ATO warns taxpayers to disclose foreign source income Print E-mail

The ATO has issued Taxpayer Alert TA 2012/1 warning taxpayers of arrangements under which Australian resident taxpayers do not correctly include income and other taxable amounts from foreign sources in their assessable income for Australian tax purposes.




The arrangements involve Australian resident taxpayers deriving foreign sourced income that is either received in Australia or accumulated offshore. The ATO says foreign source income may include (but is not limited to) the following:

  • interest accrued in an offshore bank account;
  • income derived from a foreign investment (eg dividend or rental income);
  • income from an asset that has been inherited from an overseas source;
  • a foreign pension or annuity;
  • certain foreign employment income;
  • foreign business income;
  • foreign trust income;
  • capital gains arising from disposal of overseas assets; and
  • attributable income from interests in offshore entities even if the income has not been distributed.

In the arrangement as described by the ATO, the taxpayer does not disclose their interest and/or involvement in deriving the foreign source income by:

  • accumulating and/or reinvesting the income offshore;
  • transferring the funds to Australia in the form of a loan;
  • accessing funds though the offshore bank account for use in Australia or elsewhere with debit or credit cards.

The ATO says in certain circumstances, a promoter or third party may act as a beneficiary of the offshore structure or investment to conceal the true nature of the investment.

In relation to the arrangements, the ATO says foreign sourced income is assessable under s 6-5 of the ITAA 1997, and Div 6 of Pt III of the ITAA 1936. It also says any income accrued offshore may be attributable to taxpayers under Pt X of the ITAA 1936. The ATO notes that taxable capital gains may arise to the taxpayer on the disposal of offshore assets under Pts 3-1 and 3-3 of the ITAA 1997.

Further, the ATO says the arrangements which contain the features above may be considered a sham and Pt IVA may apply. For taxpayers who make full voluntary disclosures to the ATO, the Commissioner said any penalties imposed may be reduced by 80%.


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