What are the tax compliance issues that Inland Revenue is focusing on?
December 2014 Tax Alert
Inland Revenue has released its compliance focus document for 2014-15 which highlights the types of taxpayers or areas which are under current focus. At one end of the scale, common compliance mistakes are helpfully highlighted in order to raise awareness for taxpayers who wish to comply and pay the right amount of tax. At the other end of the scale, Inland Revenue explains that it is also focusing on those who don’t declare income or who use aggressive tax planning techniques and so the hope is that these taxpayers will get independent advice to review their tax affairs before the Inland Revenue come knocking at the door.
The information in this booklet is pitched at a range of taxpayers such as those with student loans, those with property rentals, employers, small businesses, high-wealth individuals, trusts and certain industry groups. Multinationals are not covered in this document this year, but are directed to last year’s compliance focus document which highlights the areas for that group.
We have summarised the key points as follows:
Small to medium businesses
For small to medium businesses, there is the annual reminder about getting the basics right. Businesses are reminded of the following tax compliance basics:
- Ensuring that the correct deductions are made from employees’ salaries and that the employer monthly schedule is filed accurately each month.
- With regard to GST, the most common mistakes made are:
- Not accounting for GST on the private use of assets
- Not including all taxable supplies in the GST return
- Reporting sales and expenses in the incorrect period
- Not registering early enough or not deregistering when the business closes
- FBT returns: identifying all fringe benefits provided, choosing the right rate and filing FBT returns on time
- Keeping accurate records (both electronic and paper)
To this end Inland Revenue has invested significantly in online resources, tools and services in order to make it easier for businesses to get things right.
Independent contractors get a special mention this year. Common issues for this group include failing to file IR 3 income tax returns on time, not including all contract income in tax returns, failing to register for GST once taxable supplies reach $60,000, not accounting for GST on income, claiming private expenditure and incorrectly income splitting income with a partner or spouse.
Key focus areas
Once again high-wealth individuals are under scrutiny. For this group of taxpayers, examples of issues that will attract attention include:
- Large or one off unusual transactions
- Unexplained tax losses
- Unusual classification of income or expenditure between capital and revenue
- Mismatches between tax paid and net wealth
- Complicated structures or intra-group dealings
- Unusual financial instruments or financing arrangements
- Mixed business/private use of assets – especially lifestyle assets
There is the annual reminder on tax issues associated with residential property trading and one-off speculation with a focus on new and infill development. Refer our recent article on the compliance property team for more information on the issues that arise.
Trusts have been emerging as an area of focus for a few years now as trusts can be used in aggressive tax planning arrangements. Therefore arrangements which use trusts that don’t make commercial sense or those arrangements that deliver unusually favourable tax advantages will attract attention. There is also a reminder for trustees to refer to (and follow) trust deeds and keep good records such as minutes, resolutions, asset registers, bank statements and invoices.
Sophisticated tools are now employed by Inland Revenue to detect those that deliberately under report income, commit fraud or avoid tax through aggressive tax planning. Today, there is more data analysis and data sharing among government departments. There are now regular automatic exchanges of tax information between governments of different countries. All of which make detection increasingly likely.
Industry groups – charities, local and central government
There are over 27,000 registered charities in New Zealand which raise a significant amount of money to help people in communities. Given this, charities have been under greater focus to ensure that the tax rules are understood and that charities are not misused.
For central and local government, the focus remains on GST and remuneration systems and processes.
If you have any compliance matters that keep you awake at night, please contact your usual Deloitte tax advisor.
December 2014 Tax Alert contents
- Inland Revenue’s 2014 Annual Report: some reading between the lines
- Briefing for the Incoming Minister of Revenue
- New Zealand Revenue Minister releases update on taxation of multinationals
- The Commissioner’s power of reconstruction: No day at the beach for taxpayers
- What are the tax compliance issues that Inland Revenue is focusing on?
- VAT on Supplies of Services to the EU