The Inland Revenue Department (IRD) has a revised compliance focus for the 2010-11 financial year, to address the problem of tax evasion and other challenges.
The Department is conscious of the economic downturn and hardships faced by taxpayers, but would not hesitate to proceed against those who fail to comply with the existing laws or evade tax.
As the tax administration agency, it expects taxpayers to register, report correct and accurate information, file the requisite returns at the stipulated time and claim only entitled expenses and tax refunds.
The Department’s programme for the 2009-2010 financial year was successful, unearthing about $155.4 million from the “hidden economy,” tax evasions and frauds. Its audit function collected about $83 million from those trading on line and $1.2 million from people who did not disclose their income.
Its Online Services, self assessment tools and efforts to improve the systems will not only encourage taxpayers to comply but also reduce their compliance costs.
The Compliance Focus aims to ensure that taxpayers remit their share to fund public utility services such as healthcare, education, infrastructure and other facilities.
The increase in GST from October 1, 2010 would undoubtedly lift the cost of products and services in general and may prompt some people to find ways and means of avoiding payment. IRD officials would specifically target such persons.
Diverting Personal Income
Some taxpayers have also been diverting their personal income by interposing companies, trusts and other entities.
Over the past four years, the Department has been successful in prosecuting such evaders in the courts of New Zealand. Encouraged by the recent decision in the ‘Penny and Hooper’ case (Indian Newslink, June 15, 2010), the Department has fortified its efforts.
The Department is aware of people who take up international assignments as contractors, parking their income in tax haven countries and not disclosing or not declaring fully in their New Zealand tax returns. The Compliance Programme will bring them into focus.
Migrants who do not disclose their overseas income in their New Zealand tax return would also be a target. The Department has access to information through reciprocal, Double Tax and Tax Information Exchange agreements with various countries.
The Government is also aware that that many taxpayers are claiming Working for Families Tax Credits by reducing their family income by creating losses or receiving income as beneficiary distributions. The Department will eventually correct this anomaly.
Charity misused
Misuse of charities tax exempt status is another area of concern. It is understood that IRD and the Charities Commission are working to identify entities that are creating false receipts and invoices and organisations that feign charity.
The Department is interested in property dealers and developers, speculators and others who do not declare their income from property transactions.
The use or abuse of Loss-Attributing Qualifying Companies (LAQCs) has prompted the Department to consider changes to the existing statutes, including claims on GST.
This year’s budget has allocated an additional $119.3 million to IRD over the next four years to improve its Compliance Programme that will include audit activity and debt collection. The Government expects a net operating balance of $745 million over the next four years through this operation.
We must recognise that IRD officials are doing their job. Taxpayers who voluntarily disclose their undeclared income can reduce their exposure to potential penalties.
Vijay Talekar is Director, Tax Experts Limited (Chartered Accountants), based in Auckland. The above article should be considered only as a guideline and not specific advice. Mr Talekar absolves himself along with the management and staff of Tax Experts Ltd and Indian Newslink of any responsibility or liability that may arise from the above article. Readers should seek professional advice before acting upon any information contained above.
