Inland Revenue Archives - Page 15 of 16

More on Inland Revenue CRS initiative

25 Nov, 2019 | The Week in Tax

More on Inland Revenue CRS initiative
The future of tax
Why did the Tax Working Group’s CGT proposal fail?

Transcript

This week, an update on Inland Revenue’s Common Reporting Standard initiative, the Future of Tax and what went wrong with introducing a capital gains tax.

I spoke recently of Inland Revenue’s new initiative on the Common Reporting Standard on Automatic Exchange of Information or CRS as it’s commonly referred to. This is where Inland Revenue has received details of upwards of 700,000 accounts from overseas tax authorities. It is now working its way through that list of information it’s received and has started to send out some letters to people where it considers there has been either under declaration or non-declaration of income.

I’ve found out a bit more about what’s going on with this initiative, and it’s a little bit concerning how it’s being approached. So far Inland Revenue has sent out approximately 4,000 letters to various individuals with the latest batch of letters going out in the last couple of weeks, in fact.

But it seems to be slightly indiscriminate in its approach, I’m hearing reports of transitional residents who don’t have to report overseas income, receiving such letters and then having to spend time on it.

The information that’s been sent is for the period to 30th June 2018, and there’s another set of information coming for the period to 30th June 2019 very shortly. And apparently Inland Revenue is asking people to reconcile the numbers it’s received with what’s in their tax returns, because there are sometimes big discrepancies.

[Sometimes] the reasons for those discrepancies are because the taxpayer has returned income under a special regime, such as the foreign investment fund regime or the financial arrangements regimes. The financial arrangements regime, as you may recall, deals with income on an accrual basis and brings into account unrealised foreign exchange gains.

So naturally, there are going to be significant differences between what’s reported [to Inland Revenue], the actual amount of interest paid by an overseas financial institution and what’s been reported a taxpayer. So, it’s a little bit disconcerting to hear Inland Revenue taking that approach.

One other thing that has emerged is that Inland Revenue is expecting where someone has not been compliant, [that is] has not disclosed income for whatever reason, people to make disclosures for what’s called the open years, or not time barred [tax years]. This is usually four income tax years prior to the current year to 31st March 2019 for which a return is due. So that means that someone will have to be filing income tax returns covering the period from 1st of April 2014 onwards.

Just an aside on that. If Inland Revenue does feel that there’s been deliberate evasion, where someone was receiving, say, substantial amounts of income and they really should’ve known they ought to have been returning this, it always has the right where there is tax evasion or fraud at stake to go further back than the usual four year period.

I’ll keep you up to date on this developing story, as they say in the news. There’s going to be some confusion. If you have been compliant it’s not a problem. But it is a bit of a headache trying to find out exactly what Inland Revenue is after. And if you’ve not been compliant, come forward and get it sorted out.

Currently, I’m at the Chartered Accountants Australia New Zealand Annual Tax Conference in Auckland.

It’s always interesting to see the developing trends in tax and catch up with colleagues. Several papers have been very, very interesting talking about the future of tax. Incidentally, because the larger organisations such the Big Four accounting firms and larger law firms that dominate attendance at this conference there’s a fairly international tax and transfer pricing aspect for many of the sessions.

But because of the OECD’s recent tax initiatives I talked about last week, there’s very some interesting papers to be seen on this topic. Something one presenter talked about was that in some ways this development towards a global minimum tax rate may not be the sort of silver bullet to put an end to aggressive tax planning by multinationals some people might think it does. It does represent, as the present pointed out, a threat to the tax sovereignty of jurisdictions around the world. And that is something that hasn’t really been talked about too much.

Traditionally each country had its own taxing rights for activities [carried out] within the jurisdiction. Of course, the digital economy has just basically demolished that old precept which was designed almost one hundred years ago. Essentially, they’re basically now obsolete. But what’s coming and is still being debated may mean that countries have to accept that because of the way economies are now structured the taxing rights are going to change.

And here’s the thing, New Zealand is a small economy basically at the edge of the world on these matters. And to a large extent we will have little say as to what happens, how we can apply tax rules and what our cut, so to speak, of this digital economy tax take will be. And that’s something to really think about.

On the other hand, New Zealand tax officials are actually quite heavily involved in [this OECD process]. The Minister of Revenue and Minister of Finance both spoke at the conference. They gave an interesting political take on matters (they took questions as well).

Both of them singled out Carmel Peters of Inland Revenue for her work within the OECD. Carmel is in fact recognised as one of the top 100 most influential women in the tax community worldwide. This is a fantastic achievement when you consider how small New Zealand is for someone to be held in that regard.

This is a by-product of New Zealand’s Generic Tax Policy Process which is regarded very well worldwide and how co-operative tax professionals and Inland Revenue are in developing and implementing tax policy. So that’s encouraging. We may yet be effectively getting some crumbs at the table, but maybe we’re going to be helping set the table, so to speak.

Another paper that caught my eye, which is very interesting and something I’ve also talked about in past podcasts, is what’s happening in indirect taxes, and GST in particular. The guts of it is governments are really moving to basically disintermediate the tax professionals. That is, they’re going to cut out the middleman.

In some jurisdictions – China, India were mentioned – they are setting up a GST system or its equivalent where GST registered persons can only operate if they basically have a central government approved software where all transactions are automatically recorded and sent back up to and through this software to the tax authority. So, there’s no longer a question of gathering information, preparing a tax return and then filing it after a certain period time. Basically, everything’s going real time. And that’s actually not surprising given the way the Cloud technology is developing.

But it has put Inland Revenue and the Australian Tax Office at a little bit of a disadvantage compared to these other jurisdictions and the likes of Sweden, where, as I’ve previously mentioned, all credit and cash registers are centrally linked. The ATO and Inland Revenue are a little bit behind the game on this, but as the presenter noted, although they may not be pursuing this trend at the moment, on the other hand they’re probably ahead of many of the new jurisdictions in their ability to analyse the data they do receive.

And that’s something people should always be aware of, that Inland Revenue now has greatly enhanced capabilities. And it is almost certainly running its eye over the data it’s receiving, watching for the transactions which a café may not be ringing through.

By the way, this presenter was from Australia and after he paid in cash for a coffee, he wasn’t given a GST receipt even though he requested one, which as he rather wryly said “I didn’t know that New Zealand’s GST system operated like that”. But what’s going on there is almost certainly a case of tax evasion.

And finally, Robin Oliver and Geof Nightingale who were both on the Tax Working Group gave their views on went wrong with the attempted introduction of a capital gains tax.

Both were very clear that the political process of managing the introduction of a capital gains tax was badly handled right from the get-go. Furthermore, the design probably adopted a too purist approach. [Robin Oliver highlighted a few of the differences between the proposals and how Australia designed its CGT].

And the combination of an overly pure design, a poorly managed process in terms of selling a capital gains tax and its potential benefits meant that it really was quite a derailed process. As Robin noted the stars had to align for it come through. And they didn’t align at all, so it fell over badly.

What they also talked about is, well, what happens next? Fortunately, the government’s books are in surplus and the fiscal strains of superannuation and rising health care costs for the elderly are still some years down the path. But both thought that in 20 years’ time, the issue of capital gains tax will be back. And both Geof and Robin said that we have a significant asset class in land which is under taxed and that is not sustainable long term.

So that is a matter which will continue to be debated. We’ve got an election coming up and there was some commentary in the room about what is going to be the tax policy of the government going forward. There’s some talk, for example, about rejigging the rates and maybe increasing the top tax rate.

All that’s in the future. And we shall just have to wait and see.

And finally, just like a quick shout out to all the listeners and readers I’ve met at the conference so far. Thank you all for your kind comments and suggestions for topics and guests. Please keep them coming.

I’ll have more about the CAANZ tax conference next week. In the meantime, that’s it for The Week In Tax. I’m Terry Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts, please send me your feedback and tell your friends and clients. And until next time have a great week. Ka kite āno.

Inland Revenue’s Annual Report

30 Oct, 2019 | The Week in Tax

This week I take a look at Inland Revenue’s annual report – Download it

How much additional tax did it raise?
Who is it sharing information with?
How did it do against its own performance measures?

Transcript

This week: “He kupu i tō mātou Kaikōmihana”, that’s Te Reo for “a word from the Commissioner”. I’m taking a look at Inland Revenue’s annual report for the year ended 30th June 2019.

Each year, every government department prepares an annual report for its minister and for the reporting lines to Parliament. These will set out its activities in the previous 12 months, its performance against agreed measures and also include its financial statements.

Inland Revenue’s is a treasure trove of information as you can imagine, a lot of detail to poke through here. And in fact, there is so much in this I could probably spend two or three podcasts on the matter. Instead, what I’m going to do this week is start with some headline numbers about Inland Revenue itself, the tax it collects and the data it shares and then finish with some observations about the state of the organisation itself.

The report is grouped around five areas. They are “Making It Easier for Customers”, “Helping Meet People Meet Their Obligations”, “Managing Ourselves Well”, “Governance and Management” and the biggie, “How We Performed”, a sort of NCEA assessment of Inland Revenue.

Big budget, big staff levels

Now Inland Revenue was given $847.5 million in appropriations for the year 2018-19 to spend and it actually finished up spending $828 million of that. The bulk of it goes to what it calls “Services for customers”, $616 million. Then the other areas that receives money are policy advice, $11 million, services to other agencies, $6 million and the big one, Business Transformation, $215 million.

It spent about 97% of its budget. And it is saying in one of the headline items that the Commissioner points out in ther report is that through Business Transformation to date, it’s released $60 million in administration savings and improved compliance outcomes as a result by raising additional revenue of about $90 million.

So to achieve that result Inland Revenue has just over 5,000 staff as of 30th June 2019, now that is down 800 since 2015 and about 90% are full time now. The average age is 44.6 which is quite old, I think. And a really interesting point here is that 65% of all its staff are female, but, and women will not be surprised to see this, is that 50% of all managers are male. One of Inland Revenue’s metrics is trying to improve on that matter.

But there’s been a fair amount of churn through its staff. I mean 938 staff left during the year, which is a near 20% loss. Now, they hire people as well, and that’s something that I’ll pick up on later on. So, it’s got a lot of money to deliver services. But a fair chunk of that $200 million is in part of the Business Transformation, which has been its main focus.

“The one that takes”

Anyway, for the year it collected $77.9 billion of tax revenue. Now included in that is nearly $985 million of tax differences. It identified this as part of its audit activities and investigation activities. That is a fairly significant number and we will see more of that going on.

But Inland Revenue, its main focus through the year quite frankly, has been managing its transformation to implement its so-called Business Transformation. And the key thing here was Release Three, the third stage of its transformation, which happened in April. That was when it moved over Pay As You Earn and also was the stage where it was automatically issuing refunds and assessments for taxpayers.

That as you are probably well aware, put huge strain on its resources. The report notes on page 31, “We received 41% of all calls for the year between April and June 2019.” This was over 1.6 million calls compared with 1.4 million for the same period previously in 2018. I will say that they suffered a disruption because of the having to evacuate the office in Palmerston North, the call centre there, because it was found to be earthquake prone.

But quite apart from all the calls that received, people also quite reasonably turned up at their offices and the Manukau office had more than a thousand visits on some days. Many people also then went online with massive numbers of people were hitting the online system. Between 26th of April when the system went live and the end of June, there were 16.9 million login to its myIR system, an increase of 90%, or nearly double from the same period in 2018. On its busiest day, there were almost 500,000 logins, so the system put itself under some strain, but Inland Revenue feels it managed with that. It’s a matter of debate whether you think that, but there’s no doubt it was an ambitious call on an ambitious project and I would expect that next year it should run a little bit more smoothly.

Interestingly, it’s now saying that 88.8% of all returns were filed digitally up from 83% in previous years and that 86.8% of tax payments were made on time, which is down from 87.9% and this is a measure that I think Inland Revenue needs to have a closer look at because it has a penalty system. But we do know that the payment on time rate between 85 and 87% is no better than other tax agencies that don’t charge late payment penalties, and this has been a bane of my life. I think it’s clogged up the system and it’s particularly noticeable when you look at what happens with child support debt. You have a penalty system. It’s not working. It’s been clearly not working both by its own standards and judged internationally and yet we still persist with it.

Talking of tax debt, at 30th June 2019 Inland Revenues’ tax debt, excluding student loans and child support stood at $3.5 billion, up 13% from 2018 when it was $3.1 billion. That’s after writing off $532 million of overdue debt and in the previous June 2018 year it wrote off $613 million.

The key thing of note here is that the level of GST debt is up 45% from $815 million to $1.18 billion and the amount of Pay As You Earn is also up 24% from $375 million to $466 million. They’re explaining that that rise in overall debt being the result of a number of factors including late filing penalties and late payment penalties, interest in default assessments.

Is the penalties system working?

That all just bears out the point I’ve just made, if people aren’t paying on time and we’re hammering with penalties and we’re still not collecting it, maybe Inland Revenue needs to rethink its approach about those penalties. Because you can see that in child support, the amount of child support debt is actually down a little bit in June 2019 to $2.2 billion, but $1.6 billion of that represents penalties.

As part of its efforts to collect Child Support, Inland Revenue’s obtained four arrest warrants from the courts, of which one was executed and so far, it’s collected $11,000 as a result of that. And then it’s looked at another 14 summonses for examination of financial means and 20 charging orders against property and warrants. Key focus here is chasing down people who are overseas who owe child support and under its reciprocal arrangement with Australia, collected about $46.4 million from Australia.

It actually sent $14.7 million over to Australia. And this information sharing is one of the things that Inland Revenue does a lot of, which people don’t realise here. For example, the repot talks about passport information sharing programme with the Department of Internal Affairs and that resulted in 1,409 contact records match for parents who had a child support debt in 2018-2019. As a result, 120 customers made payments of over $234,000.

Information sharing

It sent plenty of information with the Australian Tax Office (ATO) in relation to student loan customers. They sent 149,000 requests to the ATO asking, “Can you tell us all about that?” And maybe that’s not doing as well as it should do because the level of overdue student loan debt is now $1.48 billion and that’s up 12% basically because of overseas-based student loan holders. In fact, they issued a couple of arrest warrants.

The information sharing goes not just to the ATO, it goes with WorkSafe is one area where it’s passed information to other agencies. And the big one, the one that people should be really aware of, and I’m starting to see come across my desk, is international compliance. Inland Revenue and New Zealand are part of the Common Reporting Standard or the initiative run by the OECD to counter offshore tax evasion. In September 2018 Inland Revenue swapped data with other tax agencies around the world. It sent out 600,000 account reports too other agencies saying “We have people here [with financial accounts] who have an overseas address or overseas tax information number, there’s 600,000 of them. In turn Inland Revenue received similar details about over 700,000 such accounts. You may recall that I’ve mentioned in a past podcast that Inland Revenue’s looking into this in more detail and that is just the tip of the iceberg, the 700,000 records to work through. That’s a lot of people. And I think quite a few more than what I’ve seen will be receiving a “Please tell us a bit more about your finances.”

Enforcing compliance

Talking about tax evasion and addressing additional compliance, Inland Revenue overall found discrepancies as I called it, of $985 million and its return on its investment was $7.54 per dollar. In other words, every dollar it put into its investigation activities, it got $7.54 back identified $985 million in total tax position differences. That involved over 12,305 cases.

There are some interesting snippets in here about high wealth individuals, that is people worth more than $50 million. According to Inland Revenue, high-wealth individual customers and their respective groups pay more than $700 million in income tax and collect over $1 billion of pay as you earn. So that’s a fairly significant amount of the over $80 billion of tax income.

This is a reasonably small group of people representing maybe 200-300 people in there, and Inland Revenue says they identified $44 million of discrepancies as a result of investigations into this area.

In the hidden economy, there’s some very interesting stuff in here. They found an additional revenue of about $109 million and that is they also found over fraudulent refunds and entitlements about another $30 million. But what’s interesting to see here is that the proportion of people saying that they participated in cash jobs is starting to fall slightly.

Fewer people are asking for this. When they started measuring this in 2011, 34% of people said they participate in a cash job. It’s now down to 27% but the level of people who said they were likely to ask for a cash price discount has gone from 27% and dropped to 16%. However, the number of people who said they would report themselves as being likely to participate in cash jobs, is 19%, same as 2018.

And here’s the big one though. Only 49% of people agreed in 2018 that cash jobs were acceptable, but that’s down from 72% in 2011. That’s one of those interesting measures that people point the finger at multinationals but are not averse to getting a bit of a discount for cash.

It’s the same thing, whether it’s tax avoidance by a multinational or flat-out tax evasion. You’re on the same spectrum. Well, the argument would be that tax avoidance is within the means of the law. Whereas tax evasion, taking a discount for cash isn’t. Anyway, it’s encouraging to see this improvement in behaviours there.

Bright-line test returns

And finally, the tax revenue they collected from property tax compliance that is looking at the Bright-line test, et cetera, had a return for investment of $9.58 per dollar. So that’s nearly 50% above its target of $6.42 per dollar. And that added another $109 million. And just on the Bright-line test Inland Revenue got in touch with a thousand taxpayers over their returns filed in the 2017 income year about the Bright-line test possibly applying.

So that’s a fair snippet of what Inland Revenue has done during the year. And there’s plenty more in the report to go through and I might pick out particular aspects in future podcasts.

The IRD has poor staff engagement

Well what about the state of the organisation itself? How did it perform against its measures? According to Inland Revenue it achieved 36 out of the 48 output performance targets for the year and that’s compared with 43 out of 50 in the 2017-18 year. Now where it fell down in its own measures is its services for customers when it met 28 of the 40. But it met all the other top performance targets for services to other agencies, policy advice and on Business Transformation.

But the area that concerns me is the staff engagement rate. I deal with Inland Revenue staff pretty much every day, and I deal with them at all levels. Those who are answering the phones, dealing with requests up to the policy officials. What I think the Revenue Minister and the Finance and Expenditure Committee should be concerned about is that the staff engagement by Inland Revenue’s own measure is a mere 29%.

That’s actually an improvement from the year to June 2018 when it was 27% and when this was first measured in the June 2017 year, it was 44% and even then that annual report noted that that was below the Australasian government average or expectation of 51%.

These measurements have only happened in the last three years. The 2016 report simply notes that staff engagement rose during the year. Now if its staff engagement rose during the year 2016 it implies that the staff engagement since the Business Transformation project really took off, which began in 2016 has halved to all intents and purposes. That is a major concern because it affects everyone in the system. Taxpayers, if Inland Revenue staff are of low morale, that feeds through to the rest of how they deal with us. The pressures they’re under and there’s wider implications for the government of underperformance in revenue collection. So I think this is a matter that the Commissioner of Inland Revenue, Inland Revenue management and the Minister of Revenue and The Finance and Expenditure Select Committee should all be asking very hard questions as to what’s going on here.

The staff turnover in Inland Revenue has been quite dramatic over the past five years the organisation is losing on average just under 700 people a year and that’s a lot of experience to be walking out the door. And so from a base of 5,800 in 2015, you can say that two thirds of that, almost 60% of those that were there in 2015 would appear to have gone by now. That’s a massive turnover. The report notes that the turnover has decreased but it is expected to increase commenting, “Turnover turnover’s decreasing, reflecting the period of significant organizational changes occurred in 2017-18, as we work through further changes to reach our future operating model, we expect turnover is likely to increase.”

“Customers”? Really?

I don’t like being called a customer by Inland Revenue. It’s actually quite amusing to see the use of the word “customer” here in the report. The report refers to customers over 500 times, but taxpayers, merely 47 times. But as a stakeholder, as a tax agent and as a taxpayer, the performance of Inland Revenue is very dependent on the morale of its staff. And what I’m seeing here in this report and it continues a trend that has emerged in the last three reports is not good.

I have experienced that. When you’re talking with Inland Revenue staff, you can sense that they’re frustrated, they’re incredibly professional, they’re always professional. I know people will say, “I’ve had bad experiences with Inland Revenue,” but my experience is they’re wholly professional at all times, but they’re being asked to do a lot.

There’s now overtime back, and the report says it saw 740 odd people had to come in and work extra hours [as part of Release 3]. They shifted a whole pile of people from the investigation area to help with the phones. And that’s not something that should be a regular pattern. And so already pressured staff have been asked to do a lot and to see the staff engagement is just 29% is a major concern to me.

Well that’s it for the Week in tax. More next week. I’m Terry Baucher, and you can find this podcast on my website, www.baucher.tax or wherever you get your podcasts. Please send me your feedback and tell your friends and clients. Until next time, have a great week. Ka kite āno!

OECD proposals shake up international tax

11 Oct, 2019 | The Week in Tax

This week in tax we have 3 stories

OECD proposes the biggest changes to international tax since the 1920s
The Government has a surplus but what about the cost of superannuation?
Inland Revenue targets cash economy

Podcast Transcript

The OECD has announced proposals for a unified approach to changing international tax and addressing the issue of the effect of the digital economy on tax.

These so-called “Pillar One” proposals focus on the allocation of taxing rights (i.e. which country gets to tax profits) in the digital economy. These proposals together with public submissions will be considered by the 134 countries who are within the OECD’s “Inclusive Framework” initiative considering the problem of transfer pricing or Base Erosion and Profit Sharing (BEPS).

The first proposal here is to talk about allocating a greater share of taxing rights to the countries where the consumers are located, regardless of a business’ actual presence there. Now this is the key conundrum the tax authorities have been facing in that under the present tax legislation and international agreements, the right to tax profits is dependent on what physical presence the overseas entity has within the country.

And the advent of the digital economy has overturned those old rules and made them increasingly obsolete. And what that has prompted in turn as countries grapple with this is the advent of digital services taxes, which are basically unilateral approaches by many jurisdictions to say, “Well, we are missing out on the tax take here of the digital sales that are happening in our country, but aren’t actually being performed by a business physically located in our country.” And as a result, the OECD is trying to pull together some order in this matter and adopt a unified approach.

So this is quite revolutionary and it’s the first step. There are three parts to the proposals, which are tied in with what’s called global anti-base eroding rules. And one of these is that these global base anti-base eroding rules are intended to ensure minimum levels of effective tax are paid on all income. And so that’s a big step forward too. So, at moment, this is just the first stage, it’s simply proposals that there’ve been issued by the OECD.

And what will happen is that up until 12th of November 2019 submissions can be made on these proposals. There will then be a formal consultation in a public meeting in Paris on the 21st and 22nd of November 2019. And the idea is that once the OEC is trying to get a political agreement amongst the members of the inclusive framework, that’s 134 countries, in January 2020 so that then technical work on the mechanics of the whole operations can start to take place during next year.

It’s a huge step forward. And it would revolutionize international tax and it would also take away the potential for unilateral tax grabs in the form of digital services tax. So this is the great concern about digital services tax and multinationals and tax professionals who work in that space have. They’re rather arbitrary and it could lead to retaliatory measures, which is why the tax community and the likes of multinationals such as Fonterra are encouraging government to proceed carefully on that.

So it’s a case of watch this space, but I’ll keep you updated on matters as they emerge.

What should we do with the surplus?

This week, the government released its financial statements for the year to 30 June 2019 and announced a significant surplus.

The top line number was $7.5 billion, that includes what might be termed accounting adjustments. But once you strip those out it’s still a reasonably sizable $4 billion.

That’s partly down to increase in tax revenue, which was up $6.2 billion or 7.8%. Quite a chunk of that represented an increase in the amount of corporate income tax payable as a result of the introduction of the Inland Revenue’s Simplified Tax and Revenue Technology system as of April 2019. So, what we see as a result will be lots of people saying, “Well let me help you spend that surplus.” And there’ll be calls for more investment in education, in housing, transport and the health sector.

There’ll also be calls for changes to the tax system. These will be called tax cuts, but in reality, these are inflationary adjustments to the thresholds. Who knows what will happen and will all be revealed in next May’s Budget. But there is something in the background, which the government is pushing back on which was also released this week and that was the question of how to pay for superannuation.

Higher tax rates for the wealthy over 65s

The interim retirement commissioner released a report suggesting a higher tax rate for the wealthy over 65s as a means of clawing back some of the cost of superannuation.

This is an idea that Susan St John of Auckland University has been promoting for some time. It is as I said to Radio New Zealand a sort of means testing without means testing.

But the proposal is based upon the changing demographics of New Zealand and the rise in the cost of superannuation.

We don’t face the same problems as other countries face, but there is no doubt that we will be paying more for superannuation in the future and we will have fewer people to pay for that in the working population. The compensation for that is that [for many] 65 is just an age. And over 65s are still very active in the workforce and that’s where this measure comes into play by saying, “Well, yes, those who are still working, we can sort of claw back the tax through a tax system, the superannuation that they are being paid.”

And the deep theory is that superannuation becomes formally what it is in the reality a universal grant, but depending on how you tweak the tax rates and thresholds, it will be clawed back from those who are earning substantial amounts.

It isn’t anywhere near as complicated as the superannuation surcharge that was applicable in the late 80s and early to mid 90s, which was both deeply unpopular and highly complex. But it will be a politically charged issue inevitably because there will be some losers even though the suggestion is that the people who would be losing out are those earning substantially above the normal average wage and it would not affect most superannuitants.

IRD as Jekyll and Hyde

And finally this week we had Inland Revenue doing it’s Jekyll and Hyde. The first part is Dr. Jekyll when five members of one family were sentenced last week after a multi-year tax evasion investigation.

One was sent to jail for more than two and a half years and three others served home detention sentences. And in total, the five had to pay more than $2.2 million in reparations. These were the owners of 20 Thai takeaway restaurants who basically just accumulated cash and weren’t ringing through all the sales. It’s a fairly simple, possibly more common than we’d like to admit tax evasion. Calling it a scheme would be actually giving it a grandiose term.

But this is something that’s quite common and Inland Revenue wants to clamp down on the cash economy. So that would have my support. It would have the support on almost every tax agent in New Zealand. Simply because we are acting for clients who aren’t playing that game. They are disadvantaged and so commercially, why are they losing out to people who are breaking the law? That’s just simply not how we’d want the system to operate.

On the other hand, Mr. Hyde also popped up, and in this case, not with evil intent, but rather in a more typically ham-fisted approach by Inland Revenue. What it did was again in relation to superannuitants, some of whom have other sources of income including quite a few have overseas pensions.

Now what myself and other tax practitioners have done is said, “Right, well your New Zealand super is subject to PAYE, but instead of having the standard M code we’ll go for a special secondary tax code. Which will then mean that more will be deducted from pay as you earn that way, but it will also smooth the amount of provisional tax and terminal tax payable in respect of the other income.

Inland Revenues in its enthusiasm has issued letters directly to clients, not to the tax agents telling them that these codes are all wrong and they have to reapply for new codes. And that has gone down like a bucket of cold sick to be quite frank amongst tax agents. Because it means that we are having to deal with an issue in the middle of the tax year we didn’t plan on and even if it is technically correct and part of Inland Revenue, it doesn’t actually achieve very much other than cost money and cause a massive amount of disruption for little or no gain.

The solution Inland Revenue is saying is to use the new tailored tax codes, but we would say in response, “Well, effectively these secondary tax codes are the tailored tax codes and if you want to change everything, why can’t it wait until 1st of April next year?” It’s one of those things I think where Inland Revenue is testing what it can do in its new computer system, but what it also shows is that just because you can doesn’t mean you should.

And this is one case where action by Inland Revenue has aggravated the community of tax agents quite needlessly. We were trying to work together on these matters and arbitrary actions like this do not help.

That’s it for the Week in Tax. I’m Terry Baucher and you can find this podcast on my website, www.baucher.tax or wherever you get your podcasts. Please send me your feedback and tell your friends and clients. Until next time, have a great week, ka kite āno!