For a number of years the IRD has targeted high wealth individuals and families in an effort to ensure that they have paid their fair share of tax, at least in the IRD’s eyes. Those (un)fortunate enough to make the annual NBR Rich List usually receive a bonus of being allocated their own personal IRD auditor to review and watch over their affairs.
With the Christchurch earthquake and economic downturn, the government’s need for revenue has translated itself into the muzzle being taken off the IRD, who are now much more aggressive in reassessing high wealth targets. Many recipients of the IRD’s attention feel they have complied with the relevant tax laws in filing their returns, only to find that the IRD takes a particularly aggressive position. Recent cases like Penny and Hooper have only added to the IRD’s arsenal of powers by allowing them to label anything they don’t like as simply being tax avoidance or black letter compliance.
Usually high wealth individuals and families will not want the cost, emotional effort and publicity of a fight against the IRD. As a result the parties end up negotiating a settlement whereby the penalties are reduced (the IRD almost always seeks a 100% penalty for abusive tax position if tax avoidance is even considered by them) but the core tax and interest are paid.
Many high wealth individuals and families are currently pro-actively reviewing the tax returns they have filed over the last 2-4 years in light of new levels of IRD audit interest. These reviews focus on items such as:
Donations to charities.Use of tax losses.Overseas bank accounts and investments.The use of family trusts to mitigate the former 39% tax rate for individuals.High wealth individuals and families are well advised to conduct a review of their affairs prior to the arrival of the IRD. At Covisory we are able to assist in not only reviewing your position but in determining a strategy on handling the IRD audit.
- Number of high wealth targets 250
- Threshold $50m
- Number of entities they own/control >7500
- Extra tax collected by high wealth unit since 2003 when it was set up. $467m
Under investigation 158m