Transactions relating to taxpayers that have received gifts or loans from overseas family and friends are currently being scrutinised by the ATO as it continues to encounter instances where Australian taxpayers have failed to declare offshore income or capital gains. Instead, the ATO says these capital gains or foreign income have been disguised as a gift or loan from a related overseas entity and returned to Australia in a more tax effective manner. Taxpayers who have received genuine gifts or loans should ensure that appropriate documentation is maintained either by themselves or by their tax accountant.
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 instances where Australian resident taxpayers derive income or capital gains offshore which are assessable but fail to declare it in their income tax returns.
Individuals that are Australian residents for tax purposes are reminded that they are assessable on the worldwide income they derive as well as on certain profits derived by offshore entities they control.
Specifically, the ATO will 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 concealing the nature of funds.
Whether or not a gift or loan is genuine depends upon the following being satisfied:
In such circumstances, a certified copy of the donor’s will or distribution statement for the estate should be a part of the record keeping.
According to the ATO, if there is any uncertainty about whether particular amounts are genuine gifts or loans, it will form a view based on all the available evidence. It is therefore recommended that contemporaneous and complete records be kept. This is a simple task when you have an accountant who can assist you with business taxation services and accounting services for small business. In addition, the ATO notes that a deed of gift or a statutory declaration (provided either by the donor or the receiver) may not be accepted as conclusive evidence of the receipt having that character.
If you or your business has received gifts or loans from overseas entities, make sure you have adequate documentation. Contact Alexander Bright today for expert advice or to find out how we can help you with our bookkeeping accounting services.