Just when we thought you’d seen enough to be able to tell a Nigerian Scam letter from the real thing, IRD have decided to really test us.
In “How to Recognise a Scam” the Ministry Business Innovation and Employment tells us something is very likely to be a scam if:
- Somebody contacts us unexpectedly
- You are being pressured to make a quick decision that will cost you
- Ask you for money or personal information
- You are asked to click on a link
and the link below IS genuine!
MBIE recommend you listen to your instincts – if something feels wrong then it generally is.
So, what exactly is IRD doing?
As the bright-line rules are becoming more established, and following the recent extension to a ten year time frame, IRD are increasingly and understandably relying on the legislation to include proceeds from land sales within income.
However, what is less understandable is IRD’s use of public land records to embark on ill researched and unprepared phishing expeditions.
IRD using public land records
Using land records that show a title may have been held by a person for less than an applicable bright-line test period, IRD are then contacting land holders with default bright-line letters.
There are many reasons why the registered ownership of land may change without triggering the bright-line provisions – including a number where the underlying ownership has not in fact changed. For example:
- Marriage – Change of name following marriage or divorce
- Trust – Death or resignation or appointment of a new trustee
- Trust ends – a bare trustee ceases to hold land for a beneficiary
- Death – a taxpayer passes away and land becomes held by the executors of the estate
- Subdivision (not a change of ownership)
- Divorce – relationship property settlement
- Inheritance – property is received pursuant to a will
- Main Home – the property was held and used as the main home of landowner
In some of these situations the bright-line rules do not apply following a specific exclusion (e.g. main home) but in many other situations, the bright-line rules are simply not ever applicable and the rules are not triggered (e.g. change of trustees of a trust).
IRD phishing letters
Regardless, instead of suggesting further enquiries or consideration be given to the issue, IRD instead are sending out correspondence that:
- Initially says it is “just a heads-up” and states that the sale “MAY” meet the bright-line property rule but go on to imply it has anyway
- Alternatively states that the sale “HAS” met the bright-line property rule
- Refer to tax statements completed at the time of sale on the basis that main residence exemption was not indicated, then state that the sale “SHOULD” or “MUST” therefore be included within an income tax return, and you will “HAVE TO PAY” income tax on any profit.
- Demand information be provided “if this is incorrect”
- Demand a response within a tight timeframe – sometimes as little as 4 days
- Recommending the taxpayer contact IRD for further information – like asking a blackmailer directions to the deposit box
IRD (lack of) consultation
Having seen several such examples (and got the IRD to back off) we offered to read the next tranche of letters before they were issued
“We take feedback into account but do not seek approval from external parties for official letters.”
Obviously things have changed since I was tax director at the then Institute of Chartered Accountants, and regularly had the opportunity to correct IRD correspondence before it was issued.
Clearly it would be in IRD’s best interests to redesign both the program behind it and this correspondence considerably. There is simply no need for the correspondence to so closely resemble a scam – nor to scare taxpayers into believing they have a liability when the legislation may well not even apply to them.
Separately, IRD claiming that tax is automatic is arrogant and ignorant. Listen to the experts.
So IRD – please approach your next phishing trip with a little more preparation and caution.
And taxpayers, if you get one of these letters, please, please, please, don’t just jump on the hook! Instead, follow MBIE advice and “Ask somebody for help or even for a second opinion”. Ie contact a tax expert, not the tax collector.