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People across all taxpaying groups in the Australian tax system are becoming increasingly involved in international business and investment.
Most dealings with tax havens are within the law. Some tax havens, including those that have large value dealings with Australian taxpayers, have developed particular niche markets. Others are highly regarded as offshore financial centres. Tax havens are particularly attractive to international businesses involved in portfolio management, such as insurance companies, self-insurers, hedge and mutual funds and offshore investment funds, because they have low or no taxes. These international businesses require access to the huge international foreign exchange markets and 24-hour-a-day management.
For example, the Cayman Islands is a major financial and captive insurance centre with significant flow-through transactions for equity and hedge funds. Jersey and Guernsey have major regulated financial services industries, and many international banks are represented in these jurisdictions.
Some multinational companies have their head office functions in tax havens. Australian subsidiaries of overseas multinational companies may need to transact with tax haven companies that are part of their multinational structure. Governments may also transact with tax havens to provide foreign aid programs in those countries.
Individual dealings we are not concerned about
It is not illegal to deal with a tax haven, provided taxpayers comply with the relevant tax laws of both jurisdictions. For example, an individual may accumulate savings in a bank account in a tax haven while working overseas as a non-resident. When the individual becomes an Australian resident, they need to declare the interest on their account each year to meet their Australian tax obligations.
We are generally not concerned about the following:
- expenditure on tourism - travel and accommodation
- genuine gifts or inheritances from family resident in tax havens (where the source of the funds has no connection to Australian residents)
- earnings from overseas employment that are exempt from tax in Australia (although accumulating earnings offshore without declaring the interest in Australia would be a concern)
- former residents returning to Australia and bringing back savings accumulated while working overseas
- transferring assets and capital to Australia on migration to Australia
- investing in property or real estate in a tax haven (where rental or other gains are appropriately taxed in Australia).
Sections within Tax havens in context
Last Modified: Tuesday, 18 October 2011