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Overseas gifts and loans in the spotlight

Nov 15, 2021 | Accounting, Financial Invesment, Taxation, Taxes

The ATO has recently issued an alert on gifts or loans from overseas. The ATO is particularly concerned about schemes and arrangements designed specifically to circumvent Australian tax laws. In general, Australian-resident taxpayers need to declare their worldwide income in their Australian tax return. Some schemes however disguise offshore capital gains or income as a gift or loan. Have you or someone you know received overseas gifts and loans? Read on!

Genuine gifts or loans received from related overseas entities (including family members and friends) are sometimes used to fund business structures or to acquire income producing assets.

In this context, a genuine gift or loan is one where all of the following are satisfied:

  • the characterisation of the transaction as a gift or loan is supported by appropriate documentation
  • the parties’ behaviour is consistent with that characterisation
  • the monies provided are sourced from funds genuinely independent of you.

So, how do the ATO know if money from overseas is a genuine gift or loan? Generally, the ATO will expect to see some form of evidence that the gift is genuine such as a deed of gift prepared by the donor, formal identification of the donor, a copy of the donor’s bank account, or in the case of an inheritance, the will or distribution statement from the estate.

If you have received a loan from overseas, the ATO will expect to see properly executed loan documentation, and other documentation supporting why the loan was made and its purpose. Third party documentation is best as documentation from a family member may not be accepted as conclusive evidence of a loan.

The ATO will form its view based on the evidence available.

Loans received from companies or trusts can still trigger tax issues in Australia.

When you receive amounts that are genuine gifts or loans from related overseas entities (including family members and friends) to fund your business or to acquire income producing assets, it’s important that you have appropriate documentation that shows the character of the amounts received. Good contemporaneous record keeping practices are desirable should the Commissioner seek to verify whether the amount you have received is a genuine gift or loan.

Should you require assistance in respect of determining whether funds are gifts or loans, please reach out to our Team of foreign income specialists.