Last week the Inland Revenue Department issued its annual compliance focus document setting out its focus for the next year.
The document reflects the dual role that the department plays in New Zealand. On one hand it trumpets the importance of providing friendly support to compliant taxpayers; on the other hand it serves up an ominous threat to those taxpayers who deliberately underpay tax or overclaim entitlements.
An overarching theme in this year's document is the importance of self-assessment - in particular, taxpayers understanding their obligations and meeting them voluntarily. IRD provides guidance on the appropriate actions to take when taxpayers get it wrong.
For taxpayers who don't comply, Inland Revenue has increasingly sophisticated methods of detection. It will not hesitate to use the full force of the law against those who do not comply.
Another theme is the prevalence of errors in calculating and offsetting tax losses. Discrepancies arise from both basic arithmetic errors and failure to understand the rules for claiming losses. It is common for companies to ignore the change of ownership rules when carrying forward tax losses, especially when private company ownership is transferred to a family trust.
Depreciation and property speculation are also highlighted as areas of concern. The document mentions a depreciation questionnaire, which has been designed to determine the level of compliance. It is suggested that taxpayers review their asset registers to ensure everything is in order before receiving a questionnaire.
Of interest to those dabbling in the property market is Inland Revenue's monitoring and alert system, which notifies it when properties are transferred and, in some cases, marketed.
Finally, the document touches on attempts to combat the hidden economy. With a growing string of courtroom victories over bogus transactions and cash jobs under its belt, IRD has increased confidence to continue its identification and prosecution of offenders.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.
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