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IRD reaps $4m from taxpayers using trusts, sets deal deadline

BUSINESSDESK: Inland Revenue has collected $4 million from 170 taxpayers since the Supreme Court found two orthopaedic surgeons had avoided income tax by paying themselves low salaries through a structure of companies and trusts.

IRD announced today that those affected by the Penny and Hooper decision have until March 31, 2013, to make voluntary disclosures.

It has previously agreed to accept settlement for those who make voluntary disclosure for a two-year limit, which is less than the four years that could be audited under the decision.

The period of time for disclosure was brokered between the New Zealand Institute of Chartered Accountants and IRD, tax partner at Ernst & Young Jo Doolan says.

Until now, the IRD offer to restrict tax adjustments had lacked clarity around when the offer would expire, she says.

"But taxpayers are justified in having a sour taste in their mouth." 

Businesses are struggling and the last thing they need is to be side-tracked by a lengthy battle with IRD.

The extension of the period for the two-year concession was welcomed by the institute.

IRD had sent risk-review letters to a range of taxpayers who it thought seemed to be taking positions at the more extreme end of the scale, it says.

IRD group tax counsel Graham Tubb saysthe department's objective is to encourage taxpayers affected by the case to contact it.

"By continuing this concession until March 31, 2013, we anticipate further voluntary disclosures, and this is a process that benefits everyone involved."

Comments and questions

This is just another reason why we should get rid of income taxes and just tax consumption, no way to avoid the consumption tax except to stop buying stuff which creates savings which isn't bad either.

The whole grey error, err on side of caution, determining intent, IRD judge jury and executioner undermines rule of law ... especially when it comes down to the subtleties of avoidance versus evasion.

Its a pandoras box that has been opened up. Income tax should be abolished as an unworkable, arbitrary, potentially capricious way for civil servants and state employees to lord it over their employers ... i.e. US. Its all ass-backwards, not to mention the attendant strong whiff of totalitarianism that goes along with this approach.

With company tax rate 28% and top personal tax rate 33% only starting at $70k, trusts actually pay more tax than others (33% on ALL income).

So IRD have been very smart indeed, first picking off the lowest hanging fruit (Penny/Hooper), then sitting back as most of the media lazily conflates IRD's win with trusts being tax avoidance.

The reality is that it's not tax avoidance if trusts actually pay more tax...

And parliament started it all with multiple tax rates creating incentives for lawyers and accountants to tout various schemes and set the IRD attack dogs onto something of their own making.

At the very least parliament should grow some... and simply make all tax rates the same, and create a level playing field with no distortions that suck productive time and money into the jaws of circling lawyers, accountants and IRD bureaucrats.

We can all then focus on growing the economy instead.

Whoops, sorry, too radical by far...