The ATO has released Taxpayer alert 2021/2 Disguising undeclared foreign income as gifts or loans from related overseas entities.
Under the alert, the ATO are actively engaging with taxpayers who are aware of their residency status for tax purposes and fail to declare foreign income on their tax return. In particular, the focus will be on an attempt to conceal the character of funds upon their repatriation to Australia by disguising the funds received as a gift, or a loan, from a related overseas entity.
What does this mean for taxpayers?
If you are an Australian resident for tax purposes, who derives foreign assessable income and does not declare it in their Australian income tax return, you may be subject to a review and receive engagement from the ATO.
TA 2021/2 outlines the ATO’S concerns with these arrangements, which involve taxpayers attempting to conceal their foreign income, by means to avoid paying tax in Australia.
Foreign assessable income may include:
- Income from Overseas employment or business ventures
- Interest derived from foreign financial institutions or loans
- Dividends received from foreign companies, such as shares in a foreign company
- A capital gain on the disposal of a foreign asset such as shares in a foreign company or sale of a property
- Deemed amounts of foreign income in relation to interests in foreign controlled companies or trusts
What if you have not derived foreign income?
The ATO has stipulated that this is only in relation to those who may be attempting to deliberately conceal foreign income. Taxpayers who have not derived foreign income and have genuinely received a gift or loan from a family member overseas should not be concerned.
A guide can be found in relation to documenting genuine gifts or loans where the funds are used for income producing purposes.
How do I know if I am an Australian resident for tax purposes?
Generally, you are considered an Australian resident for tax purposes if you have:
- always lived in Australia, or you have made Australia your permanent home
- been in Australia for six months or more, and for most of that time you worked in the one job and lived at the same place
- been in Australia for more than six months of the year, unless your usual home is overseas and do not intend to live in Australia
- go overseas temporarily and do not set up a permanent home in another country
- are an overseas student who has come to Australia to study and are enrolled in a course that is more than six months long.
If you are unsure of the status of your assessable income during the financial year, or your residency for tax purposes you can take the ATO’s residency tests to determine your residency.
For more information on your foreign income tax obligations, chat to one of our specialists to ensure you are declaring the correct information.