ATO Encourages Taxpayers To Disclose Offshore Activities

by Mary Swire, Tax-News.com, Hong Kong

02 December 2009

Australia’s Tax Commissioner, Michael D’Ascenzo, has announced a new offer for Australians who may not have declared all their income from offshore activities. They are being encouraged to come forward and make a voluntary disclosure.

Under normal circumstances, a taxpayer who has omitted foreign income (for example, interest earned or capital gains) or who has over-claimed deductions, and who chooses not to tell the Australian Taxation Office (ATO) about it, runs the risk of being audited in the future.

Under the offshore voluntary disclosure initiative, which will be open until June 30, 2010, taxpayers who voluntarily come forward will suffer a fixed shortfall penalty.

However, as Michael D’Ascenzo emphasized, “there’s a much higher price to be paid later if we discover undeclared income through an audit process. Penalties can be as high as 90%, and we will seek prosecution in serious cases”.

“This new offer provides a good opportunity for people who want to do the right thing to get their tax affairs in order,” he continued, warning that:

“Our ability to trace fund flows around the world is constantly expanding. We work closely with banks and other overseas tax jurisdictions to identify people with undeclared income — including those with highly complex and sophisticated arrangements.”

The ATO matches data supplied by overseas revenue agencies with income tax returns to identify undeclared foreign income, as well as using data from financial institutions to identify Australian residents involved in foreign transactions.

The Office made a similar offer in 2007. However, compared to 2007, the new offer increases the shortfall penalty from 5% to 10% where a person’s additional income from offshore activities is more than AUD20,000 (USD18,250) in a tax year.

Those with additional taxable income of AUD20,000 or less in a tax year will not have to pay a shortfall penalty for that year. That remains unchanged from the previous initiative.

In addition, the disclosing taxpayer’s general interest charge will be reduced to nil for tax years up to and including the 2002 tax year, and to the base rate for the 2003 and 2004 tax years. The shortfall interest charge applying for 2005 and later tax years will be at the normal rates.

As at the end of October 2009, more than 3,000 disclosures had been made, totalling over AUD306m in omitted income, and flagging up nearly AUD65m in liabilities.

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