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TacoCat(Initiate)Initiate
18 Apr 2026

An Australian resident gives a foreign resident a lump sum. The foreign resident deposits the money in an Australian bank account which accrues interest. The ATO taxes the interest at 10%.


The foreign resident then gives the lump sum and the net interest back to the Australian resident as a gift.


The Australian resident does not declare this as income because he believes it is a one off tax-free gift.


Has the Australian resident submitted an accurate tax return?

58 views
1 replies
58 views
1 replies

All replies

18 Apr 2026

You are forgetting:

1) Tax on the interest in the foreign resident's country

2) Its incorrect to declare it in their tax return this way, because the beneficial owner of the money was always the Australian resident. This makes the income the resident's under 6-5 and I believe many DTA's would also deny the 10% withholding tax concession for the same reason.

3) Part IVA anti-avoidance rules. Dominant purpose of the arrangement was to obtain a tax benefit. Detection risk = who knows. Outcome if detected and Part IVA applied = ouch.

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