With the international net tightening on tax evasion and global tax havens, the Australian Taxation Office earlier this year announced an initiative to encourage taxpayers to voluntarily disclose their unreported offshore interests,
Effectively a nine-month amnesty, Project DO IT pertains to Australian taxpayers who have previously not disclosed foreign-sourced income or capital gains, or taxpayers who have previously over-claimed deductions relating to foreign income.
Given the increasing focus on international tax avoidance, along with continuously enhanced capacity for the automatic exchange of tax information with other jurisdictions, the risk of detection is increasing. The concessions offered by Project DO IT are worthy of serious consideration by eligible taxpayers seeking to come clean,
Project DO IT
Since the announcement of Project DO IT in March 2014, there have been significant expressions of interest, where taxpayers have identified themselves and stated that they will be making a disclosure of previously unreported foreign income and assets. The ATO is expecting a large number of voluntary disclosures towards the end of the amnesty, which closes on 19 December 2014.
The initiative will provide eligible taxpayers (whether individuals, companies, partnerships, trusts, etc) with a mechanism to make disclosures to the ATO concerning their international taxation affairs, with the ability to take advantage of significantly reduced penalties and a capped number of amendment years.
The ATO has further undertaken that taxpayers eligible for Project DO IT will not be investigated further for fraud or evasion.
Are you eligible?
A taxpayer who has recently lodged a voluntary disclosure outside of the Project DO IT process may still be eligible to participate in the initiative, in circumstances where amended assessments have not yet been issued and there has been no finding of fraud or evasion.
Certain taxpayers will be ineligible for Project DO IT. For example, if they are already under auditor are involved in the objection stage or litigation relating to the omitted offshore income, capital gains or over-claimed deductions.
Unique concessions
Under the initiative, the ATO is providing a number of benefits to those who are accepted. As Project DO IT will operate independently of a standard voluntary disclosure, it will have the following unique concessions:
. The taxpayer will only be assessed for years that fall within the time limit for the tax commissioner amending an assessment (generally four years). The normal rules allow for unlimited years of review for fraud or evasion.
. The shortfall penalty will be capped at 10 per cent. The normal rules can impose penalties of up to 90 per cent.
. The ATO will agree not to investigate the disclosure for the purposes of a criminal prosecution or refer the disclosure to any other law enforcement agency. (However, this will not apply to promoters of tax evasion schemes.)
. For taxpayers seeking to wind up offshore structures and repatriate their offshore assets to Australia, the ATO will provide certainty on the appropriate tax treatment of these transactions. A concession is also provided in respect of amounts repatriated to Australia when there is a winding-up of the offshore structure.
. It will enable a taxpayer to enter into a deed of settlement with the ATO to provide certainty of outcome.
Time is of the essence
These concessions make it very attractive for eligible taxpayers to come forward and disclose interests before Project DO IT closes on 19 December, especially given the ATO has foreshadowed that more robust compliance activity will follow.
The last time a similar initiative was offered was back in 2009, and there were similar initiatives prior to that Taxpayers might rightly ask whether they should hold off until the next initiative is launched. But they face a real risk that no future similar amnesty will be offered. If that is right, then they are greatly increasing the possibility that they will eventually be caught.
Time is running out and until the taxpayer lodges the disclosure statement, the ATO will continue to run its normal compliance activities. If taxpayers are detected before they come forward, they may not be able to participate in this initiative,
As at 30 June 2014, there had been more than 250 expressions of interest, where taxpayers identified themselves and pledged to make a disclosure.
Will this represent the last opportunity for people to get their offshore tax affairs in order? Only time will tell.
