Tax Bites #20

About the Author:

MURRAY McCLENNAN

Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.

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In this article I discuss:

1. Information sharing by financial and other institutions;

2. Inland Revenue is being more proactive;

3. Inland Revenue Raids; and

4. A brief discussion about tax avoidance and evasion.

Information Sharing

Inland Revenue and other revenue authorities now receive far more information from financial and other institutions than they used to. In addition, revenue authorities are sharing more information with each other.

The “offshore world” is a lot closer than many people think.

Inland Revenue is being more proactive

Some of you may have recently received letters from Inland Revenue’s International Strategy team. These letters note that New Zealand has implemented a process of the automatic exchange of financial information. 

Often the letters state that:

1. The Department “has received financial account information concerning your foreign accounts from one or more jurisdictions in the X and/or X income year”; 

2. “You have the opportunity to ensure your tax affairs are in order before we start undertaking further reviews to consider whether you have returned the level of income, we would expect given the nature and extent of your offshore investments”; and

3. Sometimes attaches a “Confirmation of Tax Position” form; and

4. Encourages taxpayers to make voluntary disclosures if there is unreturned income by making a voluntary disclosure.

I have also seen “Risk Review” letters in respect of land sales that may be subject to the property bright-line test. 

Inland Revenue Raids

I am aware that Inland Revenue has recently raided several hospitality businesses in several different towns and cities. Typically, these raids result from information provided to Inland Revenue about undeclared income. This could be from a disgruntled former employee or a review of Reward Programme that shows a higher level of spending than income returned, with the obvious conclusion being that some of the expenditure is funded from cash income or suppressed sales.

In addition, Inland Revenue looked at source deduction payments received and the possibility of under-the-table payments to casual staff.

Tax Avoidance and Evasion

Put very simply, tax evasion is fraud against Inland Revenue. This could be undeclared income such as suppressed sales or cash receipts not put through the books or declared as income.

Tax avoidance is an arrangement, or series of arrangements, that has tax avoidance as its purpose or effect. Tax avoidance includes:

(a) directly or indirectly altering the incidence of  any income tax or GST:

(b) directly or indirectly relieving a person from  liability to pay income tax or GST, including from  a potential or prospective liability to future income tax or GST:

(c) directly or indirectly avoiding, postponing, or reducing any liability to income tax or GST any potential or prospective liability to future income  tax or GST.

It is important to remember that returns that have failed to return income or GST due to tax evasion or avoidance are never time-barred. That is, Inland Revenue can issue revised income tax or GST assessments at any time if there has been tax evasion or avoidance. By contrast, Inland Revenue generally cannot issue income tax or GST assessments after four years of assessment.

Murray McClennan

Director
Tax Central Ltd
027        244-5365

www.taxcentral.co.nz

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