ATO cracks down on offshore finances

Taxpayers should be prepared to inform the Australian Taxation Office about any undisclosed offshore income before possible changes to the department’s voluntary disclosure program come into effect.

The ATO announced over the weekend it would be reviewing the voluntary disclosure program, and warned individuals to come forward as changes to the scheme later this year may not be as lenient as the current provisions.

The changes could potentially concern thousands who either have offshore investments, or the increasing number of entrepreneurs who deal with online businesses with international operations.

Greg Hayes, senior partner at Hayes Knight, says the potential changes will affect a wide range of people who have offshore investments and run online businesses with offices overseas.

Hayes warns that if an individual receives a letter from the ATO requesting information about offshore investments, they should be willing to disclose all they know.

“What the ATO does is send a letter saying, “we understand you have some money overseas, so tell us about it”. The problem is they don’t tell you what they know. So that if they make a full voluntary disclosure, there is more incentive. Our advice is to make a full disclosure… importantly this is due to the fact you don’t know what the tax office knows. If you don’t make a full disclosure, the penalties escalate significantly.”

“Apart from those with business activities, it affects a wide range of people where they have offshore investments, as simple as bank accounts in other jurisdictions earning interest.”

Marc Peskett from SME specialist MPR Group, says more businesses are now operating on a global basis.

“A lot of businesses are now online and getting income from overseas. There is concern that they are not complying with their tax obligations,” he says, adding the ATO has been concerned for a while and “they are now moving to address it”.

Under the disclosure program, the ATO sends letters to individuals who have been identified as having significant transactions overseas, or have an offshore debit or credit card issued by a financial institution in a tax haven or low tax jurisdiction.

These letters will request information about an individual’s financial transactions. The individual then has an opportunity to reveal all about their finances, or face harsh penalties.

“You may receive correspondence from your bank or the Tax Office about the compliance program and the voluntary disclosure initiative,” the ATO website states.

But ahead of expected changes to the program due at the end of the year, commissioner Michael D’Ascenzo has warned individuals with offshore investments to come forward about those investments.

It is understood the changes will see tougher penalties towards people who do not come forward about any undisclosed offshore income.

“We are currently reviewing this offer including talking to key industry stakeholders. We are also looking at similar schemes offered overseas. When we have done our analysis we will provide more information however, if we decide to revise the offer it is likely that it will be less concessionary,” he said in a statement.

“If you were thinking of putting it off, don’t wait. We urge people to review their tax affairs and if they have undisclosed offshore income to contact us before we contact them.”

If individuals make an offshore disclosure under the initiative, and the additional taxable income is less than $20,000 for a year, then no penalties must be paid. However, if the amount exceeds $20,000 individuals are entitled to a reduced shortfall penalty of 5% of the additional liability.

However, the shortfall penalty can be as much as 90%, depending on the circumstances.