The failure to properly document purported loans from a Chinese relative has seen the AAT affirm the Commissioner’s objection decision to treat the amounts as assessable income.
It is quite common for individuals to borrow money overseas and transfer the funds into Australia. However, if the Taxpayers cannot provide sufficient documentation to prove that the source of the fund transfer is from genuine loans, the Commissioner of Taxation may seek to treat the amounts as assessable income.
This was what had occurred in YPQF and Commissioner of Taxation (Taxation)  AATA 518. The case highlights the need to be able to explain the source of fund transfers from overseas and to keep the relevant documentation.
The Applicant was a Chinese businesswoman who had been living in Australia since 2006. During the 2011, 2012 and 2013 income years, she had received several large payments totalling in excess of $16 million from mainly her daughter in China to fund her property investments in Australia. The relevant funds were obtained from money ultimately borrowed through intermediaries from Chinese banks.
The Applicant argued the amounts represented loan payments from her associated companies in China. However, the Commissioner was of the view that they were a distribution of profits from the Applicant’s Chinese companies and were therefore assessable income.
The Applicant contended that her daughter had arranged the loans against the family’s business interests in China and on lent the funds to her in Australia. She then on lent the monies to her Australian companies for the purpose of funding her property investments. Critically, the Applicant and her daughter did not create loan documents or formally record the terms of the loans until she became aware of the Commissioner’s concerns.
The Commissioner amended the Applicant’s 2011 and 2012 income tax returns to include the fund transfers in her assessable income and issued a default assessment in respect of the 2013 income year.
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