Tax professionals are urging vigilance from their clients
as the financial year draws to a close and the feeling the
Inland Revenue Department has the momentum of recent court
decisions on its side.
IRD has issued press releases warning taxpayers to consider
making Penny and Hooper-like disclosures before March 31.
IRD group tax counsel Graham Tubb said taxpayers who might
have reduced their income tax obligations through an income
diversion arrangement had until then to take advantage of
IRD's concession to make voluntary disclosure.
The concession was granted following the Supreme Court's
decision in the Penny and Hooper case in 2011.
WHK tax principal Scott Mason and Polson Higgs tax partner
Michael Turner are among those concerned about looming issues
''Be aware the IRD does have a list of taxpayers that have
been identified as being targets. Letters from the department
are likely to be issued during this month which may mean you
lose the voluntary disclosure relief.''
The warning from the IRD was definitely the last after two
previous time extensions, Mr Mason said.
Mr Turner said the recent dismissal by the Court of Appeal of
Alesco New Zealand's case confirmed the use of optional
convertible notes was tax avoidance.
''While this case is significant in terms of structuring
offshore investments, for the average New Zealand business,
its greater significance is that it represents another win to
the IRD on tax avoidance.''
One of the issues coming out of cases like that was the
boundary of what was considered acceptable by the IRD and the
courts was being redrawn 10 years after transactions were
entered into, he said.
Only the IRD had the benefit of being able to apply the
decision to past transactions.
In many cases, those tax avoidance decisions were taking
today's thinking and applying it to situations that occurred
a considerable time ago, Mr Turner said.
It was not surprising that the mood of the IRD and of the
courts had changed and taxpayers were seeing the results
through recent decisions.
''In the meantime, as the IRD continues to chalk up wins in
the courts, taxpayers will face continued uncertainty and the
department will be more inclined to raise tax avoidance in
audits knowing that this is costly to defend and they have a
series of wins to support their broadening view of what is
tax avoidance,'' he said.
Mr Mason said the Penny and Hooper case had implications for
all providers of personal services, including accountants,
lawyers and professions such as valuers.
WHK had been talking to clients raising the issues to be
aware of before the end of the tax year.
''The worst position to be in is to not think about it this
month and to do nothing. There is no doubt the IRD is
proactive in looking at these sorts of issues.''
Mr Turner said the Australian Tax Office had previous success
in arguing tax avoidance cases but more recently, the
taxpayer had been successful - much to the frustration of the
In New Zealand, tax professionals saw the tax avoidance
boundary like a pendulum which had swung in the favour of the
''What the ATO experience shows us is that as the revenue
authorities keep chalking up wins in the courts, they become
more inclined to push where that boundary is. This eventually
results in courts not accepting the IRD's suggestions of tax
avoidance and the pendulum swings back in the taxpayers'
favour,'' Mr Turner said.
• Collect RWT deduction certificates.
• Collect any donation receipts that have not been claimed.
• Consider any bad debts that need to be written off.
• Determine whether an estimation for provisional tax should
be made for the coming year.
• Determine any terminal tax liability.
• Address any depreciation adjustments that may be required
as a result of receiving insurance proceeds from the
• Calculate intended and actual use of mixed-use assets for
GST purposes and calculate the adjustment required.