A reminder that voluntary disclosures pursuant to the Australian Tax Office’s (ATO) “Project DO IT” initiative must be made before 19 December 2014. Having regard to the difficulties often encountered and the general time frames required to obtain necessary information sourced from offshore third parties, the time to prepare for, and draft, voluntary disclosures taxpayers considering making a voluntary disclosure pursuant to the Project DO IT program would be well advised to consider their eligibility for the Project DO IT initiative and begin their disclosure preparation as soon as practicably possible.
Project Do IT allows eligible taxpayers to come forward and voluntarily disclose unreported foreign income and assets,
Voluntary disclosures under Project DO IT allow a taxpayer to disclosure the existence of amounts not reported or incorrectly reported in tax returns, including:
- foreign income or a transaction with an offshore structure;
- deductions relating to foreign income that have been claimed incorrectly;
- capital gains in respect of foreign assets or Australian assets transferred offshore;
- income from an offshore entity that is taxable in taxpayer’s hands; and
- offshore deductions relating to domestic income.
Benefits of making a disclosure include:
- The ATO will only assess tax for the years where the time limit for amending the assessment has not yet expired (generally four income years for taxpayers with offshore financial affairs);
- If the additional income is more than $20,000 in the income years the taxpayer will be liable to a tax shortfall penalty of 10% on the tax found to be owing (it could otherwise be as high as 90%) and if the additional income is $20,000 or less there will not be any shortfall penalty. Taxpayers will be liable for interest charges at normal rates on the tax owed;
- The ATO will not investigate a taxpayer’s disclosure for the purposes of prosecution for a criminal offence, nor will the ATO refer the taxpayer for criminal investigation by another law enforcement agency;
- If the taxpayer has offshore structures that they wish to wind up, or offshore assets they wish to transfer to Australian entities, the ATO can provide assurance and certainty as to the tax effects in line with this initiative;
- All individuals, companies, corporate limited partnerships, partnerships and trusts (including superannuation funds and executors or administrators of deceased estates) are eligible to make a disclosure under this initiative – unless the specific exclusion conditions apply.
A taxpayer is not eligible for Project DO IT if:
- the ATO is already conducting an audit in relation to the omitted offshore income or capital gains or over-claimed deductions which are to be the subject of the disclosure;
- the taxpayer has received a compulsory information-gathering notice from the ATO requiring information to be produced (or for the taxpayer attend and give evidence) relating to the offshore income or capital gains or over-claimed deductions that the taxpayer intends to disclose;
- broadly, the taxpayer has been involved in promoting or marketing tax evasion schemes (with some possible exceptions;
- the taxpayer is already under criminal investigation concerning tax-related criminal offences
- the taxpayer’s foreign assets or income were derived from serious criminal offences unrelated to tax; or
- the Taxpayer has not complied with specific obligations from a previous offshore voluntary disclosure initiative that they were involved in.
Download a PDF version of this article: Project DO IT Alert
Rob Jeremiah and Paul Goldin have been actively involved in assisting clients with making voluntary disclosures pursuant to the Project DO IT initiative, and would be happy to discuss any queries you may have.