In a statement this morning, the Australian Taxation Office (ATO) said it was urging all eligible taxpayers with hidden foreign income and assets to come forward, ahead of what it said was a “global crackdown on people using international tax havens”.
The voluntary disclosure initiative is being called “Project DO IT”, the initials of which stand for “disclose offshore income today”.
Chris Jordan, Australia’s commissioner of taxation, said the disclosure initiative would give those who haven't declared their overseas assets and income to Australia's tax authorities to come back into the system before 19 December 2014, when the initiative is set to end.
If the ATO finds individuals who have undeclared assets first, however, they will face the same penalties that they would if they had waited until 20 December 2014 to come forward.
“Now is the time for individuals with offshore income to get their affairs in order, and avoid steep penalties and the risk of criminal prosecution for tax avoidance,” Jordan said, in this morning’s announcement.
“As governments around the world step up their data sharing and harness powerful technology to find tax cheats, the concept of the 'tax haven' is dying," Jordan added. "It's just a matter of time before you'll be caught.
"If you’ve got international tax liabilities, act now and come forward, and we’ll bring you back into the system. If you don't declare your interests, you'll be caught and penalised.”
Under the disclosure initiative, those who come forward will “generally” only be assessed for the last four years, even if they held the assets offshore for longer than that, and be liable for a maximum shortfall penalty of just 10% of their debt rather than 90%, the ATO said. Those coming forward also will escape investigation by the tax authority, and will avoid criminal prosecution.
Amounts covered by the initiative, the ATO said, include:
- foreign income or a transaction with an offshore structure
- deductions relating to foreign income that have been claimed incorrectly
- capital gains in respect of foreign assets or Australian assets transferred offshore
- income from an offshore entity that is taxable in your hands.
More generous
The initiative unveiled today is not Australia's first amnesty scheme. However, previous amnesties, in late 2009 and 2007, were less generous, according to published reports.
In offering tax evaders an avenue for coming forward with reduced penalties, Australia joins a long list of G20 countries that have set up similar initiatives at a time when growing international tax transparency is making offshore hiding of assets increasingly difficult to achieve and maintain.
The US, UK, Italy, Germany, Spain, Greece and Austria are among thoss that have set up similar schemes – in some cases, more than one scheme – over the past decade.
Project DO IT also comes as the Australian Government is seeking to make major changes to the Future of Financial Advice Act, which was brought in by the previous government, and which was aimed at raising the standards for financial advice on offer in Australia. The rollback of FOFA is part of newly-elected Australia prime minister Tony Abbott's effort to cut a promised A$1bn in red tape annually.
‘Significant’
Geraint Davies, managing director of UK-based Montfort International, an advisory firm which specialises in looking after UK individuals who move to Australia or return there, said Project DO IT was “significant from many perspectives”. And given that it is in force from today, he noted, those who believe they may be at risk of imminently being tracked down by the Australian tax authorities may feel pressure to disclose sooner rather than later, to avoid the risk of being heavily penalised.
“In the past week we have seen a complete re-vamp of pensions in the UK, while tax rules everywhere are getting more and more complicated, with the result that the average taxpayer is increasingly bewildered as to what he or she is expected to pay,” Davies said.
In this newly complex world of tax, individuals with Australian tax obligations – as well as advisers with such individuals among their clients – will need to take a hard look at their assets outside of Australia to determine whether they fall under the parameters of the disclosure initiative, Davies said.
"Even own homes rented out will be subject to these rules, as well as ISAs, share portfolios, trusts and company ownerships.
“Many migrants and returning nationals could find themselves caught up in this,” he added.
To read about the UK's so-called Liechtenstein Disclosure Facility, click here.
To read about how the US national taxpayer advocate earlier this year declared the US Internal Revenue Service to have been “too hard” on those Americans who’d come forward in recent years to disclose their unreported overseas bank accounts‚ click here.
To learn more about Project DO IT and to download the seven-page disclosure statement from the ATO's website, click here.
