Reducing the stress and cost of a tax audit

Tax audits can be very stressful. Often lots of time is involved and there are emotional and financial costs, even if Inland Revenue doesn't make any adjustments.

Audit Shield insurance is now available to New Zealand businesses to help reduce the financial cost.

Audit Shield covers professional fees incurred in relation to tax audits. For example a business with annual sales of between $1m and $3m could have up to $20,000 of audit related professional fees paid for by Audit Shield.

Please contact your WHK adviser to discuss whether Audit Shield is a good idea for you.

IRD using debt collectors

Inland Revenue has started referring outstanding tax to debt collectors. Owing tax could adversely affect your credit rating.

Inland Revenue is currently letting you know before this happens so there is an opportunity to make arrangements to pay the tax.

If Inland Revenue or a debt collector contacts you about outstanding tax please contact your WHK adviser.

GST and land

We continue to see confusion about GST and land transactions. There's no reason why this transaction should be difficult; problems are usually a result of vendors not wanting to pay GST to IRD, purchasers wanting to get a refund and the parties not being clear with each other.

In addition, on 1 April 2011 there were changes to GST zero rating, nominations and apportionment rules, all of which need to be considered for land transactions.

If you're buying or selling land please talk to your WHK adviser before you enter into a contract. You don't want to be the party that's 15% out of pocket.

Gifts

Gift duty was abolished from 1 October 2011. You can now gift to trusts, family or friends without the previous $27,000 a year limit.

There are many reasons why gifting, particularly giving all your assets to a trust, isn't a good idea. Examples include access to rest home subsidies, relationship property difficulties, creditors being able to claim against trusts, income tax on debt forgiveness and being able to access your assets when you want to.

It's critical to seek advice before you give assets away, even if it's to your own trust. Please speak to your WHK adviser before giving.

Penny and Hooper - market salaries?

Penny and Hooper were surgeons who traded through companies and trusts. They paid themselves salaries below their market rates, saving tax as the company and trust income tax rates were less than their own. The Supreme Court said the arrangements were tax avoidance.

Inland Revenue has indicated its focus will be on situations where business income relies on individual exertion and where personal income is less than 80% of the profits.

Unfortunately there remains lots of uncertainty. We recommend you seek advice, particularly if:

Inland Revenue has contacted you about a review or audit; or

You're a medical practitioner or have a business which is highly reliant on your personal effort; and

You operate your business using a company and/or trust; and

You have paid yourself a salary of less than 80% of the profits.

You need to understand if you're at risk of an Inland Revenue audit and identify what action you could take now to reduce that risk.

For more information please call the WHK tax team on 0800 494 569.