Property tax cheats in IRD sights

[muppet]

Hi Guys

Well blow me done with a feather.
Further to the discussion on property speculators this article appeared in this morning's NZ Herald.

Property tax cheats in IRD sights

27.01.05
by Anne Gibson

The tax office is stepping up a campaign against property speculators who are not paying tax in the booming Auckland real estate market.

An initial crackdown on people making money out of property transactions in the city has been so successful that Inland Revenue is pouring more money and staff into uncovering what it says is an escalating problem.

Targeting property tax cheats resulted in the department getting an extra $106.6 million nationally, including an extra $52.9 million from Auckland.

One senior Auckland official says he is "stunned" at the level of tax evasion on Auckland property deals, and the IRD plans to step up its resources in the area by 30 per cent.

The high volume of Auckland residential property sales and building consents issued in the past two years alerted the department to investigate, after a crackdown in Queenstown, Wanaka and Te Anau.

The department is pleading for people to declare profits on property transactions and has stiff penalties and court prosecutions for those who deliberately cover up their deals.

In the past 18 months, the department actively looked for those not paying tax, a practice that in the year to June pulled in an extra $29.9 million from the city.

But staff were surprised when further Auckland investigations resulted in the department getting an extra $23 million from GST and income tax not paid in the six months from July to December.

Richard Philp, a senior Auckland Inland Revenue official, said he was stunned by the scale of the problem. More staff had been engaged at the Takapuna and Manukau offices to investigate cases.

"We devoted 10 per cent of our audit resources nationally to property cases last year, but 14 per cent of those resources to Auckland cases," Mr Philp said.

The department investigated 5692 property tax cases nationally and 3377 cases in Auckland.

This year it would step up Auckland investigative resources by 30 per cent, he said.

Of the extra $106.6 million gathered in tax on property deals nationally, $62.4 million was gathered in the year to June and a further $44.2 million came in the last six months.

"That is the amount of money involved in the cases where we have made adjustments to the tax position of people," Mr Philp said.

"Some of the cases will result in court prosecutions."

He encouraged people who were concerned or unaware of the rules to contact the department, saying people who made a voluntary disclosure of non-payment were entitled to a 75 per cent reduction in penalties on any tax shortfall they owed.

Economist Dr Gareth Morgan said that last year the department was making people in Central Otago and Nelson nervous after four teams of investigators were sent in.

Calling the units "death squads", he said they were giving people the jitters, and predicted the four squads were just warming up before hitting Auckland.

Auckland Property Investors Association president Andrew King defended residential investors, saying most were honest, keenly aware of the rules and only a few evaded tax.

They paid tax because they knew of the consequences of not following the rules, he said.

The association, which has about 1000 landlord members who own thousands of Auckland residential rental properties, went to some lengths to impart more tax knowledge, he said.

"We have magazine articles, courses and seminars on tax and once a year we invite a tax accountant to talk to the members and present on changes to the tax regime," Mr King said.

"Most landlords would pay tax on the sale of their properties because they use accountants and they are aware that the penalties of not paying are huge."

Mr King warned of the penalties, citing a 150 per cent increase in a tax bill if a property investor was caught deliberately evading tax, a 100 per cent fee for an abusive tax position, 40 per cent for gross carelessness, 20 per cent for unacceptable interpretation of tax rules and 20 per cent if a landlord did not take reasonable care with tax.

* People with queries about tax should consult a tax adviser or phone Inland Revenue on 0800-227774

Tax rules

New Zealanders pay no tax on the sale of their private homes, but they are liable to pay tax in some cases on investment properties.

If you invest in property for the long term and your principal income is rental money, there is no tax on the amount you get when you sell your rental property.

But if you invest in property with the main aim of selling that place for a profit, any money you make is taxable.

News source

http://www.nzherald.co.nz/index.cfm?c_id=1&ObjectID=10008230

Regards
Regards

[kieran]

Nothing new here... but good to remind evryone and let the newbies know.

I have been 'investigated' by the IRD before when I re-sold a ppty in a short space of time of buying it.

The 2 points that 'saved me having to pay tax on a profit upon re-sale' were:

1) My clearly documented intention of long term ownership (ie on accountants file and the bank who financed it's file).

2) My reason for re-selling (My neighbour was dealing drugs, with visits from the police etc,etc and this caused all sorts of grief when trying to tenant the place!). So the IRD agreed that my circumstances had changed significantly to warrant the sale and my intention was never to quickly re-sell it for a profit.

[muppet]

Hi Guys

Further to the above item more advice for property developers appeared in Friday's NZ Herald.

Confess early, property speculators advised

28.01.05
by Anne Gibson

Wheeler-dealer Aucklanders who bought even one house or flat with the intention of making a speculative gain must pay tax on their profits when they sell, according to a financial expert.

PricewaterhouseCoopers tax partner John Shewan warned Aucklanders to confess early rather than waiting for Inland Revenue to find them. He said he had no sympathy for people who flouted tax laws.

He warned speculators who feared a tax bill against phoning Inland Revenue directly to discuss their tax position, saying this in itself could spark an investigation.

Instead, they should go to a tax consultant to find out if they had a tax exposure.

But Senior Auckland department official Richard Philp said people could phone anonymously to talk about the general rules and would be helped without having to give their name.

More specific information could be provided, though, if they gave their IRD number.

Mr Shewan was commenting on the Inland Revenue Department's announcement yesterday that it was increasing resources to hunt down Auckland speculators and developers who had kept their profits a secret.

After sending four teams into the Wanaka and Queenstown area, the department has concentrated its efforts on Auckland and reaped such rich rewards that this year it will increase resources by a third.

Mr Philp said an extra $106.6 million was gathered nationally in 18 months on property transactions, including $52.9 million from Auckland.

Mr Shewan said tax liabilities on property deals was a complicated area and one easily misunderstood.

"Profits are taxable if you firstly buy with the intention of selling to make money and secondly didn't buy the place to live in," Mr Shewan said. "Some New Zealanders are taking a come-and-get-me philosophy but the onus of proof is on the taxpayer."

Buying the house next door with the intention of never living there but doing it up to resell made you a speculator, he said, and liable to pay tax when you sold.

He warned speculators that the department could trace intentions by accessing bank records which might reveal aspects such as a short-term mortgage, indicating a clear intention to sell the property for a fast gain.

The tax rules

* If you bought a property with the intention of selling on for profit, declare the profit as part of your taxable income.

* If you bought expecting to hold the property long-term without any intention of selling to make a gain, you are unlikely to be taxed, but keep a paper trail stating your intentions at the time of purchase.

* If you are worried about which category you fall into and whether Inland Revenue would classify you as a speculator or developer, consult a tax expert or the department.

[Perry]

Set A Thief To Catch A Thief?

Taxpayers Urged To Take Refunds Into Own Hands
27 November 27 2015

While Inland Revenue Department will chase taxpayers who have underpaid PAYE, they do not actively pursue people who have overpaid their tax.

So there you have it.

Remember their old slogan: It's Our Job To Be Fair.

Yeah, right.

[Davo36]

Haha, yep. And they named a movie after that slogan too.

Their slogan should be "It's our job to be fair. Unless we don't want to. Or we made a mistake but don't want to admit it. Or we think we can bluff it out and you'll run out of money for lawyers before we do. Or it's Tuesday. Or we don't like the way you speak to us so you're going to pay. Or we want you to have to sell your house first. Or others might get the same idea as you so we're sorry but we need to retrospectively change the law and make an example of you. Or we want to take a holiday now and your kinda being annoying with your not agreeing with us. Or any other condition listed in our terms and conditions, which are made public in our filing cabinet..." Filing Cabinet

[donna]

Ha - funny quote Davo36.

Probably most are paying more tax than they need to but I don't believe we want the IRD spending tax payers $$ chasing over payers.

cheers,

donna

[Perry]

IRD tax cheats in NZ citizens' sights

To hell with the costs - it's the ethics (or lack of)
that's critical. Chasing under or over-payers: the
costs are likely to be much the same. If the IRD
wants (and it does ask) people to play fair, then
they should do the same and say they'll do it.

But, lead by example? Hell, no! Leave that to the
Wellington woodenheads, please.

That quoted example very likely creates a quite
bugger them adversarial mentality in the minds
of taxpayers. And who could blame them?

Maybe the thread title could be re-styled:
IRD tax cheats in NZ citizens' sights.

[Anthonyacat]

Chasing under or over-payers: the costs are likely to be much the same.

The costs of chasing are surely very similar, but then when you chase an overpayer, you have to pay them, but an underpayer has to pay you. That makes the latter a much more sensible option.

But this is beside the point. The article says While Inland Revenue Department will chase taxpayers who have underpaid PAYE which is not true.

During the year the IRD may act to correct tax rates that are deducting too much or too little (like working two jobs and using the M tax rate on both, when one should be S - deducting too little tax - or using S on both when one should be M - deducting too much). Fair, both ways.

At the end of the year, PAYE employees are able to check online whether they overpaid or underpaid tax. If they overpaid, they can apply for a refund, if they underpaid, IRD doesn't require them to pay up. It says so right there in the poorly written Stuff article. It's inherently fair for the average person. In fact it is biased towards the taxpayer, who doesn't have to pay if they don't want to.

But it is totally the responsibility of the taxpayer to check. We have a self-assessment tax system in this country. Just because there is an option to ignore it if you earn PAYE, doesn't mean you should.

[Perry]

The article says While Inland Revenue Department will chase taxpayers who have underpaid PAYE which is not true.

So, if what you say is correct, the whole article is a farce.

[Wayne]

The actual words use around the PAYE are wrong as Anthonycat says.
If you have paid too much PAYE then you can claim it back.
If you have paid too little you don't have to fess up.

But what IRD is chasing in the 'tax cheats' area is people to don't declare income - nothing to do with PAYE really - PAYE is not a synonym for tax.

For PAYE they could, maybe with their new expensive computer system when it is running, do an automatic calc for everyone and repay over payers (PAYE) and charge underpayers and force them to work it out if they have anything to claim to offset the payment.
Could just make everyone do tax returns again.

[Anthonyacat]

Agreed, with PAYE it should be a simple calculation indeed when their new system is up and running. For anyone who doesn't file a return, run a basic calculation. If they have a refund, roll it forward to the following year, and once over $X give them a call or letter to get them to request it refunded. If they have tax to pay, if it's under $Y write it off, otherwise send them a demand to pay up.

But yes, as Perry says, the whole article is a farce. Because it is talking about PAYE. Those are the only people who use the tax refund companies.

By the way, for those who don't know, the vast majority of the tax refund companies' refunds are a result of the Independent Earner Tax Credit (IETC) which is given to a large portion of the population earning between $24k and $28k. If the earners had the correct tax code (ME instead of M) they would get this refund as part of their pay each month, and there'd be no refund at the end of the year.

If people paid attention to their tax codes, there'd be no market for these refund companies at all.

[Wayne]

If people paid attention to their tax codes, there'd be no market for these refund companies at all.

If people could read they'd do it online with IRD in a flash.
Actually I think it is laziness.

[Jeffa]

Australian Taxation Office to force banks to hand over landlord data in investment property crackdown


Exclusive: Incorrect reporting of rental property income and expenses, and failure to declare capital gains are all in the spotlight
According to a sample audit conducted by the Australian Taxation Office in 2020-21, the federal government missed out on an estimated $9bn in tax revenue from individuals due to tax avoidance or errors.


https://amp-theguardian-com.cdn.ampp...erty-crackdown


I'd expect NZ ird to be keeping a close eye on what's happening in OZ, if tax fraud is widely spread in OZ the are likely to do the same here..

[Perry]

Just how any bank-account-extorted data would demonstrate capital gains is quite puzzling.

It needs to be remembered that the wrong words are often used. E.g. Tax 'loophole' as it relates to the loan interest expenses of owning and renting a NZ residential rental. It is a legitimate tax deduction - not a loophole of any sort. Except in the minds of those who seek to distort reality for their own gain.

With the changes to loan interest deductibility, it'll be interesting to see if the gNats get in and do reverse it and repay what was illegitimately snatched off LLs - and ultimately tenants.