WHAT IS AN OFFSHORE VOLUNTARY DISCLOSURE?
Offshore voluntary disclosure involves you volunteering information on your own initiative to the Commissioner of Taxation (Commissioner) concerning your unreported foreign income or capital gains, or deductions that you have over claimed, arising from your offshore activities, without prompting or apprehended pressure from the Commissioner. The Commissioner will consider that an offshore voluntary disclosure will be made on your own initiative without prompting or apprehended pressure from the Commissioner where the disclosure has not arisen from you being audited directly or indirectly in connection with the undisclosed foreign income and assets nor received an information request from the Commissioner relating to your omitted offshore income.
It is not an offence to have income and assets offshore in other countries or tax havens. However, the Commissioner has the power to impose shortfall penalties up to 90% as well as refer the matter for criminal prosecution to the Commonwealth Director of Public Prosecution if you deliberately and wilfully attempt to conceal income and assets offshore.
Importantly, you need to make a genuine attempt to inform the Commissioner of your mistake for failing to disclose your foreign income and the circumstances for failing to do so as well as take measures to correct the mistake to ensure an accurate assessment of your tax affairs is provided. Accordingly, you need to be candid and truthful in making a voluntary disclosure to the Australian Taxation Office (ATO) and be prepared to cooperate with, and provide a timely response to, the ATO concerning any further requests for information or explanations arising from your offshore voluntary disclosure. Significantly, your original voluntary disclosure may not be regarded as constituting a complete disclosure if you provide incomplete information for the purpose of obstructing or hindering the Commissioner from identifying the full shortfall amount.
There are several ways to make a voluntary disclosure to the ATO, notably:
- making a Standard Offshore Voluntary Disclosure Statement in writing, or over the telephone, to the ATO Voluntary Disclosure Team;
- making a voluntary disclosure under an ATO voluntary disclosure amnesty or initiative; and/or
- making a private binding ruling in relation to your offshore income and amending your tax returns in accordance with the private ruling.
STANDARD OFFSHORE VOLUNTARY DISCLOSURE STATEMENT
The standard voluntary disclosure process requires you to voluntarily disclose to the Commissioner in writing, or over the telephone, any unreported income, capital gains, or over claimed deductions, relating to your offshore activities. This avenue will always be available to you regardless of whether there is an offshore tax amnesty / initiative or not.
The ATO provides concessional taxation treatments for any administrative penalties that may apply. Accordingly, the ATO will reduce any shortfall penalty imposed by the ATO for voluntarily disclosing foreign income or capital gains by 80% or 20%.
2007 OFFSHORE VOLUNTARY DISCLOSURE INITIATIVE (2007 OVDI)
In 2007, the Commissioner announced an Offshore Voluntary Disclosure Initiative to encourage taxpayers to voluntarily disclose their unreported foreign income and get their tax affairs in order. Under the 2007 OVDI, if a taxpayer’s additional taxable income after the voluntary disclosure was:
- $20,000 or less in an income year, the taxpayer would not need to pay a shortfall penalty for that income year; or
- more than $20,000 in an income year, the taxpayer would need to pay a shortfall penalty at 10% for that income year.
In addition, the general interest charge for the 2003 and 2004 income years were reduced to the base rate. For tax years prior to the 2003 income year, the general interest charge on the tax shortfall was reduced to nil. The 2007 OVDI offer ended on 30 June 2010.
2014 PROJECT DISCLOSURE OFFSHORE INCOME TODAY (PROJECT DO IT)
In 2014, the Commissioner issued a new tax amnesty called Project Disclose Offshore Income Today (Project Do-It) requesting taxpayers to disclose their offshore income and capital gains.
Importantly, you must submit the Disclosure Statement – 2014 before 19 December 2014 to receive the benefits of Project Do-It. Until you lodge the Disclosure Statement 2014, you may be subject to an audit concerning your unreported offshore income and disqualified from participating in Project Do-It.
Under the 2004 Project Do-It, and like the 2007 OVDI, you only need to pay a shortfall penalty at 10% for the income year where your additional taxable income after the voluntary disclosure was greater than $20,000 for that income year.
Other benefits of participating in Project Do-It include:
- The time limit for amending your tax returns is 4 years
- The ATO will not investigate your offshore disclosure for the purposes of prosecuting you for a criminal offence
- The ATO will not refer your offshore disclosure to the Commonwealth Director of Public Prosecution or another law enforcement agency
- The ATO can provide guidance as to the tax effects of winding up offshore disclosures or transferring your offshore / foreign asset(s) to Australia
However, shortfall interest charges continue to apply. Nevertheless, you are entitled to make an application to the Commissioner requesting a remission of the shortfall interest charge in full or part arising from circumstances beyond your control.
Please see our article “Project Do It – Your Right To Participate” for further information regarding the 2014 tax amnesty. The ATO also provides detailed guidance on its website www.ato.gov.au/ regarding Project Do-It.
VINTAGE LAWYERS CAN ASSIST YOU WITH MAKING AN OFFSHORE VOLUNTARY DISCLOSURE
We can assist you with making a complete offshore voluntary disclosure to the Commissioner in order for you to become compliant with your past, current and future taxation affairs. We have extensive experience in assisting clients with making voluntary disclosures to the Commissioner.
We can also advise you of the taxation consequences of your offshore arrangements, including, but not limited to, the following:
- Whether you are a resident of Australia for tax purposes
- Which Country has the taxing rights for different types of income where Australia has entered into a Double Tax Agreement with that Country
- Whether you are entitled to claim a foreign income tax offset (FITO) for that income year in the absence of a comprehensive Double Tax Agreement between Australia and that Country
- Whether you need to reconcile the different end of tax year dates
- Whether you are entitled to deduct any expenses for that income year
Please visit our webpage tax litigation for a comprehensive list of tax litigation services we offer to our clients.
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