On 15 August 2019, the ATO announced that it was in possession of data relating to 1.6 million offshore accounts holding over $100 billion. This information is now the subject of data-matching and sophisticated analytics utilised by the ATO to identify amounts of foreign income that have not been reported by taxpayers for Australian purposes.
The information received by the ATO was the result of the first data exchange that took place in September 2018 following Australia’s implementation of the Common Reporting Standard. The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other participating jurisdictions on an annual basis.
Under the CRS, the ATO has shared data on financial account information of foreign tax residents with over 65 foreign tax jurisdictions across the globe. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income.
Whilst taxpayers may be concerned that their offshore tax affairs could reach the ATO through public leaks of information, such as the Panama Papers and the Paradise Papers, it is clear that such leaks are not the only way the ATO recovers taxpayer data. The implementation of the CRS has accelerated the ATO’s visibility of Australians who establish offshore accounts to divert income overseas, beyond the already wide-reaching ability of the ATO to obtain information from foreign tax jurisdictions.
It is not only multinationals or high net worth individuals who are the target of the CRS regime. The ATO is targeting all taxpayers who have excluded foreign income from their Australian tax returns. As Assistant Commissioner Karen Foat warns:
“If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount.”
The ATO is targeting all taxpayers who have excluded foreign income from their Australian tax returns.
Offshore voluntary disclosures
Taxpayers who continue to conceal assets and accumulate income in undisclosed offshore accounts and structures will face an increasing risk of discovery. If detected by the ATO, such a taxpayer should expect that the ATO will:
- assess the taxpayer on the basis that all of the assets are to be taxed as assessable income if the ATO believes that the taxpayer has avoided or evaded their tax obligations
- impose significant penalties that could equal 90 per cent of the tax liabilities discovered and assessed, and
- investigate their affairs further for the purpose of commencing a criminal prosecution or refer the matter to other government agencies for such purposes.
The risks of concealing offshore income and assets are simply not worth it.
In our experience, where a voluntary disclosure is made, the ATO may, depending on the facts and circumstances, take a view that there has been no fraud or evasion and assess taxpayers only on income derived during a limited period.
In any case, a voluntary disclosure before the ATO tell you about an audit or examination of your affairs, irrespective of the circumstances, will result in the remission of penalties by 80 per cent, and the ATO is less likely to investigate the taxpayer for the purposes of commencing a criminal prosecution than if the ATO discovered the conduct of its own accord.
The ATO will consider each voluntary disclosure on a case by case basis and the treatment will depend on the facts and circumstances of the particular taxpayer. The ATO has established a review panel to ensure like cases are treated consistently.
Voluntary disclosures must be handled with care and sensitivity.
How ABL can help
Our market leading controversy and advisory practice, together with our extensive history of dealing with the ATO, places us in an excellent position to advise regarding the making of voluntary disclosures of offshore income. We understand how the ATO is approaching such voluntary disclosures, we are experienced in preparing tax calculations in a manner the ATO understands and accepts and can assist in assessing how the ATO is likely to view each taxpayer’s individual circumstances.
If you would like further details about the information contained in this bulletin or assistance with any tax-related issues, please contact one of our team members below.