On 27 March 2014, the Commissioner of Taxation announced a “last chance opportunity” for taxpayers with undisclosed offshore income, capital gains or over- claimed tax deductions relating to foreign income to voluntarily disclose their offshore arrangements to the Australian Taxation Office (ATO) as part of an amnesty called ‘Project DO IT’’.

Time is running out for taxpayers to take advantage of this amnesty – 19 December 2014 is the last day for advising the ATO that a taxpayer intends to lodge a disclosure under the amnesty.

Benefits of the amnesty

The benefits of this amnesty are unprecedented:

  1. For eligible taxpayers, tax is assessed only for the last four years (as opposed to an unlimited period of review in cases of fraud and evasion)
  2. Penalties are capped at 10% (compared to penalties of up to 75% under the normal legislative provisions)
  3. The ATO has committed to not investigate a voluntary disclosure for the purposes of criminal prosecution, nor will it refer the disclosure to any other law enforcement agency (but noting that the ATO may pass on the information under Australia’s Double Taxation Agreements if requested to do so)
  4. The ATO will provide certainty to taxpayers in the tax treatment of their offshore arrangements. Amounts that are repatriated to Australia may receive concessional tax treatment, and
  5. Taxpayers can enter into a binding Deed of Settlement with the Commissioner, which provides certainty regarding the future tax treatment of offshore arrangements. ATO Deputy Commissioner Michael Cranston has emphasised the need for taxpayers to enter into binding settlement deeds to ensure that they receive the full benefit of the Project DO IT concessions.

Who is eligible?

Taxpayers who have undisclosed foreign income, capital gains or over-claimed deductions relating to foreign income are eligible to participate in the amnesty.

Taxpayers are ineligible from participating in the amnesty if:

  1. The ATO has already commenced an audit in relation to the omitted offshore income, capital gains or over-claimed deductions that the taxpayer seeks to disclose
  2. The taxpayer has received a compulsory information gathering notice in respect of the omitted offshore income, capital gains or over-claimed deductions that the taxpayer seeks to disclose
  3. The taxpayer has been involved in promoting or mass marketing a tax evasion scheme
  4. The taxpayer is already under criminal investigation for tax related criminal offences or has previously been convicted of tax related criminal offences, or 
  5. The taxpayer has not complied with specific obligations from a previous voluntary disclosure that he/she was involved in.

Why should taxpayers disclose?

The international tax environment is changing – Australia now has greater access to offshore information. Australia has Double Taxation Agreements with over 100 countries and Tax Information Exchange Agreements with over 30 countries, including countries previously considered ‘tax havens’ such as the British Virgin Islands and Liechtenstein. In late 2013, Switzerland signed the ‘Multilateral Convention on Mutual Administrative Assistance in Tax Matters’, which aims to address tax evasion and avoidance through creating an international standard on information exchange between countries.

The ATO also receives transactional data in real time from the Australian Transaction Reports and Analysis Centre (AUSTRAC) and other agencies which help identify and verify taxpayer activity. Additionally, the ATO has developed sophisticated data matching and risk assessment tools which are used to identify taxpayers who may not be disclosing their offshore income or assets. In this environment of increased global transparency and information sharing, the message is clear – this amnesty provides the last chance for taxpayers to voluntarily disclose their offshore affairs to the ATO.

“The net is closing for people who have undeclared offshore income – the ATO is looking at all our data and will be in touch with financial institutions, advisors and thousands of people over the coming months”

  • Deputy Commissioner Michael Cranston, ATO.

The ATO’s approach to the amnesty

The ATO is open to negotiating the application of Australian tax laws to the taxation of offshore arrangements. The ability to negotiate highlights the importance of executing a binding Deed of Settlement with the Commissioner, as this is the only “guarantee” that the Commissioner will impose a tax liability which is consistent with the agreement reached between the taxpayer and the Commissioner during negotiations.

As of mid-August 2014, the ATO had received approximately 320 voluntary disclosures and 450 Expression of Interest (EOI) letters. An EOI is a letter of intent submitted by a taxpayer which advises the ATO that he/she intends to lodge a voluntary disclosure. The ATO is expecting more taxpayers to come forward as 19 December approaches – after this date, the ATO will aggressively pursue taxpayers who have not taken advantage of the amnesty.