The Australian Taxation Office (ATO) has reminded taxpayers to report all foreign income this tax time or risk facing hefty penalties. This includes but is not limited to income derived from work, investments or family members.
The call for accurate reporting comes off the back of recently implemented international data sharing agreements. In accordance with the Common Reporting Standard (CRS), the ATO is able to track money across borders and easily identify taxpayers not meeting their tax obligations. The ATO recently announced it received records pointing to more than $100 billion across 1.6 million offshore accounts.
Furthermore, the ATO has shared data relating to the financial account information of foreign tax residents with more than 65 foreign tax jurisdictions. The range of information includes account holder information, account balances, interest, dividends, sales of assets associated with the taxpayer (and any entities connected with them) plus more.
Another caveat of unreported foreign income is the impact it may have on the timeliness of an individual receiving their tax return. Over a million more tax returns were filed this year compared to 2018 and a major motivating factor behind this trend was a desire to access tax refunds as soon as possible off the back of federal election promises of increased returns. However, inconsistencies between reported income and the income uncovered through the international data sharing scheme will, at the very least, lead to delays in receiving tax returns, with the possibility of more stringent consequences as well.
What you need to do
Firstly, you are required to accurately and honestly determine if you are a tax resident in Australia. This can be a highly complex area and we recommend you speak with a tax specialist to help. As specialists in this area, we take this opportunity to share with you a very common misconception about the Australian tax residency rules – the fact that you are not in Australia for more than six months does not mean that you are not a tax resident here. It is possible to trigger tax residency in several ways, so it is imperative that you seek professional advice.
If you are a tax resident in Australia, you are taxed on your worldwide income. Therefore, you are required to report all your foreign income to the ATO, regardless of how small the amount may be. Foreign income includes income derived from investments and properties, work, bank account earning interest or rental income. In certain circumstances it may also include profits from foreign businesses that you own.
You should also be aware that foreign income includes any income which you have paid tax on in the foreign jurisdiction (in this instance, you may be able to claim a foreign income tax offset).
If you have not declared all your foreign income to the ATO, you are encouraged to make a voluntary disclosure as soon as possible.
If you are not a tax resident in Australia, you still need to be mindful that the ATO will share your financial account information with your home country tax jurisdiction.
If you have any questions about this, or your tax situation more broadly, please get in touch.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.