By Phil Barlow – 10 August 2011

The Inland Revenue (IRD) has released details of its compliance focus for 2011-12. This document is of interest in that it highlights the areas that will be the subject of closer scrutiny by the IRD in the coming year.

While the 2010-11 compliance focus was based on customer groups (individuals, non-profit groups, small to medium enterprises, employers and other taxpayers), the 2011-12 compliance focus is grouped around four key themes:

  1. Everyone pays the right amount of tax
  2. The IRD receives the right amount of tax at the right time
  3. Everyone files and pays tax on time
  4. The IRD provides confidence and certainty to their customers.

This change in grouping reflects that most people don’t belong in just one customer group. The four key themes are summarised below:

1. Everyone pays the right amount of tax

The areas of focus include:

  • Diverting personal income to minimise tax and child support obligations or increase entitlements
  • Complex financing and cross border funding arrangements
  • Loss generation and usage such as creating deductions which are not real economic losses
  • Misuse of charities tax exempt status
  • Offshore and international issues such as use of offshore bank accounts and offshore schemes (18 tax information exchange agreements have been signed with more to follow)
  • False information and fraudulent refund claims
  • Identity protection to reduce creation of false identities and falsely accessing other peoples accounts
  • The hidden economy – focus on industries, such as hospitality, scrap metal, fishing and aquaculture, tourism and agriculture, construction and ACC providers. Monitoring of online trading and short-term property rentals ahead of major events (i.e. the Rugby World Cup). IRD to issue industry benchmarks for small businesses
  • Organised crime and cross-border transactions
  • Income from property focussing on property speculators and dealers

2. IRD receives the right amount of tax at the right time

The areas of focus include:

  • Changes to families and individual circumstances affecting Working for Families Tax Credits (WfFTC)
  • Cessation of business or employment – notification and final returns
  • Employer monthly schedules not filed on time
  • Resident Withholding Tax (RWT) deducted at incorrect rate
  • Non-resident contractors and their employees failing to declare income in New Zealand

3. Everyone files and pays tax on time

The areas of focus include:

  • Accuracy of personal tax summaries submitted by intermediaries
  • Tax agent’s tax filing percentages and tax agent’s personal tax obligations
  • Filing returns on time
  • Keeping on top of debt: individuals, child support, student loan borrowers, businesses, employers, KiwiSaver obligations

4. IRD provides confidence and certainty to their customers

The areas of focus include:

  • Ensure new Controlled Foreign Company (CFC) and Foreign Investment Fund (FIF) rules are complied with
  • Ensure new life insurance providers tax rules are complied with
  • Large enterprises tax compliance
  • Property – IRD is notified of all property transfers and will focus on “land banking” taxpayers
  • Central and local government – focus on GST and remuneration systems
  • Transfer pricing – focus on losses, groups with above average debt, NZ-owned multinationals and import of overseas losses
  • High wealth and high income individuals – IRD is building a profile of high-income earners to establish the level of risk to the tax system; will be undertaking two-yearly reviews of high-income earners
  • Losses – common errors with loss utilisation and carry forward
  • New immigrants tax obligations

View 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
Tax Director
T + 64 9 414 5444
E phil.barlow@hayesknight.co.nz

Shelley-ann Brinkley
Senior Tax Manager
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz