A renewed focus from the Australian Taxation Office (ATO) on those seeking to migrate funds from overseas highlights the need for prudent tax planning prior to transferring.

The ATO recently issued an alert effectively putting people on notice that if they wish to transfer funds into Australia, they will need to pay the appropriate level of tax on the transfer. As Australia continues to attract strong levels of investment, particularly in respect to real estate, the alert serves as a timely reminder.

In 2014, the ATO provided a one-off amnesty under Project DO IT to allow eligible taxpayers to disclose omitted offshore income, capital gains and over-claimed deductions for reduced penalties as well as protection against criminal offences.

However, the intervening period, the tax office has significantly more information-gathering powers than it did during the time of the amnesty, increasing its level of resourcing and entering into tax information exchange treaties with other jurisdictions.

One of the more common errors is claiming the funds being transferred are a loan from an unrelated party, or masking it through family members or other structures.

Should the transferring party indicate the funds are a loan, the ATO will speak with the person providing the money. There are provisions in Australian law which can be applied unexpectedly that can treat a loan from overseas as income; if shareholders take money from the company as a loan, but it’s not documented properly, for example, it can be treated as income.

Australia’s tax law system is unique in its administration compared to many neighbouring countries, and there can be some hesitation for new entrants to engage in tax planning upfront. However, investing in tax advice – which is tax deductible – will save time and money.

If a taxpayer is unsure about whether their existing affairs are compliant, a review is recommended to understand and explain any risk areas, and consider appropriate tax planning strategies including sourcing further evidence and/ or making a voluntary disclosure to the ATO. This can mitigate against substantial penalties, time, cost and angst of a protracted ATO review or audit.