As you know, Australia is a country built on immigration. In fact, many medical professionals were trained and qualified overseas, specifically from the UK, Asia, and Africa.
That may mean that many medical professionals hold assets abroad or generate income abroad.
According to Australian tax law, an Australian taxpayer is liable for their worldwide income even if that income was taxed overseas.
With the ATO receiving so much information from other countries, it is usually only a matter of time before the ATO knows about foreign income that has yet to be declared.
Australia has numerous double-tax treaties with other countries. Countries such as New Zealand have traded information with Australia for years. Hong Kong started about five years ago. The latest big ones are India and China. And the ATO is rubbing its hands with these two.
That is because until a few years ago, hardly anyone in India or China completed tax returns, which meant they had no information to give to the Australian ATO. Ten years ago, only 33 million people filed tax returns in India, which is tiny out of a billion-person population. Last year, the figure was nearer 100 million, and with the Indian government forcing more tax compliance, it will only get bigger.
I was in India in November 2023 and met a man in his fifties who had run his own business for about 25 years. He had never paid taxes in his life. He started paying Indian taxes two years ago because tax compliance meant he now had to be registered and pay taxes. The Indian Government is now forcing rental, dividend, and interest income tax declarations, and slowly, this information is being passed onto the ATO if the recipient is living in Australia.
Many medical professionals living in Australia do not declare their overseas income because it increases the tax bills. That is becoming more dangerous.
It is common for large sums of money to be transferred from overseas into Australian bank accounts. When this happens, Austrac tracks it and informs the ATO, so the ATO is already aware that large sums of money are being deposited.
The ATO then checks Australian tax returns to see if foreign income is declared. If not, they ask questions.
Many clients have told me family and friends have gifted them the money they have received. Some will say it is a loan from family and friends, and some will say it is an inheritance.
But do not assume the ATO will take that and walk away. A recent court case is a prime example.
The ATO questioned a couple who received overseas income to be told there were gifts and loans from the husband’s father. The ATO asked for more concrete evidence – specifically how the gift and loan came about, how it was created and given, and if the father could provide such a gift. They were more interested in the why and how. The couple were unable to provide appropriate evidence, and the amount was treated as taxable income. The ATO added fines and interest, and the tax bill became almost seven figures big.
Sometimes, declaring income from overseas can be beneficial. Recently, we had a new client who had not declared their foreign rental income. There was no intent to defraud the ATO; they did not know they had to declare foreign income.
After discussions, we discovered that declaring income would result in a refund on Australian taxes. Fortunately, we were able to change the last two years’ tax return and get the refund.
The bad news? They lost two years of refunds because the ATO would not allow us to go back more than two years.
This is why having the right advisors makes sense. They help you navigate what works for you, what you can and cannot do, and how to avoid sitting in front of the ATO trying to explain something that cannot be explained.
Paying the correct amount of taxes (but no more) is step 2 of our 9 steps to work less, earn more, and create awesome wealth. If you want to know more, contact hitesh@medisuccess.com.au or call 07 3172 0819.
