Richard Owen
Any suggestion that the Inland Revenue Department (IRD) has taken its eye off the ball when it comes to property investors is thoroughly misleading.
Just under 100 Inland Revenue compliance specialists are focused on making sure property investors are aware of their tax obligations – including the bright-line test.
The Property Compliance Programme was established in 2008.
Some big changes this year in the way we work saw many of the job titles change, but the focus has stayed the same.
Bright Line Rule on priority
Enforcing the Bright-Line Rule is a priority among those working on property compliance and they are following a comprehensive strategy, designed to help customers meet their obligations from the start and to catch the cases where no profit is declared from a sale.
We find that in a majority of cases, our customers want to get their tax affairs properly in order. Inland Revenue compliance staff aim to make it as easy as possible for customers to comply by focusing on supporting them upfront, before issues arise, rather than just responding to non-compliance when it happens.
Unfortunately, there will still be some customers who ignore those messages and fail to comply. It is highly likely that those people will be picked up in our audit work, which is intensifying over the next year.
Customer awareness
The Bright-Line Rules came into effect in October 2015 and we are finding many customers remain unsure of their obligations.
Awareness appears to be building all the time.
Following the government’s decision to extend the Bright-Line period from two to five years, IRD ran social media promotions and newsletter drops pointing to updated information on our website. The marketing was specifically targeted so that customers with a property interest knew about the change.
During the month-long campaign, our social media content reached over 200,000 people and approximately 40,000 people visited the bright-line campaign webpages, which has links to all the information they need to know.
Focus areas
Property speculation is a centre of attention, especially in and around new developments, infill housing, regional hot spots and properties that have been sold within a short duration.
Additional revenue of $117 million was assessed in the 12 months to June 30, 2018 as a result of audit activities on property compliance issues.
Bright-line is of course an area of focus and along with ongoing audit activity, data analytics techniques are being used to identify our bright-line cases early.
This allows us to target our interventions to help our customers get it right from the start.
In 2017–2018, over $7 million of Resident Land Withholding tax was deducted and paid from properties sold by overseas-based vendors who are subject to the bright-line test.
Customer compliance
New processes have been developed to allow property transactions to be monitored in real time. This helps compliance staff develop an early reading of trends and hot spots so they can monitor and make initial judgements about whether a customer is complying with tax rules.
Data from Land Information New Zealand help us determine the amount of tax that’s likely to be due. This information is then used to remind property owners so they can understand what to put on their tax return.
The data also reveals the customers who have bought and sold residential properties within two years and have not claimed an exemption on the tax statement provided with the sale.
Again, contact is made with these customers to discuss their filing requirements so that they comply with the bright-line obligations voluntarily.
Long game
Bringing in the tax revenue from a property transaction is a long game.
Depending on the point at which a property is sold, it can be up to three years before Inland Revenue receives the payment. Separating out the revenue that’s collected from a bright-line transaction is difficult to report as currently the taxpayer is only required to list it as amongst ‘other income’ on their tax return.
Compliance with the Bright-Line Rules is improving all the time.
We expect this to continue as more customers have greater certainty about their obligations and our property compliance specialists will remain on hand to help them get it right.
Richard Owen is a Customer Segment Leader at Inland Revenue Department based in Wellington.
