Australia has long been a country that is very attractive to immigrants. It boasts a very high standard of living, low crime, excellent climate, low levels of corruption and a relatively robust economy. The Economic Intelligence Unit’s annual city liveability statistics have Australian (and Canadian) cities dominating the top 10 positions.
Whilst many people immigrate to Australia for the good food or nice weather, a lot of people come to Australia because their family live here or are studying here.
Immigrating to Australia, or moving part of one’s family to Australia, often requires bringing significant amounts of money – after all, university degrees and Sydney houses do not come for free. In many scenarios, people immigrating themselves, or assist their loved ones to immigrate, do not bring all of their capital with them in one tranche, consequently there are ever-increasing amounts of money coming into and going out of Australia for a variety of reasons.
Australian authorities are watching!
The Australian Government, the Australian Taxation Office (ATO) and the Australian Transaction Reports and Analysis Centre (AUSTRAC) are also exquisitely aware of this and are becoming increasingly vigilant in tracking movements of money. AUSTRAC notes on its website: “AUSTRAC’s purpose is to protect the integrity of Australia’s financial system and contribute to the administration of justice through our expertise in countering money laundering and the financing of terrorism.” It should also be noted that AUSTRAC reports significant amounts of information regarding movements of money to the ATO.
The ATO contacts a substantial number of taxpayers every year about transfers of money into their Australian accounts from foreign sources. The default position from the ATO is that these transfers are income. When the ATO contacts the taxpayer, it makes the point clear that it intends to tax this transfer as income unless you, the taxpayer, have compelling substantiation to prove that it is not income. The disturbing statistic is that only one in five taxpayers produce evidence to dispute the income tax assessment.
In our experience, many taxpayers are too frightened to engage with the ATO about it lest they risk the pending visa application of a loved one, or are concerned about the costs of a dispute with the ATO. Our experience also is that, when we produce appropriate evidence that the transfer is not income, the ATO is both professional and reasonable to the taxpayer and that these disputes are often very quickly resolved.
Documentation is the key
So how do you go about substantiating or proving that an inwards transfer of funds to your bank account in Australia is not income? Documentation is absolutely key to this and it must be prepared when the transfer occurs, not when the ATO asks for the information. If the money brought into Australia is indeed income, and there has been no previous declaration of investment earnings in Australia, then my recommendation is to declare it. The ATO are a lot less likely to fine or penalise you if you voluntarily disclose your foreign income. Australia has a well-earned reputation as being highly regulated – and it is!
Experience tells us that the ATO is very efficient in tracking money transfers. Document these transactions – do it once, do it properly and if the ATO review comes, your good documentation may very well make the ATO review go away instantly.
Finally, I’d recommend that if you are moving significant amounts of money around, sit down with your solicitor and your accountant and discuss a sensible asset protection strategy and succession planning with your assets. It’s the perfect time to do so.