made by TA 2016/5 itself.