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:
Author: Karen Thompson
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