Money sent by parents or relatives overseas often helps Australian families buy a home, start a Business or ride out a tough year. But the ATO has made clear that calling a transfer a "gift" or a "loan" is not enough. Updated guidance for privately owned groups, published on 23 October, says that if the paperwork falls short, the ATO may treat the money as taxable income.

What the ATO has published

The guidance sits in the ATO's tax governance guide for privately owned groups, on a page titled "Gifts or loans from related overseas entities". The page was updated on 23 October 2026.

Its starting point is reassuring. A genuine gift or a genuine Loan from a related overseas entity is not taxable income.

The catch is evidence. The ATO says the burden of proof sits with the taxpayer, and it "may treat it as taxable income" if the documents are insufficient.

Although the page is aimed at private groups, the principles are relevant to anyone receiving significant funds from family or related entities abroad.

The three tests

The ATO sets out three things it looks for when deciding whether money really is a gift or loan.

  • Documents: there must be sufficient and appropriate documentation.
  • Conduct: the way the parties behave must be consistent with a gift or a loan.
  • Independence: the funds must be independent of the recipient, meaning they are not really the recipient's own money coming back.

The third test goes to the heart of the ATO's concern. Its worry is that undeclared income earned or held offshore by the recipient could be brought into Australia dressed up as a family gift or loan.

That is why the tests work together. A transfer can come with a neat set of papers and still Fail if the money can be traced back to the recipient, or if the parties later treat a so-called gift as something that must be repaid, or a so-called loan as something that never will be.

A signed deed of gift is a useful starting point, but the ATO's guidance indicates it may not, on its own, settle the question.

The ATO places more weight on documents from unrelated parties. For example, it says a bank asset statement listing a loan is stronger evidence than an IOU from a related party.

Put simply, a piece of paper written by family members can be tested against everything else: where the money came from, whether the giver could afford it, and how the money was treated afterwards.

What the ATO expects for a loan

For loans, the ATO lists the evidence it expects to see:

  • a written loan agreement setting out the parties, the amount, the interest and the repayment terms;
  • bank records showing repayments being made;
  • evidence that the lender had the capacity to lend;
  • evidence of Withholding tax paid on interest; and
  • the borrower's cash-flow plans for repaying the loan.

Conduct matters here. A "loan" with no repayments, no interest and no plan to repay can start to look like something else.

Where the lender is a foreign private company and the borrower is a Shareholder or an associate, the ATO notes that Division 7A may also apply. That could mean the loan is treated as a Dividend unless the rules are met.

Hypothetical example: documenting a family loan

Hypothetical example: a couple in Sydney borrow $300,000 from a parent living overseas to help buy a home. They sign a written agreement at 3% interest a year, with regular repayments from their Australian bank account.

The interest for a full year is $9,000 ($300,000 x 3%). Because the lender is a non-resident, interest withholding tax would generally apply at 10%, or $900, which is remitted to the ATO, with the remaining $8,100 paid to the parent.

Their records would include the signed agreement, bank statements showing the original transfer and each repayment, evidence of the parent's capacity to lend, and the withholding records.

Now imagine the same $300,000 arrived with only a short handwritten note, no repayments were ever made, and there was no record of where the parent's funds came from. On the ATO's guidance, the couple would carry the burden of proving the money was not their own income, and the ATO may treat it as Taxable Income if the documents are insufficient. The numbers are illustrative only.

The wider crackdown, and practical steps

The guidance points readers to Taxpayer Alert TA 2021/2, which deals with arrangements that disguise undeclared foreign income as gifts or loans.

It also fits with the ATO's broader use of data. Under its passenger movements data-matching program, the ATO matches travel records for about 115,000 individuals a year. The stated purposes include verifying residency and detecting under-reported income and missed lodgments.

None of this means family support from overseas is suspicious in itself. Most transfers are exactly what they appear to be. The point of the guidance is that the evidence needs to show it.

Records that can help support a large transfer from relatives overseas include:

  • a written gift deed or loan agreement signed at the time of the transfer;
  • bank records from both ends of the transaction;
  • evidence of the giver's or lender's financial capacity, such as statements from an unrelated financial institution; and
  • records showing the money has been treated consistently afterwards.

Documents created years later, when the ATO asks questions, are usually less persuasive than records made at the time. Translations of any foreign-language documents may also help if questions arise.

What to watch

  • ATO reviews: watch for the ATO applying the three tests in reviews of private groups and wealthy individuals.
  • Data matching: the passenger movements program covers years up to 2028-29, so travel records will remain part of the ATO's toolkit.
  • Division 7A: foreign private company loans to shareholders or associates remain a focus area, alongside the ATO's recent warnings on Division 7A restructures.
  • Updates to the guide: the governance guide is updated periodically, so the page date shows which version applies.