License article

Offshore scrutiny

Australians not declaring income from overseas sources have been put on notice by the Tax Office.

The rent you are quietly picking up from a property you own in, say, New Zealand or Britain could land you in hot water if you are not including it in your tax return, with the Australian Taxation Office issuing a new ''taxpayer alert'' underlining how seriously it is taking such matters.

The Tax Office issues such alerts as an ''early warning of significant new and emerging higher-risk tax planning issues'', and this alert has been described as unusually broad, rather than targeting one specific practice.

''It's certainly upping the ante in terms of the seriousness of it,'' HLB Mann Judd Sydney tax partner Peter Bembrick says.

In the alert, the ATO says there are signs many taxpayers are not aware of their obligations with regard to overseas income. ''There are also some taxpayers who attempt to deliberately conceal their offshore income,'' it says.

As examples, the ATO mentions income from overseas bank accounts, pensions and investments, as well as income earned from overseas inheritances.

It also cites taxable capital gains that might arise when foreign assets are sold.


Ashley King, a former tax official who is now lead partner, tax controversy, for accounting firm Deloitte, says the ATO's data matching program - where it cross-checks information with Australian and overseas financial institutions and government agencies - ''is a very sophisticated and powerful regime'' that makes it hard to hide such income.

''And under the tax rules in Australia, you need to declare all of that income to the ATO,'' he says. ''It doesn't necessarily mean you have to pay tax on it here, because it might be exempt or you might get a credit for foreign tax paid, but you do need to tell them about it.''

He says the alert is saying: ''You're on notice that the ATO is going to do a lot of work in this area this year. So if you have something overseas and you haven't previously told us about it, now's the time to come in and do it, now's the time to wipe your slate clean.''

Bembrick says people might receive an initial inquiry from the ATO if the numbers in your tax return do not tally with what it is seeing in its data matching.

If you can't immediately explain the disparity, that inquiry might turn into an investigation. This means good record keeping is vital, he says. ''If you can show you know what you've got, if you can address an inquiry very quickly and easily, that certainly helps.''

It is also better to get in first, he says. Make what is called a voluntary disclosure and you will be treated more leniently than someone whose mistake is not uncovered until an audit, let alone someone who has deliberately excluded income.

As well as having to pay the tax owed, ''penalty'' tax can range from 25 per cent to 75 per cent of the amount in question, depending on whether a genuine mistake, sheer carelessness or a deliberate strategy was involved.

In addition, interest on the unpaid amount can be levied at a penalty rate rather than the market rate.

However, the ATO has said it will reduce penalties by 80 per cent when there is a ''full, voluntary disclosure''.

King says people considering making a disclosure should seek professional advice. ''It can be a bit intimidating - most people would be well advised to see their accountant.''

Key points

❏ The ATO is on the hunt for overseas income that has not been declared by Australians.
❏ You have to declare the income even if tax is not payable here.
❏ The ATO will be lenient if you make a full, voluntary disclosure.
❏ Keep good records so you can quickly answer any "please explain" requests from the ATO.