Following the Penny & Hooper case on tax avoidance the IRD has been far more aggressive on what it now considers to be tax avoidance. While it has released a discussion document on how the tax rules, and in particular for apportionment of costs, should apply to mixed use assets such as baches, boats and planes, it has also been aggressively auditing or risk reviewing these.
The IRD is focusing on 2 areas:
1 Denying the part of any resulting tax loss that arises from the private use even where market rates have been paid; and
2 Questioning whether the activities constitute a business at all, with any resultant tax loss being denied in total, often also with adverse GST consequences when the IRD then seeks to retrospectively deny GST registration.
In either case the IRD will look for shortfall penalties of at least 20%, but often 100% of the extra tax bill plus use of money interest.