Deals worth $120m to IRD

[revdev]

By IRENE CHAPPLE - Sunday Star Times | Sunday, 11 March 2007 http://www.stuff.co.nz/3989269a10.html

Inland Revenue is cracking down on about $120 million of unpaid taxes on property deals every year, with the figure rising as the market refuses to cool off.

Inland Revenue's policing role was raised by Reserve Bank governor Dr Alan Bollard last week after he lifted the official cash rate to 7.5 per cent in an attempt to curb the domestic economy. The cash rate rise flows through to mortgages but the impact can take years to kick in, with the bulk of New Zealanders on long-term fixed rates.

Bollard indicated more aggressive policing on property profiteers could help slow the market, which continues to rise despite warnings of a slump.

Tax avoidance on property sales has become one of Inland Revenue's priorities after years of property price increases, and Finance Minister Michael Cullen has indicated the department could get more funding this year to help stem the problem.

Inland Revenue Commissioner David Butler said investigators working on property audits had more than trebled in the past four years to 115, and the area was now considered one of the "highest risk".

Butler said the problem was minimal in 2003 but in 2005, after the department began focusing on rapidly developing areas such as Queenstown, $119m in unpaid taxes was recovered. Last year that rose to $120m and Butler said property audits were one of Inland Revenue's top three priority areas.

Butler said New Zealand's buoyant economy had fed the "tax risks", and those who were buying property should ensure they get accountant's advice so they were aware of their obligations.

New Zealand does not have a capital gains tax but those who buy and sell property solely for profit are taxed on that "income".

Tax expert John Shewan, of PriceWater houseCoopers, said Inland Revenue had been extremely vigilant in its property policing.

G

[No Regrets]

Sorry Cullen - Won't solve anything!

I liken this to one of my favourite anecdotes about our current govt:

Suppose that every night, ten men go out for dinner at La Porchetta's.

The bill for all ten comes to $100. They decide to pay their bill the way we pay our taxes, and it goes like this:

The first four men (the poorest) paid nothing The fifth paid $1 The sixth $3 The seventh $7 The eighth $12 The ninth $18 The tenth man (the richest) paid $59

All 10 are quite happy with the arrangement, until one day, the owner says: "Since you are all such good customers, I'm going to reduce the cost of your daily meal by $20."

So now their dinner for ten only costs $80. The group still decides to pay their bill the way we pay our taxes.

The first four men are unaffected. They will still eat for free.

But how should the other six, the paying customers, divvy up the $20 windfall so that everyone would get his "fair share"?

They realise that $20 divided by six is $3.33. But if they subtract that from everybody's share, then the fifth and sixth men would each end up being paid to eat.

The restaurateur suggests reducing each man's bill by roughly the same percentage, thus:

The fifth man pays nothing (like the first four) instead of $1 (100% saving)

The sixth pays $2 instead of $3 (33% saving)

The seventh pays $5 instead of $7 (28% saving)

The eighth pays $9 instead of $12 (25% saving)

The ninth pays $14 instead of $18 (22% saving)

The tenth pays $49 instead of $59 (16% saving)

Each of the six are better off, and the first four continue to eat for free, as now does the fifth - but outside the restaurant, the men began to compare their savings.

" I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

" That's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more than me!"

" That's true!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

" Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men then surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner.

The nine sat down and ate without him, but when they came to pay the bill, they discovered that they didn't have enough money between all of them to meet even half of the bill!

I really wish the govt would just wake up and take a good look at the acual source of all of this countries problems!

[Perry]

But Cullen's a Comrade Commissar Socialist.
Like the Captain said as the Hindenberg flamed:
"Watch me fix this."

[xris]

The practice is clearly very widespread and often done in ignorance.

A couple of weeks ago I was part of a discussion on tidying up and on-selling with a couple of investors at an after work social. I mentioned the profit being reduced by tax and was told by one: "But there's no tax on property sales".

It would be interesting to hear from anyone who has not paid tax after selling, been audited and then been charged on the profit. It's not the sort of thing people openly admit or talk about though.

Iwould agree with the thrust of the article, that the practice is quite common, whether through deceit or ignorance.

xris

[McDuck]

Suppose that every night, ten men go out for dinner at La Porchetta's.


It makes an interesting point.

I'm not sure they would all get the same meal though.
Probably the four would get soup and the one would get a roast.
That's if this story is a metaphor for what we derive from the social structure we live in.
And usually the soup eaters would have worked the farm while the Roast eater owned it....looking at a holistic picture that is.

This seems to be the way the wealth and physical effort are spread in historical cases.

And you usually get an uprising when the soup eaters are championed by some intellectual with the promise of a roast.
But the soup would have to be pretty terrible for quite a while before the soup eaters would challenge a social structure that was delivering them even the minimum.