As previously foreshadowed, the ATO announced this project on 27 March 2014 as an initiative to allow taxpayers to come forward and voluntarily disclose unreported foreign income and assets and face reduced scrutiny and penalties.

If you lodge Australian tax returns or have clients who lodge Australian tax returns, you need to be aware of Project DO IT (Disclose Offshore Income Today).

The majority of press coverage for Project DO IT is concerning taxpayers who have sheltered assets and income in offshore tax havens. However, you may also have clients who inherited money many years ago and it has been left in their previous home country or where the deceased resided and has subesquently never been disclosed as part of worldwide income in Australia.

Does it apply to you?

All individuals, companies, corporate limited partnerships, partnerships and trusts (including superannuation funds and executors or administrators of deceased estates) are eligible to participate in this initiative unless specific exclusions apply to your situation.

What it is intended to do?

Project DO IT is intended to provide Australian taxpayers with an opportunity to declare previously unreported offshore financial activities before the ATO detects the activities.

The initiative covers amounts not previously reported or incorrectly reported in tax returns, including:

  • foreign income or a transaction with an offshore structure
  • deductions relating to foreign income that have been claimed incorrectly
  • capital gains in respect of foreign assets or Australian assets transferred offshore
  • income from an offshore entity that is taxable in your hands.

How is this different to prior initiatives?

Project DO IT differs from past initiatives in several respects. If the ATO accepts the disclosure under this initiative:

  • Taxpayers will only be assessed for the years where the time limit for amending the return has not yet expired (generally four years from lodging) – so a 20 year problem can be converted into a 4 year issue
  • The information will only be used for the purposes of calculating tax shortfalls
  • The ATO will not form an opinion on previous fraud or evasion
  • The ATO will not investigate the disclosure for the purpose of prosecution
  • The ATO will not voluntarily provide the information to other law enforcement agencies
  • The ATO will cap the tax shortfall penalty at only 10% (or remit in full)
  • The ATO will work with taxpayers who wish to wind up offshore structures and bring capital to Australia.

What you need to do

Assessing risk and unwinding existing arrangements takes time. We suggest you start reviewing your Australian tax returns and financial affairs now.

You have until 19 December 2014 to make the disclosure. If you need time to organise your records, you have the option of lodging an 'expression of interest' to participate in the initiative.

What happens if you don't do anything?

The ATO now exchanges information with over 100 jurisdictions and 'tax havens' are actively participating in this program. If the ATO detects your activities before you make the disclosure, the ATO has confirmed that it will use the full force of the law and as a consequence you may be subject to severe financial penalties (up to 90% of the shortfall tax) and potential criminal prosecution.

How can we help?

With significant experience in this space, our team of specialists at Moore Stephens can assist with the review of your Australian tax position and provide advice as to how the disclosure regime could benefit you. If there is a need to declare previously unreported offshore financial activities, we can advise, guide and assist with completing the disclosure statement together with planning a suitable structure on repatriating funds.

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