Businesses and individuals are moving rapidly into online spaces and adopting new technology. Long lunches and coffees with colleagues have been replaced or at least augmented by Zoom and other online meetings, DM and other instant messaging, and a new reality free from traditional constraints of face-to-face meetings and physical offices.
In case you thought otherwise, IRD has kept up with the pace of change too.
There is a wealth of information available to IRD to assist with ensuring compliance with New Zealand rules, and it seems IRD are on track to make the most of it.
We have written previously in respect of IRD using data matching to identify New Zealand property transactions and suggesting (rightly or wrongly) that they should be taxable.
However, IRD is increasingly sourcing information from overseas and matching that against the information they hold here in New Zealand.
Information sharing with foreign jurisdictions
In particular, existing information sharing and other double tax agreements have provided IRD with virtually real time access to comprehensive tax data in multiple foreign jurisdictions. New Zealand has 40 double tax agreements in place, and has a further 19 tax information exchange agreements with other jurisdictions. A further 12 are not yet in force but work in progress or under negotiation. Over and above these agreements, New Zealand also signed up to the Multilateral Convention which allows exchange of information with over 140 different foreign jurisdictions – see for example the following link to IRD’s website:
www.ird.govt.nz/media-releases/2022/offshore-tax-transparency-compliance-focus
From these interactions, IRD is reviewing taxpayers’ New Zealand records to see whether all income sources have been disclosed and returned, and then seeking to induce taxpayers to review their own affairs and make voluntary disclosures in respect of any identified potential shortfalls.
In recent years IRD has gained sufficient foreign investment and earnings data to have already issued thousands of “please explain” letters to New Zealand taxpayers and their agents.
Example uploaded Anu Anand Samantha Jennings
Typical letter from IRD INTERNATIONAL REVENUE STRATEGY
Unreported foreign income
IRD can and is identifying many types of unreported overseas income: Gains from Foreign Investment Funds, lump sum withdrawals from foreign superannuation accounts, bonus or share payments from parent companies made outside local New Zealand employment arrangements, rental income from an original family home, dividends from inherited share portfolios, financial arrangements… the list goes on.
Anecdotal evidence suggests IRD is on target with their aim and certainly getting bang for their buck in terms of return on their efforts.
Voluntary disclosures
To date, every taxpayer referred to Owens Tax following an IRD request for explanation of apparent undeclared foreign income or investment has culminated in making a voluntary disclosure. In all cases they had investments and income that their tax agents were simply unaware of. We understand those results can be extrapolated across the majority of taxpayers identified so far by IRD.
With this high degree of success to date, IRD is pushing ahead strongly with their program. If taxpayers are slow to respond or data is incomplete, we should expect that IRD will not hesitate to leap straight to comprehensive audit and review activity.
How we can help
Owens Tax can help in all these cases, and we have saved referred clients hundreds of thousands of dollars in compliance, core tax, penalties and interest. Our services include:
- Establishing tax residence status – remember tax residence is not determined by IRD, it is determined by application of legislation and international tax agreements
- Analysing bank and investment statements – often voluminous and supplied in PDF or other formats making collation difficult, and often documented in foreign languages – we can convert to a format for analysis, including translation from foreign languages
- Carrying out detailed calculations and reviewing compliance and options for both compliance with international tax rules eg FIF, Financial Arrangements, Foreign Superannuation etc and to ensure most favourable outcomes
- Preparation of Voluntary Disclosures for submission to IRD
We have an excellent track history of successfully liaising with IRD to materially limit client’s exposure to core tax and mitigating imposition of penalties and interest.
Conclusion
We urge all agents to have discussions with clients with any connection to foreign jurisdictions (even if legacy or somewhat distant) to consider their compliance with New Zealand’s international tax rules.
Getting more detailed information to assist with determining best possible outcomes can often take some time. For this reason, we strongly recommend instigating enquiries with clients before IRD issue any form of “please explain” or other review or audit correspondence. Failing that, if you do get a please explain letter, the time for action is NOW.