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ATO scrutinising gifts or loans from overseas

The ATO has recently issued an alert warning taxpayers against disguising undeclared foreign income as gifts or loans from related overseas entities, including family and friends. It says it has continued to encounter situations where Australian resident taxpayers have derived amounts of income or capital gains offshore that are assessable, but the taxpayers have failed to declare the amounts in their income tax returns. 

TIP: If you’re an Australian resident for tax purposes, your worldwide income (not just money you make from Australian sources) is assessable and should be reported to the ATO in your annual tax return. 

The ATO will now be looking closely at arrangements where taxpayers are aware of their residency status and the tax implications that flow from it, but attempt to avoid or evade tax of their foreign assessable income by disguising amounts as either gifts or loans from a related overseas entity. 

If family or friends who live overseas have provided a genuine monetary gift or loan to you or your business, you should keep as much supporting documentation as possible about it. This is because if there is any uncertainty about whether particular amounts are genuine gifts or loans, the ATO will form a view based on all of the available evidence. 

Contemporaneous and complete records should include detailed financial records, full loan documentation, formal identification of the giver and any declarations they made about the money in their country of residence. A deed of gift or a statutory declaration may not be accepted as conclusive evidence.

Inheritances also count as “gifts”. If you receive an inheritance from overseas, a certified copy of the person’s will or a distribution statement for the estate should be a part of your recordkeeping.