In 2014, the Australian Taxation Office (ATO) undertook the high-profile amnesty – Project DOIT – that allowed Australian taxpayers to voluntarily disclose (undeclared) offshore income in return for a range of ATO administrative concessions on the period-of-review, penalties, and shortfall interest.
On 17 September 2021, the ATO released Taxpayer Alert TA 2021/2 (Alert) concerning disguising undeclared foreign income as gifts or loans from related overseas entities. The Alert is not an amnesty but more a ‘declaration of war’ by the ATO on undeclared foreign income.
The Alert highlights the ATO's concern where Australian residents derive income or capital gains offshore (but do not declare that income or gains in their Australian income tax returns and instead attempt to conceal the character of the funds upon the repatriation of those funds to Australia).
The ATO is currently undertaking reviews and audits and actively engaging with taxpayers who have arrangements to not declare foreign income or gains. As part of that process, the ATO is using its exchange of information powers to gather information from other countries.
The ATO will also use other sources of information, such as data from the Australian Transaction Reports and Analysis Centre (AUSTRAC) which identifies movements of funds into Australia as well as the data the ATO receives via the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA).
If detected by the ATO, in addition to tax, penalties (up to 90%), and shortfall interest on the undeclared income or gain will be applied. Taxpayers may also need to prove that the assets that generated the income or gain did not themselves result from undeclared income or gains (or face tax, penalties, and interest on the assets). Taxpayers also face risk of criminal prosecution and penalties under criminal law.
The risks (and costs) of not declaring foreign income are not worth it. If taxpayers have not declared foreign income, they should consider making a voluntary disclosure. Just DOIT!
A voluntary disclosure can result in reduced penalties and, in our experience, increase the chance that, depending on the facts and circumstances, the ATO decides that there has not been fraud or evasion and only assess the taxpayer based upon the standard two-or-four year period of review.
The Sladen Legal Tax Team has considerable experience in dealing with the ATO on behalf of taxpayers making voluntary disclosures.
For more information please contact:
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E dsmedley@sladen.com.au
Edward Hennebry
Senior Associate
M +61 405 847 261 | T +61 3 9611 0113
E ehennebry@sladen.com.au
