To identify undeclared foreign income, the ATO has previously used financial intelligence collected by the Australian Transaction Reports and Analysis Centre (AUSTRAC) as well as information shared by foreign banks and financial institutions.
However, foreign employment income reviews are now becoming common-place, with the ATO seeking to check the extent to which employment income reported in a foreign jurisdiction should be and has been declared in the individual’s Australian tax return.
During these reviews, we have seen foreign country tax authorities supply the ATO with income data as reported on foreign country payment summaries. The ATO has then attempted to match this data with the income reported in the Australian income tax return.
We have also seen the ATO extend foreign employment income reviews to a review of the individual’s Australian tax residency status. This extended review can arise particularly in cases where the individual has excluded foreign employment income from the Australian tax return on the basis that they were a non-resident of Australia for tax purposes whilst working overseas. In conducting the review, the ATO may also access the individual’s international movement records from the Department of Immigration and Border Protection.
Therefore, getting the cross-border reporting of employment income right is especially important. In particular, the reporting of short-term and long-term incentive income paid to an employee who has been on an overseas assignment should be an area of focus for employers for the 2014 tax year.