Businesses and individuals may receive income from various sources; local, national or even international. You may find that part or all of your income comes from overseas (such as through sales, rental income or other sources). However, all income needs to be assessed to determine whether you will need to pay tax on it.

The Australian Taxation Office (ATO) is concerned about taxpayers failing to disclose assessable income (funds received from overseas) that are reported instead as gifts or loans.

This unreported or incorrectly reported accessible income may include:

• overseas employment or business income
• interest from foreign financial institutions or loans
• dividends from foreign companies
• a capital gain on the disposal of a foreign asset (such as shares in a foreign company)
• deemed amounts of foreign income concerning interests in foreign companies or trusts.

Sometimes taxpayers and their advisors may try to get creative with avoiding this assessable income being reported correctly. This may involve labelling or reporting it as a gift or a loan, resulting in different taxable consequences.

Accepting an overseas gift or loan isn’t wrong, especially if you report it correctly. Mislabelling foreign income and capital gains as such, however, is a major red flag for the ATO.

This can result in significant penalties, though (of up to 90% of the amount plus shortfall interest), as well as a risk of criminal prosecution and penalties under criminal law for the taxpayer and their advisor.

If you have concerns about compliance regarding foreign income and misclassifying it as a gift, you must speak with a registered tax agent as soon as possible.

You may also wish to conduct an independent review with their assistance to determine what may be a risk to your assessment and how you can mitigate and proceed with tax planning to accommodate them.

Start a conversation with us if you expect to receive foreign income and will need to declare it during this financial year.