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, according to HLB Mann Judd Melbourne partner and head of tax, Josh Chye.

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.

“It’s timely as Australia continues to attract strong levels of investment, particularly in respect to real estate, both residential and within property development. The ATO has made it clear it is aware some people migrating funds here try to mask it as something it’s not, in an attempt to avoid paying tax.

“The ATO has now drawn a line in the sand and committed to scrutinising these transfers closely, so people should ensure they have received the proper tax advice before making a transfer,” Mr Chye said.

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.

“The ATO 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.

“People seeking to transfer funds into Australia therefore need to ensure their tax structuring is appropriate well before they physically transfer the funds, or risk interrogation from the ATO and other authorities,” he said.

Mr Chye said one of the more common errors is claiming the funds being transferred – typically between $2 million and $50 million - are a loan from an unrelated party, or masking it through family members or other structures.

“If taxpayers are saying it’s a loan, then the ATO will speak with the person providing the money as a loan. 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.

“The ATOs powers are far reaching and intended to also put advisers on notice and encourage them to dig deeper with clients and their financial affairs. Otherwise, advisers could be unwillingly supporting mischaracterised amounts coming in, which carries the risk of prosecution,” he said.

Mr Chye said 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.

“It reinforces the need for an appropriate level of tax planning before any transactions are undertaken. It’s also an education opportunity for many new entrants as it can set them up with building and structuring tax advice overtime,” he said.

Mr Chye said to the extent a taxpayer is unsure about how 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.

“A voluntary disclosure can mitigate against substantial penalties, time, cost and angst of a protracted ATO review or audit,” he said.