Taxing Crime: The Application of Income Tax To Illegal Activities

Published on 01 Jul 05 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

In the recent case Federal Commissioner of Taxation v La Rosa, the taxpayer was subject to an income tax assessment on the basis that the proceeds of his illegal drug dealing activities were subject to income tax. This case brings to light several fundamental issues with respect to the application of the income tax to illegal activities generally which warrant further consideration and possible legislative intervention: did the legislature contemplate wholly illegal activities when enacting the income tax; should crimes which are not a ‘business’ for tax purposes escape taxation; should a criminal avoid tax liabilities where a constructive trust is found to exist; and what is the appropriate role of the income tax where proceeds of the same activity have been forfeited to the government under a civil forfeiture regime.

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Celeste BLACK

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