An advisor or promoter assists individuals (participants) with setting up a 'private' 'foundation' which is then claimed to be exempt from all taxes. The advisor or promoter tells participants that, by operating their business or income producing activities through such a foundation, participants are able to 'opt out of,' or disregard the tax system. A small portion of the income that is streamed through the foundation may be paid to humanitarian or social causes, such as through charities, and these payments are sometimes presented as a justification for the foundation's purported tax-free status. 2. The structure of a foundation, whatever called or however described, has all or most of the following features: a. Articles of Association (Articles) or a similar document, often supplied by the advisor or promoter, typically describe the structure as a 'non-profit private foundation'. The Articles typically state that participants, who are sometimes described as 'principal participants', are responsible for carrying on the activities of their foundations. The Articles often describe other individuals, who assist the participants in conducting the day-to-day affairs of the foundation, as 'volunteers'. b. Bank accounts are opened in the name of the foundation with the participants as signatories. The advisor or promoter may sometimes facilitate the opening of the bank accounts. c. The foundation is not registered for a Tax File Number or an Australian Business Number. d. The foundation is not registered as a charity with the Australian Charities and Not-for-profits Commission, nor does it have 'deductible gift recipient' status or otherwise meet the requirements for tax exemption under tax legislation. e. The foundation may notify the ATO that it is excused from withholding tax obligations on the basis that any payment from the foundation is exempt income. Participants often do not lodge income tax returns for themselves with some notifying the ATO that lodgement is not required, or that they have nil income to report. Some participants lodge income tax returns, but omit from their assessable income, business or personal receipts that have been streamed through the foundation. 3. Participants may: a. purport to carry on one or more businesses through, or in the name of, the foundation b. carry on a business separately from the foundation, perhaps using a company or trust, while arranging for business income to be received directly into the foundation's bank accounts c. arrange for an employer to pay salary and wages, from which tax has not been withheld, directly into the foundation's bank accounts or to an intermediary which then remits the payments to the foundation's bank accounts, and/or d. arrange for remuneration generated through the provision of personal services to be paid directly into the foundation's bank accounts or to an intermediary which then remits the payments to the foundation's bank accounts. 4. Amounts that are received by the foundation, or which are paid by the foundation to participants or volunteers, are not reported for tax purposes. 5. While participants may contribute some of the money received by their foundation to humanitarian or social causes, they primarily use such monies for personal consumption and investment, and the participants remain in control of the way in which the monies are used by their foundation.
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