By Hayes Knight – 1 September 2010

The Inland Revenue has released details of its compliance focus for 2010-11. The document identifies the compliance focus for individuals, non-profit groups, small to medium enterprises, employers and other taxpayer groups. You should be aware of IRD’s compliance to determine whether you could be subject to closer scrutiny of your tax affairs.

IRD’s compliance activity over the 2010-11 year will focus on the following themes:

  • Making sure everyone pays their fair share of tax.
  • Targeting industries in the hidden economy (i.e. mainly the “cash” economy). This includes the hospitality industry, undeclared off shore income, the scrap metal industry, agricultural and horticultural contractors.
  • Getting it right at source, e.g. receiving accurate information from employer and banks to ensure correct PAYE and RWT deductions.
  • Proactively managing tax debt. This includes early intervention with people who don’t file returns or default on payments.
  • Making it easy to administer you tax affairs on line.

Individuals

The areas of focus for individuals include:

  • Not filing tax returns for additional income received on top of salaries and wages, including interest and dividends.
  • Using the correct resident withholding tax rate (RWT) so that they align with the individuals personal tax rates.
  • Diverting personal income to companies, trusts or by other techniques to avoid paying the top tax rate. Income splitting by professionals, transfer of assets for inadequate consideration to minors or associated individuals.
  • Expatriate employees and non-resident contractors’ remuneration using tax havens and tax planning to hide or divert overseas income to minimise tax paid n NZ. 
    Focus on high-wealth individuals and high-income individuals with respect to their internal restructuring and business shelters.
  • Schemes to manipulate or structure income to claim more working for families tax credits.

Non-profit groups

The areas of focus for non-profit groups (e.g. society clubs, charities) include:

  • Identifying charities that create false receipts and invoices, organisations that claim to be charities but aren’t, and claims from claimants who are trustees, officers or who derive a monetary benefit from the charity.
  • Ineligible or fraudulent donation tax credit claims being filed.

Small and Medium Enterprises

The areas of focus for non-profit groups small and medium enterprises include:

  • Proactively managing tax debt.
  • Property developers, speculators, dealers that do not pay income tax on the transactions.
  • GST claimed when property is purchased but the taxable activity has not happened, reverted to a non-taxable activity or the property has been sold with no GST or income tax returned.
  • Claiming rental losses on private homes, including where a LAQC shareholder continues to live in the home and claims tax deductions.
  • Compliance with new deprecation rules for buildings and proposed rules governing LAQCs.
  • Monitoring non-compliance with loss carry forward, loss offset rules and other common errors.
  • Continue to identify and investigate artificially created losses.
  • Monitor SMEs application of revised CFC and FIF rules.

Employers

  • Compliance with employer month schedule (EMS) obligations and filing requirements. EMS schedules deal with PAYE, student loans, child support, etc.
  • IRD will work with employers to address EMS filing issues and to assist employers with cash flow difficulties who cannot fulfil their filing and payment obligations.

The full Compliance Focus report is available on  IRD’s website.

If you would like to discuss the details of IRD’s compliance focus or how it may affect you, please contact  Phil Barlow or  Shelley-ann Brinkley.