Loans and gifts received from overseas entities

On 17 September 2021, the Australian Taxation Office (“ATO”) released Taxpayer Alert TA 2021/2. This alert covers arrangements whereby Australian tax residents may fail to declare foreign income in their tax return by disguising the funds repatriated back to Australia as a ‘gift’ or ‘loan’ from a related overseas entity (e.g. family member or related entity).

Whilst there are of course genuine related-party gift or loan arrangements, the ATO is concerned that Australian-resident taxpayers are entering into arrangements to attempt to avoid or evade Australian tax on their foreign income. In addition, in the cases where the funds are repatriated to Australia purported to be a loan, the ATO is concerned that taxpayers may be manufacturing loans arrangements to claim tax deductions for interest that was never incurred.

TA 2021/2 includes the following three worked examples:

• Example 1 – disguising a foreign capital gain as a loan from a related overseas entity;
• Example 2 – disguising foreign income as a gift from a related overseas entity;
• Example 3 – disguising repatriation of profits from a foreign company as a gift from a related overseas entity.

Whilst the examples provided are by no means exhaustive, they do provide an indication of structures and arrangements that are currently being actively scrutinised by the ATO via review and audit activity.

The ATO will rely on its information exchange powers that it has with numerous other countries, AUSTRAC and other sharing mechanisms in order to gather data around these arrangements.

If you believe you have engaged in these or similar arrangements, we encourage you to contact the specialist taxation advisors at Baumgartners to review your specific circumstances to discuss an appropriate course of action.

About Baumgartners:

Baumgartners, based in Melbourne, Australia, is an entrepreneurial firm of Chartered Accountants, Chartered Tax Advisers and strategic business experts who truly believe in building successful relationships. They are an energetic and passionate firm of professionals with a breadth of technical expertise. Combined with real business experience, this sets them apart from the rest. Their practice is growing rapidly because of their genuine approach to client service, the exceptional results achieved, and emphasis on people and relationships. An integrated full-service approach to strategic planning and a broad range of services provided, from accounting and taxation through to business consulting, superannuation, growth and wealth management strategies, financial planning, asset protection and risk minimisation strategies.