On the 21st March 2012, the Australian Tax Commissioner announced a new focus on finding undeclared foreign income and offered an incentive to anyone who has forgotten to include foreign income in their Australian tax returns.
For people living permanently in Australia as tax residents, there is a requirement to declare all worldwide income and gains as taxable in Australia.
Many people try and hide funds in offshore trusts or simply fail to declare property or investments held overseas hoping not to be caught out.
With improving technology and increasing resources, the Australian Tax Office is more capable than ever to find hidden assets and intends to aggressively seek out tax avoiders.
The current Anti-Avoidance provisions of the Australian Tax Law give the commissioner great powers to tax entities controlled by people living in Australia regardless of the layers of legal structure that surround it.
Penatlies for those caught can amount to 75% of the tax avoided plus back dated and compounded interest, so you could end up losing all the non-declared income anyways.
A special 80% reduction in penalties will apply for anyone coming forward voluntarily to advise of undeclared income or gains.
Importantly, the need to declared worldwide income only applies to those living permanently in Australia and having their "home" there. This test is very much about your dominant abode, so you can be deemed to be living in Australia even if you spend more than half of the year abroad if the Tax Office believes Australia is your main base.
For Australian expatriates and foreign investors living genuinely out of Australia there is no need to declare foriegn income or gains in your Australian tax returns. When you eventually start living in Australia in the future, you will then have an obligation to declare, however with sensible and legal tax planning the tax cost on this is likely to be very moderate.
If you need assistance in determining your exposure to this, contact tax@smats.net
