Many people in Australia receive gifts or loans from relatives overseas. As a result, it is not uncommon for the ATO to scrutinise these transactions to ensure they are genuine and not undeclared taxable income or capital gains. 

If you are the recipient of a financial gift or loan from overseas, it is important that you clearly document the nature of the amount received and keep supporting documentation to reduce the risk of the funds being incorrectly treated as income by the ATO.

ATO will notice large deposits and may ask questions

We have had a number of instances where the ATO has noticed large deposits in a taxpayer’s bank account and have requested additional information.  In extreme cases where the request for information has been ignored, the ATO has issued deemed assessments to the taxpayer.

You should note that once a deemed assessment is issued, it is up to the taxpayer to show sufficient evidence that the deposits or receipts are not income.

ATO has released guidance and Taxpayer Alerts

The ATO has released some guidance on documenting gifts or loans from overseas related parties and the following will be considered supportive documentation to prove receipts are gifts:

• Declarations the donor has made in their country of residence about the nature of the amounts transferred
• A deed of gift prepared by the donor
• Formal identification of the donor (such as a copy of their photo identification from their passport or identity card) to support declaration or deed of gift
• A certified copy of the donor’s will or distribution statement where coming from a deceased estate
• A copy of the donor’s bank statements showing the gift and potentially also the source of the funds
• Financial records reflecting the donor’s transfer to the taxpayer

https://www.ato.gov.au/Business/Business-bulletins-newsroom/Tax-avoidance/Disguising-undeclared-foreign-income-as-gifts-or-loans/

https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/Tax-governance/Tax-governance-guide-for-privately-owned-groups/Gifts-or-loans-from-related-overseas-entities/

Ensure you have any paperwork to support your claim of a gift or loan at the time of receipt as it may be too hard later to obtain.

Gathering the above evidence at the time the gift or loan is received will be far easier than trying to obtain information many years after.    

Often, gifts are from parents or older relatives. As they become elderly they may no longer be capable of signing a document of declaration or by the time the audit takes place, they may have passed away. 

Furthermore, obtaining bank records from a foreign country where the gift maker is either incapacitated or no longer a customer of the bank can be extremely difficult. 

Therefore it is important to ensure that any large gifts or loans from overseas are documented at the time the funds are received rather than waiting for a call from the taxman forcing you to prove the legitimacy of the transaction.

If you are unable to find the required documentation, it is no longer accessible or it’s impossible to prove the funds received were not income, the ATO will deem the amount taxable income. 

How can Umbrella Accountants Help?

Should you be the recipient of a gift or loan from a relative overseas and you need further guidance understanding what is required to document the transaction, please do not hesitate to contact our office to speak with one of our accountants.