Disguising income as gifts or loans from related overseas entities: ATO taxpayer alert

The ATO on 17 September 2021 issued taxpayer alert TA 2021/2: Disguising undeclared foreign income as gifts or loans from related overseas entities. The Alert highlights the ATO’s concern where Australian-resident taxpayers derive income or capital gains offshore (foreign assessable income) but fail to declare it in their Australian income tax returns.

The Alert is concerned with situations where taxpayers are aware of their residency status, as well as the tax implications that flow from it, but attempt to avoid or evade tax on their foreign assessable income by concealing 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.

The ATO is undertaking reviews and audits and actively engaging with taxpayers who have entered into these arrangements. It will be using its exchange of information powers to gather information from other countries, including the foreign assessable income derived by taxpayers in those countries.

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 and the Foreign Account Tax Compliance Act will also be used.