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ATO targets ‘gifts’ from overseas

Taxation
Jonathan Ortner portrait v2
In an opinion article published in today’s AFR, tax partner Jonathan Ortner warns taxpayers that unless they are meticulous in documenting perfectly legal arrangements, they may find a windfall gift from overseas treated as assessable income.

Responding to a recent alert from the ATO (TA 2021/2): Disguising undeclared foreign income as gifts or loans from related overseas entities, Jonathan explains that the focus of the alert is on the creative strategies being employed by taxpayers to evade their tax obligations, continuing the ATO’s long-running war on undisclosed offshore income.

“The alert directly confirms that taxpayers who have not derived any foreign income and have received a genuine gift or loan from a family member overseas should not be concerned,” he writes. “But, in the same breath, the ATO qualifies that exclusion by stating that ‘a genuine gift is one where, among other things, the gift or loan is supported by appropriate documentation’. This is where the alert becomes problematic.”

Outlining the ATO’s increasingly well-resourced focus on international tax evasion, Jonathan explains that the Commissioner “has eyes and ears on the ground across the globe that arms him nicely to identify, at a granular level, any and all funds that have been transferred into Australia from offshore”.

“The legal necessity of the documentation expected by the ATO (and the requirement for ongoing interest and principal to be repayable on a loan) is debatable, and we would hope that the ATO will keep in mind the distinction between prudent record keeping and the requirements of the law.

“Notwithstanding that the law does not technically require a gift or loan to be documented or implemented in the manner set out by the ATO – and nor is the average wealthy foreign aunt likely to consider or welcome the prospect – it would be judicious for taxpayers to take the ATO’s advice to heart.”

To read the full article, click here.

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