We've all heard the sensationalised press reports of how billionaires pay less tax than old ladies on welfare. The typical approach that people think they must be using is offshore investing. They obviously are wealthy, living in these opulent mansions and going out each day in their splendid sports cars, of course they must have their money all tucked away in offshore accounts somewhere.

It is true that multinational companies can avoid tax very effectively by setting up their accounting in such a way that cash flows through a complicated route that manages to avoid the tax authorities in most countries in which they deal, however this is not something the average guy wanting to pay less tax can pull off.

Without teams of first class accountants and vague international trade laws to fall back on, most little guys go for small investment companies that operate in "tax haven" countries, getting them to manage funds on their behalf and hide the money, so that all monies can be kept without paying a cent of income tax.

The problem should be obvious to anyone who has read the rest of the ripoffs FAQ so far. It is hard enough getting money out of shonky investment advisers working out of a conspicuous office in your nearest CBD. When someone in Australia rips you off, you can fall back on various consumer protection groups that are run by the government. You won't always get all your money back, but you can be sure that a government appointed auditor is going to be chasing them anyway, trying. People may go to jail and there will be the usual stories on the current affairs shows.

So what if the guy you are dealing with isn't even a local? What if you don't know where he is, geographically? Hiding behind some international company name in a country where there is no central register of companies anyway, our intrepid con man can vanish back into the twisted back streets of some third world country, with your money nowhere to be found.

Australian residents need to pay tax on all offshore income. If you have shares in America you need to pay American taxes first and then Australian taxes (with credit given for taxes already paid). Investing offshore itself does not save you any money. Invest your money in a tax haven you'll still need to report your income tax. Maybe you might have your offshore company paid and that company might retain income, but if you ever want to draw on the income you will need to pay tax. The only way to avoid tax completely with offshore investment is to keep it secret. You literally have to smuggle your money offshore and hope nobody finds out. This is of course necessarily illegal and if caught you'll be charged with tax avoidance, and sometimes other charges related to illegal money transfers.

People that offer to help you illegally transfer money offshore and invest in a secret account generally aren't people that like to keep a high profile or submit themselves to much scrutiny. To deal with offshore tax avoidance guys you are totally reliant on them keeping their word. I suppose it should go without saying that most investors that place their trust in offshore tax dodge promoters end up betrayed.

Do you really think ASIC is going to be overly concerned that you lost money while trying to dodge tax? Do you dare even to report it? Are the qualifications cited by this particular adviser recognised in Australia? Does the adviser even have these qualifications, do such qualifications even really exist? If you are talking to someone in another country that lacks a central register of accredited advisers, is there any way for you to check?

If you think you can trust someone operating in the tax-dodging industry, working in a country where regulation is lax and Interpol fears to tread, go right ahead. There is only one way that you will learn.

I am pretty sure I can find more rewarding strategies to increase my wealth right here in Australia, if I want to reduce my tax further I'll just get into some negatively geared investments, put money into a private super fund or set up a family trust to split income with family members on lower tax rates. There are a variety of perfectly good methods you can use that don't involve secretly transferring money overseas to an unlisted company run by the same people who spam aus.invest with those silly messages full of spelling errors and exclamation marks.