ATO concerned with foreign gifts and loans

The world is becoming a much smaller place to hide. The Australian Taxation Office (ATO) has a robust data gathering process which includes tax treaties and tax information exchange agreements with well in excess of 100 countries. With new countries agreeing to information sharing on a regular basis, this may be a cause for concern where adequate records have not been kept

Interest is generating around the nature of funds flowing to Australia from foreign jurisdictions.  Australian Government agency Austrac reports all monetary inflows exceeding $10,000. The ATO recently issued Taxpayer Alert TA 2021/2 outlining concerns surrounding foreign income of Australian residents being disguised as gifts or loans from related overseas parties.

On many instances, the ATO has reviewed inbound transactions which were originally asserted as gifts or loans. Upon further investigation, a number of these transactions were found to be foreign income, incurring additional tax along with associated fines and substantial penalties.

Foreign income omitted has included foreign salary and wages, interest from foreign banks, foreign business income, foreign dividends, capital gains from foreign assets and distributions from foreign companies and trusts.

While the omitted income itself is of concern, the ATO also discovered that some of these income amounts were treated as loans, whereby an interest deduction was also being claimed, though not genuinely incurred.

It has been made clear that this Taxpayer Alert is aimed at taxpayers knowingly evading tax and not those who have received genuine gifts or loans. However, it is important to ensure that all gifts and loans are adequately documented. Ultimately, it is the taxpayer’s responsibility to provide supporting documentation should this ever be requested by the ATO.

Taxpayers also have an obligation to declare on their income tax return if they have more than $50,000 of assets overseas. Failure to declare that and then also receiving transfers from overseas, even if a genuine gift or loan may raise attention.

The ATO has urged taxpayers involved in schemes omitting foreign income to come forward and make any necessary corrections. Bearing in mind the significant penalties that apply, including possible criminal sanctions, the ATO have advised it would be in the taxpayer’s best interest to initiate corrections prior to an ATO review.

At Mazars, we have experience in assisting taxpayers deal with the ATO for audits in relation to transfers of monies from overseas. In our experience, the key to audit success is having correct documentation to substantiate the gift, loan, or otherwise.

Should you receive foreign funds and would like your transactions reviewed for compliance accuracy, please contact your usual Mazars Advisor, the Author or one of our specialists via the form below or on:

Brisbane – Jamie Towers

Melbourne – Evan Beissel

Sydney – Gaibrielle Cleary

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

Author: Karen Thompson

* mandatory fields

Your personal data is collected by Mazars in Australia, the data controller, in accordance with applicable laws and regulations. Fields marked with an asterisk are required. If any required field is left blank, it will not be possible to process your request. Your personal data is collected for the purpose of processing your request.

You have a right to access, correct and erase your data, and a right to object to or limit the processing of your data. You also have a right to data portability and the right to provide guidance on what happens to your data after your death. Finally, you have the right to lodge a complaint with a supervisory authority and a right not to be the subject of a decision based exclusively on automated processing, including profiling, that produces legal effects concerning you or significantly affects you in a similar way.

Published: 07/10/2021

All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.