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Taxpayers should plan carefully when bringing funds into the country to avoid suspicion, says tax specialist.
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ATO cracks down on international money moves into Australia
08 February 2023
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10 minute read
The ATO has “drawn a line in the sand” when it comes to overseas money transfers into Australia and taxpayers need to tread carefully or raise suspicions, warns HLB Mann Judd.
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Melbourne partner and head of tax Josh Chye said the ATO was increasingly scrutinising migrating funds and that prudent planning was essential.
“The ATO has made it clear it is aware some people are migrating funds here to mask it as something it’s not, in an attempt to avoid paying tax,” said Mr Chye.
“It’s timely as Australia continues to attract strong levels of investment, particularly in respect to real estate, both residential and within property development.”
“The ATO has now drawn a line in the sand and committed to scrutinising these transfers closely, so people should ensure they have received the proper tax advice before making a transfer.”
The ATO’s data resources meant another amnesty for offenders — along the lines of Project DO IT in 2014 — was unlikely, Mr Chye said. Project DO IT was a one-off for individuals to disclose omitted offshore income, capital gains and over-claimed deductions with reduced penalties.
“The ATO has significantly more information-gathering powers than it did during the time of the amnesty, increasing its level of resourcing and entering into tax information exchange treaties with other jurisdictions,” he said.
“People seeking to transfer funds into Australia therefore need to ensure their tax structuring is appropriate well before they physically transfer the funds, or risk interrogation from the ATO and other authorities.”
He said individuals claiming transferred funds in amounts from $2 million and $50 million for a loan from an unrelated party should be aware that this would raise an alert at the tax office.
“If taxpayers are saying it’s a loan, then the ATO will speak with the person providing the money as a loan.”
“There are provisions in Australian law which can be applied unexpectedly that can treat a loan from overseas as income; if shareholders take money from the company as a loan but it’s not documented properly, for example, it can be treated as income.”
“The ATO’s powers are far-reaching and intended to also put advisers on notice and encourage them to dig deeper with clients and their financial affairs, otherwise advisers could be unwillingly supporting mischaracterised amounts coming in, which carries the risk of prosecution.”
Mr Chye said Australia’s unique tax laws meant early investment in tax advice would pay off.
“It reinforces the need for an appropriate level of tax planning before any transactions are undertaken — it’s also an educational opportunity for many new entrants as it can set them up with building and structuring tax advice overtime,” he said.
If a taxpayer was concerned by their level of compliance Mr Chye recommended getting a review conducted to determine their current obligations and create a plan for the future.
“A voluntary disclosure can mitigate against substantial penalties, time, cost and angst of a protracted ATO review or audit.”
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