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  • Disguising undeclared foreign income as gifts or loans

    We have released Taxpayer Alert TA 2021/2 Disguising undeclared foreign income as gifts or loans from related overseas entities.

    TA 2021/2 concerns arrangements where Australian resident taxpayers fail to declare foreign income in their tax returns and then conceal the character of the funds upon repatriation to Australia, by disguising the funds received as a purported ‘gift’ or ‘loan’ from a related overseas entity.

    The related overseas entity may include a family member, friend or a related company or trust.

    The omitted foreign income may include:

    • overseas employment or business income
    • interest from foreign financial institutions or loans
    • dividends from foreign companies
    • a capital gain on the disposal of a foreign asset (such as shares in a foreign company)
    • deemed amounts of foreign income in relation to interests in foreign companies or trusts.

    TA 2021/2 outlines our concerns with these arrangements, which involve taxpayers attempting to conceal their foreign income in order to avoid paying tax in Australia.

    In some instances, taxpayers may also inappropriately claim tax deductions for ‘interest’ said to have been incurred on purported ‘loans’ from the related overseas entity.

    We are currently reviewing these types of arrangements and actively engaging with taxpayers who have entered such arrangements to ensure that they pay the correct amount of tax. We are issuing this Taxpayer Alert to warn and deter taxpayers and advisers from entering these arrangements.

    Taxpayers who have not derived any foreign income and have received a genuine gift or loan from a family member overseas should not be concerned. We have published web guidance in relation to documenting genuine gifts or loans from related overseas entities where the funds are used for income producing purposes.

    However, those taxpayers deliberately omitting foreign income, concealing their interests in foreign assets or making false claims for deductions in their tax returns will face substantial penalties, including possible sanctions under criminal law.

    If you have omitted income from your tax return, you can:

    Last modified: 20 Sep 2021QC 66808