Media Release - 27 July 2010

Clare Farrant
Communications Manager
Ernst & Young
P: +64 9 300 7065
M: +64 274 899 700
E: clare.farrant@nz.ey.com

“Helping you get it right. IRD’s compliance focus 2010-11”

In a move to promote greater transparency and improve taxpayer compliance, the Inland Revenue Department (IRD) has, for the second time in its history, released details of its compliance focus for 2010-11.

“Taxpayers and advisors need to be clear about what the IRD considers appropriate tax planning and where they’re going to focus their audit activity”, said Aaron Quintal, Tax Director at Ernst & Young. “The release of this document is an important part of that process.”

Like last year, some key features of the IRD compliance focus include separating and targeting the hidden economy, highlighting the property sector in several areas of focus, and risk profiling of High Wealth Individuals for a more tailored approach to tax compliance scrutiny.

“What the IRD is saying is that the plan is to use resources more efficiently to streamline a more targeted audit approach,” says Quintal. “This includes building industry group relationships and relationships with other government agencies, together with better use of commercially available data and individual compliance history.”

“The IRD intends to rank high wealth individuals (people worth more than $50 million) from low risk to high risk.  The clear implication is that those rated as high risk are going to face a lot more scrutiny from the IRD” said Quintal.  “While you can’t fault that logic, the important point will be how fair and robust that ranking process will be and what rights the taxpayer has to object to their rating as a “high risk” individual.  Tax audits are an expensive, time consuming and stressful experience for any taxpayer.  I wouldn’t like to see increased scrutiny simply because an individual’s tax return doesn’t match their supposed wealth reported in a newspaper story”.

In line with the high profile Penny & Hooper Court of Appeal decision, IRD will target income diversion through companies, trusts and PIEs.

The IRD has also said it’s going to focus on the cash economy and unreported income, with a particular emphasis on the tourism and hospitality sectors.

“The IRD is worried about the amount of cash work being done in the hospitality and tourism sectors.  With the Rugby World Cup just around the corner, the problem is going to get worse.  The IRD has promised an education program to inform people of their obligations, but at the same time stepping up their enforcement and prosecution roles as well,” said Quintal.

ENDS

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