Recently at The Tax Institute National Conference in Hobart, the Commissioner of Taxation and Registrar of the Australian Business Register, Chris Jordan, announced the Australian Taxation Office's (ATO) new offshore voluntary disclosure initiative.
The following article is an overview of the effects of this announcement, as composed by Eddy Moussa, Partner -Tax and Legal at PricewaterhouseCoopers
The Commissioner of Taxation has recently announced a new offshore voluntary disclosure initiative (OVDI) for 2014, titled ‘Project DO IT: disclose offshore income today’ (Project DO IT). Taxpayers eligible for this initiative will be those who have omitted to declare foreign income or capital gains, or previously over-claimed tax deductions. This initiative will provide taxpayers 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 eligible Project DO IT taxpayers will not be further investigated for fraud or evasion.
Differences for the OVDI 2014
Project DO IT will differ from previous OVDIs in that the ATO will treat the taxpayer’s disclosure as a voluntary amendment request. In practical terms, this means that that ATO will not investigate any income tax years beyond which the Commissioner can issue an amended assessment, which is typically 4 years.
Which taxpayers are eligible?
Taxpayers eligible for Project DO IT are those who have previously omitted foreign sourced income or capital gains, or taxpayers who have previously over-claimed deductions. 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.
Taxpayers will be ineligible for Project DO IT if they are already under audit, or are involved in the objection stage or litigation relating to the omitted offshore income, capital gains or over-claimed deductions.
Benefits for a taxpayer in making an offshore voluntary disclosure under Project DO IT
As Project DO IT will operate independently of a standard voluntary disclosure, this initiative will have the following unique benefits:
1.The taxpayer will only be assessed for years that fall within the time limit for the Commissioner amending an assessment (generally 4 years) compared with the normal rules which allow for unlimited years of review for fraud or evasion;
2.The shortfall penalty will be capped at 10% compared to the normal rules which can impose penalties in a range of up to 75%;
3.The ATO will agree not to investigate the disclosure for the purposes of a criminal prosecution, nor refer the disclosure to any other law enforcement agency (however this will not apply to promoters of tax evasion schemes);
4.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; and
5.It will enable a taxpayer to enter into a deed of settlement with the ATO to provide certainty of outcome going forward.
Should you consider participating in Project DO IT?
The ATO’s increasing focus on international tax avoidance in conjunction with their continuously enhanced capacity for the automatic exchange of tax information with other jurisdictions makes the concessions offered by Project DO IT worthy of serious consideration by eligible taxpayers. This initiative makes it very attractive for eligible taxpayers to come forward given that investigations into fraud and evasion would ordinarily be unlimited in the years of review rather than the cap offered under the initiative, and particularly in light of the agreement not to further investigate the matter or refer it to other law enforcement agencies. Project DO IT will operate until 19 December 2014, after which time it has been foreshadowed by the ATO that more robust forms of audit will be pursued in this area.
The tax controversy team at PricewaterhouseCoopers is comprised of experienced tax lawyers who have extensive experience navigating clients through voluntary disclosures and previous OVDIs including drafting deeds of settlement with the ATO. They can discuss any questions you may have and advise on your legal rights and obligations in a confidential, privileged and sensitive manner.