IRD to target property rorts

Inland Revenue is zeroing in on 300 property investors believed to have dodged millions in taxes, including one who could be hit for not disclosing $8 million of profits.

The investors are the top end of a group of 2000 identified as failing to pay $214m in tax on properties they bought and sold in the past four years.

Inland Revenue assurance group manager Martin Scott said the 300 cases under the microscope involved investors who turned over 20 or more properties each during that period.

"We are looking at a number of potential prosecutions, including a case where nearly 60 properties were sold, and income and profit of about $8m was not disclosed."

He did not say how much of the $214m in unpaid tax the 300 could be liable for, but the revenue owing on $8m could be as high as $3m, depending on the investor's tax status.

New Zealand does not have a capital gains tax for family homes, but tax must be paid by people in the business of buying other property to sell for profit. Frequent purchases and sales over a short period is a key indicator of a profit motive.

The other 1700 investors under investigation bought and sold at least six properties each during the past four years.

The crackdown comes as the Government considers ways to broaden the tax base to shift some of the burden from workers, including a recommendation to introduce taxes on investment properties.

Revenue Minister Peter Dunne said no decisions had been made, but in the meantime the department was focusing on catching people who were not paying taxes they were already liable for.

Investigators were also homing in on 9700 households receiving Working for Families and using losses on rental properties they own to boost the amount they get from taxpayers by a collective $13m a year.

"Inland Revenue has been looking at a lot of cases and I do know that in terms of people who are seeking to structure their affairs in that way, we'd be strongly advising people not to bother because we're much more aware now of the devices that were being used," he said.

The rorts were revealed during deliberations by the Tax Working Group, which raised concerns about the ability of wealthy people to rip off Working for Families.

Labour revenue spokesman Stuart Nash said the rorts were "totally unacceptable", but should not be used to change the scheme.

"Working for Families is the most comprehensive income redistribution scheme in a generation and has lifted thousands of children out of poverty," he said.

"It is crucial to address the scams, but the Government must not use a crackdown on rorts to make significant changes to the scheme."

Finance Minister Bill English said this week that well-off families ripping off Working for Families was due to the tax system, not the scheme. Fairfax

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