Social media, especially ‘influencers’, can misuse the media scene in an attempt to gain followers and views, and make money. This is not just competition though, more taking advantage of base instincts and poor financial literacy.
One of the biggest tax frauds has just passed by, with little publicity.
Around 56,000 people saw some financial ‘advice’ on TikTok and then tried to defraud the ATO of $4.3B, with $1.6B actually paid out to claimants. It was promoted on social media as a way of borrowing money. Apply for an ABN, link to your myGov account, make up some claims for expenditure, lodge a BAS, and claim the GST on the expenditure that doesn’t exist.
The average amount claimed was $77,000, obviously the more fake expenditure the more GST you would receive. Most frauds were in the applicant’s own names, with no fake identities. Over 100 have been arrested already, and one who claimed $825,000 (requiring expenditure of 10 times that amount) is now a guest of His Majesty for 7.5 years.
How could anyone believe this was not illegal, much more than a clever bending of the rules?
Another influencer, also on TikTok, who claimed to be ‘good at finance’ says you can beat the banks and pay off a 20-year mortgage in five years, without increasing payments. The simple secret is if you repay $1.00 every day the bank won’t calculate interest. To be clear, this does not work, although paying $1.00 a day will cut three months off a $500,000 mortgage over 20 years.
The basic lack of knowledge about how interest is charged is perhaps on a level with the planners and mortgage brokers who suggested people borrow on their equity when interest rates were lower, and use part for a holiday or car and some to invest. All of the interest would be a tax deduction too. Can’t go wrong, unless you can’t pay the higher interest rates now being charged, and/or the return on investments (also suggested by the planner) is low. Also, all of the interest is not a tax deduction, only claimable on the amount actually invested.
The problem with this advice is that it does not consider individual circumstances, nor their ability to absorb rising interest rates or find suitable investments.
Tax advice is also available on social media. For $300 you can get a $20,000 tax deduction. First, find an unknown artist, purchase three artworks from him, list one online for $10,000, and have someone buy it (although they don’t have to pay for it). The two remaining pieces you donate to a registered charity for $10,000 each, and then you claim the $20,000 as a deduction in your tax return. This will not work, It’s probably a Part IVA tax scheme, so don’t be surprised if the ATO does not allow the deduction and decides to audit you (perhaps even prosecute if you rub them the wrong way), and also assess penalties equal to the tax evaded.
Perhaps we should also include those influencers who apparently have luxury lifestyles (at least in the advertisements) and were so clever to pay a lot of money for a course on trading commodities, learning the secrets of the share market, or gambling using their tips.
How do you prevent abuses? ASIC has cracked down on unlicenced influencers, requiring them to be licensed. However, even as one scheme is shut down, there will be another.
The essential problem is financial literacy, especially the lack of it. People have little basic financial education and may too readily accept advice on social media, which can not only be costly but even illegal. Compounding this is the cost of obtaining knowledgeable, experienced professional financial advice. Many planners are responsible and capable, but ‘the system’ requires advice to be comprehensive, so expensive.