If a significant sum is transferred to you from overseas, the ATO will be alerted to the transfer and may seek to tax the amount on the basis that it represents income or gains made while you were an Australian resident.  Usually the ATO will give you some warning that it intends to do this and will allow you an opportunity to contact the ATO if you believe the amount is not taxable.  If you don’t contact the ATO within time or you do contact the ATO but, despite your explanation, the ATO is not satisfied that the amount is not taxable, then the ATO may proceed to issue you with an assessment or amended assessment which treats the amount as your income or gains.  Once the assessment is issued you are obliged to pay the amount owed under the assessment.  If you fail to do so, the ATO can take enforcement action, eg, by issuing a garnishee order to your bank or employer.

In order to challenge the ATO’s assessment, you will need to provide the ATO with evidence that the amount you received from overseas is not income or gains you made while you were an Australian resident.  While you would generally need to “lodge an objection” to have an unfavourable assessment overturned, the ATO may tell you that it is sufficient to provide relevant evidence to the ATO (without lodging a formal objection) and that they will overturn the assessment if the evidence is satisfactory.  Despite this, it may still be advantageous to lodge a formal objection at the outset; whether or not this is so will depend on your specific circumstances, including whether there is an impending time limit for lodging an objection.

Either way, the key to having the assessment overturned will be providing relevant and genuine evidence that supports your claim.  This is not always straightforward.  It can sometimes be difficult to prove a “negative” fact, eg, that you did not earn an amount of income or that you did not sell an asset, which are the kind of facts you will often need to prove.  To succeed, you will likely also need to explain what the amount does represent – eg, income or gains made before you became resident, a gift, inheritance, loan proceeds etc.  The mere fact that an amount is transferred to you by a relative will not necessarily indicate that the amount is a gift.  This is particularly so if the relative received the amount from a third party before transferring it to you; and if the third party was a company the amount might even be a deemed dividend under the interposed entity rules in ‘Division 7A’.  Further, although the ATO might say you should provide particular information or documents to prove that the amount is not taxable, the particular documents the ATO requests may not necessarily be helpful or relevant; often you need to think laterally about what other material (which the ATO has not specifically asked for) could be provided to support your case.

While the ATO may initially be sceptical about your assertions that the amount from overseas is not taxable, if you can supply a clear and compelling explanation of how you came to obtain the funds and why they should not be taxed, together with relevant and truthful evidence that supports your explanation, then, in our experience, the ATO will likely be willing to promptly revise its position.