In an unexplained income dispute, the hardest part is often not the deposit itself. It is proving, sometimes years later, where the money came from.

The ATO’s ability to identify discrepancies in taxpayer records has increased significantly. Bank deposits, overseas transfers, asset purchases and other transactions can all attract attention if they do not appear to match a taxpayer’s declared income. When the source of those funds is unclear, the issue can quickly become an evidence problem for the taxpayer.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Rajan Verma to discuss unexplained income, how these issues arise in ATO audits, and why taxpayers need more than a verbal explanation when responding to the ATO.

The discussion covers:

• what unexplained income means in a tax dispute;
• common triggers, including cash deposits, overseas transfers and unexplained asset increases;
• how ATO data matching and financial information can identify discrepancies;
• why the burden of proof is a major issue for taxpayers;
• what happens if a taxpayer cannot establish the source of funds;
• how default assessments can arise;
• why default assessments are difficult to challenge;
• penalties and interest risks in serious cases;
• why gifts, loans and family transfers need supporting evidence; and
• practical steps taxpayers can take to reduce ATO risk before questions are asked.

This episode is useful for taxpayers, business owners, accountants and advisers dealing with ATO audits, unexplained bank deposits, overseas transfers, default assessments or historic record-keeping issues.

For advice on an ATO audit, tax dispute, unexplained income issue, default assessment or ATO review, contact Velocity Legal’s Tax team.