No.23: ATO Offshore Voluntary Disclosure Initiative

On 27 March 2014 the Commissioner of Taxation announced an Offshore Voluntary Disclosure Initiative entitled “Project DO IT” whereby taxpayers are invited to voluntary disclose to the ATO any undisclosed foreign income or foreign capital gains or previously over claimed tax deductions in relation to foreign income.

In its announcement the ATO comments that increased international cooperation between Australia and other countries has increased the likelihood that previously undisclosed offshore financial activities will be detected by the ATO which unless voluntarily disclosed to the ATO will expose taxpayers to the full force of the law including severe penalties.

Project DO IT is open to companies, individuals, corporate limited partnerships, partnerships, trusts, superannuation funds and executors and administrators of deceased estates.

Where a taxpayer makes such a voluntary disclosure the ATO has indicated that:

  1. There will be a significant reduction in penalties in respect to any underpaid tax (capped to 10% of the tax shortfall compared to up to 75% normally);
  2. Taxpayers will only be subject to amendments for tax returns within the normal time limit for amending a tax return (normally 4 years from the date of issue of the assessment). This compares to usually an unlimited amendment period where there is fraud or evasion.
  3. The ATO will not investigate taxpayers who take advantage of this initiative for fraud or evasion.
  4. The ATO will not investigate the disclosure for the purpose of criminal prosecutions or refer the disclosure to other law enforcement agencies.
  5. Where a taxpayer seeks to wind up offshore structures and repatriate the offshore assets to Australia, the ATO will provide certainty as to the appropriate tax treatment of those transactions and a concession in respect to the amounts repatriated.
  6. It will provide the facility for taxpayers to enter into a deed of settlement to provide certainty going forward.

The benefits are only available where taxpayers make the necessary disclosure to the ATO before 19 December 2014 (but an extension may be available in limited circumstances).

Taxpayers cannot take part in this program if:

  1. they are currently under ATO audit (or come under audit scrutiny prior to making a disclosure) in relation to omitted offshore income or capital gains or over claimed deductions;
  2. the ATO has issued a compulsory information gathering notice in relation to omitted offshore income or capital gains or over claimed deductions;
  3. if there is a current dispute (objection) or litigation in respect to offshore income issues;
  4. a taxpayer has not complied with specific obligations under past offshore voluntary disclosure initiatives;
  5. the offshore assets were derived from serious criminal activities; or
  6. a taxpayer is under a covert ATO investigation.

This last point seems a bit contentious as a taxpayer will disclose their hand but then not qualify for the concessions under the program potentially leaving them open to significant penalties and having no cap on past assessments.

Taxpayers who do not qualify under Project DO IT can still make a voluntary disclosure under the ATO normal voluntary disclosure rules and then negotiate a specific settlement.

What you need to do?

If you believe you could benefit from this initiative by the ATO please contact your Blaze Acumen advisor and we can assist you in making a submission to the ATO.