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Overseas gifts and loans in the spotlight

January 2022


The Australian Tax Office has long flagged gifts and loans from overseas as likely to come under scrutiny. If you receive funds from overseas, they need to be declared.

The Australian Tax Office (ATO) has long been concerned about schemes and arrangements designed specifically to circumvent Australian tax laws and has recently issued an alert concerning gifts or loand from overseas. The ATO is particularly focused on schemes that disguise offshore capital gains or income as a gift or a loan.

Australian-resident taxpayers need to declare their worldwide income in their Australian tax return.

So, how do the ATO know if money from overseas is a genuine gift or loan?

Gifts and documentation

The ATO has extensive data matching capability at its disposal, which it has long employed as part of its programs to identify potential income from overseas sources.

If an Australian-resident receives income from overseas, generally the ATO will expect to see some form of evidence that the gift is genuine. For example:

  • A deed of gift prepared by the donor
  • Formal identification of the donor
  • A copy of the donor's bank account, or
  • In the case of inheritance, the will or distribution statement from the estate.

Receiving loans from overseas

If you have received a loan from overseas, the ATO will expect to see properly executed loan documentation, and other documentation supporting why the loan was made and its purpose. Third party documentation is best as documentation from a family member may not be accepted as conclusive evidence of a loan. The ATO will form its view based on the evidence available. Loans received from companies or trusts can still trigger tax issues in Australia.

It's better to disclose than to be caught in an audit

Generally speaking, it is better to include any foreign-sourced gifts or loans in your tax preparations as discovery by the ATO can result in substantial penalties.

If you've received a gift or a loan from overseas funds, but have not yet declared it, speak to your accountant on 02 9957 4033.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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