What’s happening?

From late March, if you’re in the construction sector, you may notice:

· More phone calls from IRD if you have outstanding tax

· Site visits starting from 30 March

· Increased follow-up on unfiled returns and unpaid tax

These visits are partly about education, but they are also about getting on top of outstanding debt.

What is IRD focusing on?

IRD is paying close attention to:

· GST debt

· PAYE (employee tax deductions)

A major concern is where businesses deduct PAYE from wages but don’t pass it on to IRD.

IRD has made it very clear that this is taken seriously and can lead to significant penalties and in some cases, prosecution.

What does an IRD “campaign” actually mean?

When IRD runs a campaign in an industry like construction, it simply means they’re taking a closer look across the board. Rather than waiting for problems to come up, they’ll be reaching out to more businesses, checking in on how things are being managed, and offering help where it’s needed.

For many tradies, this just means you’re more likely to hear from IRD, even if you’ve never had contact before. It’s also a bit of a nudge to get things up to date if you’ve fallen behind, while there’s still time to sort it out with support.

What does this mean for you?

If you have:

· Unfiled tax returns

· Outstanding GST or PAYE

· Existing IRD debt

Now is the time to act.

IRD has indicated it will take a firmer approach with businesses who continue to ignore their obligations however they are still open to working with those who engage early.

How we can help

Dealing with IRD can feel overwhelming, especially if things have fallen behind. The good news is, there are often more options available than you might think.

We regularly assist clients with:

· Negotiating repayment arrangements

· Reducing or remitting penalties and interest

· In some cases, negotiating core debt depending on the circumstances

· Bringing tax filings up to date and dealing with IRD on your behalf

Most importantly, we take the stress off you by handling the communication with IRD directly.

Don’t wait until it escalates

The earlier you act, the more options you have.

If IRD contacts you, or if you know things aren’t quite up to date, we strongly recommend getting advice as soon as possible. Waiting can limit your options and lead to more serious action.

If you’d like help navigating this, get in touch with us.
We’re here to support you and work towards the best possible outcome.

The post IRD Increasing Activity in the Construction Industry. What You Need to Know appeared first on Crawford Nelson Law.

Inland Revenue has released an officials’ issues paper proposing a significant change to how shareholder loans are taxed. If adopted, these changes could result in unexpected income tax bills for shareholders who do not repay loans within a strict timeframe.

What is a shareholder loan?

A shareholder loan arises when a company provides funds to a shareholder other than by salary or dividend. Common examples include:

• An overdrawn shareholder current account
• Personal expenses paid from the company bank account or credit card
• Cash withdrawn from the company without a formal dividend being declared
• A formally documented loan from the company to the shareholder

In simple terms, if you take money out of your company and it is recorded as “owing back” to the company, that is a shareholder loan.

What is Inland Revenue proposing?

Under the proposal, new shareholder loans would be treated as a dividend if:

• The total shareholder lending exceeds a de minimis threshold (likely around $50,000), and
• The loan is not fully repaid within 12 months.

This would apply regardless of whether the loan is formally documented or simply sits in an overdrawn current account.

Why does this matter?

A dividend is taxable income to the shareholder.

If a shareholder loan is reclassified as a dividend:

• Income tax will apply at the shareholder’s marginal tax rate (up to 39%)
• This can result in a substantial tax liability, often with no cash available to pay it
• The tax outcome may be very different from what was originally intended when the funds were withdrawn

Inland Revenue’s clear policy intent is to remove the ability for shareholders to access company funds long-term without paying personal tax.

Existing loans and company closures

While the proposal primarily targets new loans, Inland Revenue is also proposing that:

• Any outstanding shareholder loan will be treated as income when a company is removed from the Companies Register

This is particularly relevant for companies that are dormant, being wound up, or struck off with unresolved shareholder current accounts.

Why this matters when a company is removed from the Companies Register

Inland Revenue is also proposing that any outstanding shareholder loan will be treated as taxable income to the shareholder when a company is removed from the Companies Register. This is a significant change. At present, many shareholders assume that once a company is struck off, the debt effectively disappears with the company.

Under the proposal, that would no longer be the case. Instead, the unpaid shareholder loan would crystallise as personal income, meaning the shareholder becomes personally liable for the resulting income tax. In practical terms, the company will not simply vanish into oblivion with the debt.  Inland Revenue will follow the value and tax it in the shareholder’s hands.

What should business owners do now?

Even though this is currently a proposal, Inland Revenue has signalled strong concern about shareholder loans and has indicated the rules may apply from the date of enactment, not retrospectively negotiated later.

Business owners should:

• Review shareholder current accounts now
• Understand whether amounts taken are genuinely short-term
• Consider repayment strategies, dividends, or remuneration planning
• Avoid assuming that informal or long-standing arrangements will continue to be acceptable

We can help

If you:

• Have an overdrawn shareholder current account
• Regularly take drawings from your company
• Are unsure whether amounts taken could be treated as a shareholder loan
• Are planning to close, sell, or restructure a company

You should seek advice now.

We regularly advise business owners on shareholder loan management, dividend planning, and Inland Revenue compliance. Early advice can prevent costly tax outcomes later.

📞 Contact us to discuss your situation and ensure you are prepared for these changes.

The post Inland Revenue Proposes Major Change to Shareholder Loans appeared first on Crawford Nelson Law.

The bright-line test also applies to New Zealand tax residents who buy and sell residential property overseas.

Your intention or purpose for purchasing or selling the property is not relevant.

When residential land that is subject to the bright-line test is disposed of for no consideration or for inadequate consideration, the amount deemed to be received is the market value at the time the property is transferred or sold.

Residential property

Residential property includes:

· land with a house on it

· land the owner has an arrangement to build a house on

· land the owner can build a house on under the district plan rules.

Residential property does not include farmland or land used predominantly as business premises, unless it is a business providing accommodation in a dwelling that is not the owner’s home.

Bright-line start and end dates

· For a standard purchase of property, the bright-line period starts from the date the property’s title is transferred to you, generally the settlement date.

· For a standard sale, the bright-line period ends when you enter into a binding sale and purchase agreement to sell the property.

· For gifts of residential property, the end date for the bright-line period is the date the person makes the gift of the residential property. Generally, it is the date the interest is registered to the new owner.

Main home exclusion

The bright-line test does not tax the sale of a property that has been your main home.

· Your main home is the property where you lived for most of the time.

· Having the intention to use the property as your main home is not enough, you must have actually used it for this purpose.

· The main home exclusion will also not apply when only a family member and not the owner have used the property as their main home.

· You cannot have more than 1 main home, and you can only use the main home exclusion twice in 2 years.

Main Home: Different Criteria for the date of acquisition

Different criteria apply to your main home depending if you acquired it before, or on or after 27 March 2021.

Before 27 March 2021 you must have:

· used more than 50% of the property’s area as your main home (including things like the yard, gardens, and garage)

· lived in the property as your main home for more than 50% of the bright-line period.

On or after 27 March 2021 you must have:

· used more than 50% of the property’s area as your main home (including things like the yard, gardens, and garage)

· lived in the property as your main home for 100% of the brightline period. This includes any period of up to 12 months where it was not used as your main home (for example, a period between moving out and when the property is finally sold).

Partial main home exclusion

If you acquired your property on or after 27 March 2021 and you do not meet the above criteria for the full exclusion, you are eligible for a reduction in the amount of tax you need to pay based on how much of and for how long the property was used as your main home.

Limits to claiming the main home exclusion

The main home exclusion does not apply when you:

· have a regular pattern of either buying and selling or building and selling your main home (even if you live in the property before it is sold)

· have already used the main home exclusion twice over the 2-year period immediately before you sold.

Rollover Relief

Rollover relief has always been available for property transferred:

· as deceased estate and inherited property

· under a relationship property agreement

· under a resident’s restricted amalgamation.

From 1 April 2022 until 30 June 2024, the following changes in legal ownership also qualify for full or partial rollover relief:

· transfers to or from look-through companies and partnerships

· certain transfers to or from qualifying family trusts

· transfers within tax consolidated groups of wholly-owned companies.

Rollover relief and main home exclusion

If rollover relief applies, any period of time a property is used as a main home by the original owner is also attributed to you and can be taken into account when you sell the property. This means the usage is attributed and there is no tax to pay at the time of the transfer if the main home exclusion applies

No rollover relief for transfers from parents to children

Rollover relief does not extend to parents helping their children own their first home. If parents are co-owners and later sell their share to their children, the bright-line test applies. Transfers of residential land for family trusts

There are special rollover relief rules for certain transfers of residential property to or from family trusts. These mean the bright-line property test looks at how long you (transferee) and the previous owner (transferor) held the property for.

Information Sharing: IRD and Land Information New Zealand (LINZ)

IRD have received data for nearly a decade from Land Information New Zealand (LINZ).

The requirement for people to provide IRD numbers on the LINZ Tax Statement has given Inland Revenue an improved view of all New Zealand property and how it is held, including properties held by Individuals, Trusts, Companies and Partnerships.

IRD use that data in various ways including reminding people about their bright-line obligations or identifying people who are trading in property or potentially getting rental income.

IRD have started audits on people they know previously filed income tax returns which included rental income. IRD are interested in why they may have stopped including rental income in their returns when they still own multiple properties.

IRD say using property data is also proving very useful in debt collection.

Inland Revenue are finding that letting people know that IRD are aware of their property holdings gets debts paid faster.

The post The Bright-line Property Test 2025 appeared first on Crawford Nelson Law.

From 29 January 2025 you may get a call from IRD to help you set up two-step verification (2SV) in your myIR ahead of this becoming compulsory.

2SV is a form of multi-factor authentication (MFA) which adds a layer of security to a customer’s myIR account. It is currently optional for myIR logons but will become compulsory for all myIR users in a phased roll out throughout the year, starting with the first group from 22 April 2025. IRD will be calling some customers between January 29 and April 18 in preparation for this. IR will be asking people to complete the process in their myIR account. Customers will need to go to the IR website (ird.govt.nz) and click on the myIR login tile.

Importantly IRD will not be asking people to click on a link to get there. Inland Revenue also won’t be asking for personal information such as credit card or bank account details and they will not be asking people to pay anything. When 2SV is enabled, customers need to provide a unique security code to verify their identity when logging in to myIR.

Customers logging in with RealME or a passkey will also be required to use 2SV.

2SV is only used for accessing myIR and is not used for other actions within myIR (e.g. resetting passwords). Anyone who has already set up and enabled 2SV prior to it becoming compulsory won’t have to change anything. If a customer receives a call and is unsure whether it is from IR, then they can either request that the person send them a web message to their secure myIR account to verify that it is IR calling; or call IR back on 0800 775 247.

REF: https://www.ird.govt.nz/media-releases/2024/ir-to-call-re-myir-security-update

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Inland Revenue will use the additional funding to target those who are evading tax, saying it is essential that IRD crack down on anyone who is not paying the tax they are required to.

Inland Revenue has confirmed that funding for the 2024/2025 financial year will be targeted at:

· the hidden economy and organised crime

· electronic sales suppression tools (ESSTs)

· GST integrity

· student loan overseas based borrowers

· increased audit activity.

And cracking down on tax debt, IRD certainly are.

Company liquidations

For 2025, IRD has already applied to liquidate more companies over unpaid taxes than ever before.

A senior IRD officer is reported as saying IRD has recently opened almost 2000 audit cases, more than the number commenced in the July to September quarter of 2024.

Hidden Economy

Inland Revenue investigators have made hundreds of unannounced visits to businesses which they believe are not meeting all their tax obligations as employers. The visits follow on from a liquor store campaign in last year.

Electronic sales suppression tools (ESST) In December 2022, Inland Revenue issued a new Revenue Alert warning of severe consequences for anyone who has or uses Electronic Suppression Software Tools (ESST) to try to evade tax.

An electronic sales suppression tool (ESST) is basically any form of Eftpos or electronic software used to accept payments. IRD say these tools can be used to create two sets

of books so using this software amounts to an aggressive form of tax evasion or money laundering.

Inland Revenue investigators are specifically targeting takeaway outlets across New Zealand where it is thought electronic sales suppression tools are being used to manipulate sales records.

Inland Revenue has already identified a number of customers in New Zealand who may have been exposed to ESS tools. That number is expected to grow significantly. Inland Revenue says it has as many investigations pending as are already underway.

Where IRD identify specific instances of ESS tools being used to evade tax, Inland Revenue will require payment of any evaded tax, plus 150% shortfall penalties and use of money interest.

Where payment is not made, IRD will consider applying for the taxpayer to be put into bankruptcy or liquidation.

IRD may also consider a criminal prosecution for tax crime. https://www.ird.govt.nz/media-releases/2022/tax-evasion-software-prompts-stern-

Ref: https://www.beehive.govt.nz/release/government-provides-support-tackle-tax-debt-and-compliance

The post Government provides $116 million to Inland Revenue to tackle tax evasion appeared first on Crawford Nelson Law.

The Taxpayer sought a ruling from Inland Revenue on whether they would qualify as a transitional resident upon immigration to New Zealand and if so, whether the sales of their crypto assets would be exempt income, and therefore not taxable for the four-year tax exemption period, under the transitional resident rules.

Transitional tax residency

A person will qualify as a transitional tax resident if they:

· are a new migrant or New Zealander returning home

· qualified as a New Zealand tax resident on or after 1 April 2006

· The person had not been a transitional resident preceding the 10-year non-resident period.

If a person qualifies as a transitional resident, some income they earn that would normally be taxed in New Zealand is exempt from income tax for 48 months (4 years) from the date they first become a tax resident either under the permanent place of abode test, or the 183-day rule.

The main issues considered in this ruling were:

· Whether the Taxpayer would qualify to be a transitional resident.

· Whether the amounts derived by the Taxpayer from the sale of cryptocurrency he held through overseas centralised exchanges (CEXs) or decentralised exchanges (DEXs) had a source in New Zealand.

Inland Revenue concluded that the sale of crypto in the four year (48 month) transitional residency period would not be taxable because:

· The Taxpayer would qualify to be a transitional resident (on the presumption certain conditions were met).

· The amounts derived from the sale of cryptocurrency did not have a source in New Zealand in the transitional period.

What is a centralized exchange (CEX)

· A centralised exchange is a government regulated centralised cryptocurrency exchange that operate similarly to traditional online brokerages

· Users can buy, sell, and trade cryptocurrencies, with a single entity controlling the entire process · They can conduct exchanges from fiat to cryptocurrency (or vice versa) and be used to store cryptocurrency.

· Examples of centralised exchanges: Binance, Coinbase, Kraken, and Easy Crypto

What is a decentralized exchange (DEX)

· A decentralised exchange is a peer-to-peer exchange where transactions occur directly between crypto traders. There is no intermediary involved in the transaction, and they are generally not regulated.

· Decentralised exchanges only allowing crypto-to-crypto exchanges. They do not conduct exchanges from fiat to cryptocurrency (or vice versa).

The source of the crypto

Inland Revenue said that the relevant source rules were those that dealt with business carried out in New Zealand, contracts made or performed in New Zealand, the disposal of property situated in New Zealand, beneficiary income from a trust fund sourced in New Zealand, or from any other source in New Zealand.

Crypto and Businesses carried on in New Zealand:

IRD said this section did not apply because:

· IRD thought it likely that the Taxpayer had not acquired the crypto for business purposes, and the volume of trades supported this view.

Crypto and Contracts made or performed in New Zealand

IRD said the contracts were not made or performed in New Zealand because:

· The overseas centralised exchanges were located outside New Zealand,

· As DEX was decentralised, it was not practically possible to attribute a location to it and, as such, it will not be possible to conclude that the contract was made or performed in New Zealand.

Crypto and Disposal of property situated in New Zealand

IRD noted that crypto was considered property. The question was them whether the crypto was located in New Zealand.

· IRD considered that intangible assets that operate over DEXs, and are not registered in any country, did not have a location.

· That the cryptocurrency would not be situated in New Zealand merely because the Taxpayer would be resident here.

Crypto and Beneficiary income from a trust fund that has a source in New Zealand

· To be beneficiary income, the amounts from the sale of crypto had to be derived by a trustee before being paid or distributed to the Taxpayer, which in this case, it was not, and therefore this section did not apply.

Crypto and any other source in New Zealand

IRD concluded that this section did not apply.

· Though not free from doubt, there was no causative link between where crypto is bought and sold on overseas centralised exchanges and DEX, and that income and source being in New Zealand.

If you have enquiries on crypto please reach out via our contact page

Reference: Tax Information Bulletin Vol: 37 No 1 February 2025

https://www.taxtechnical.ird.govt.nz/tib/volume-37—2025/tib-vol37-no1

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The income tax calculations for crypto currency activities are complicated. Until quite recently, there was no reliable software or online tools to assist with the income and tax calculations for crypto. There was also very little guidance on the taxation of crypto internationally or in New Zealand.

The following are examples that create taxable events in the crypto sphere.

Decentralized Finance (DeFi)

DeFi is a term for any application that uses blockchain and crypto technology to offer financial services peer to peer without relying on a financial intermediary. The technology is so new that most tax offices, including IRD, are yet to issue specific guidance.

DeFi applications are commonly built on the Ethereum blockchain and were designed to communicate with a blockchain, allowing people to take out loans, swap crypto, or use their crypto for purchases, or trading, giving investors more control over the asset.

What is a DeFi loan

DeFi loans are handled automatically by smart contracts. The smart contract holds the crypto as security for the loan and it is returned to the borrower once the loan is repaid. If the value of the crypto falls below the value of the loan, additional crypto must be added to cover the shortfall or the loan defaults and is liquidated, much the same as a mortgage.

Inland Revenue says a smart contract results in a transfer of beneficial ownership,

and therefore a disposal of the crypto for tax purposes. A person may not realize that this lending arrangement could trigger a taxable event once crypto is used as collateral for a loan, in the same manner that one would not expect to be taxed on equity used from a house to purchase another property.

What is an airdrop

An airdrop is when a blockchain protocol (typically a startup) distributes tokens or coins to users for free to increase project awareness, build communities and to encourage participation when it becomes available. Participation in the airdrop may require holding certain crypto or completing a small task such as sharing social media posts.

Airdrops are taxable as ordinary income. The income tax is based on the value of the coin received in the airdrop at the time of the airdrop.

What are Wrapped Crypto Tokens

Wrapped crypto tokens (wrapped crypto) are digital assets that mirror the value of another crypto from a different blockchain. Wrapped crypto is created to bridge the gap between different blockchains such as Ethereum and Bitcoin which operate on different protocols and cannot directly interact with each other. Wrapped crypto bridges this gap, allowing crypto from one blockchain to be used on another.

From a tax perspective, wrapping crypto is viewed as exchanging one crypto for another which creates a taxable event.

An example was RenBTC, the tokenised version of Bitcoin that operated on blockchains like Ethereum. Wrapping and unwrapping crypto using RenBTC created taxable events as wrapping was seen as a taxable event from disposal and the unwrapping as an acquisition.

What is an Initial Coin Offering (ICO)

An ICO is a process or event in which a company (especially a start-up) attempts to raise capital by selling a new cryptocurrency, which investors may purchase in the

hope that the value of the cryptocurrency will increase, or to later exchange for services offered by that company.

When a person participates in an ICO, a taxable event occurs because they lose the beneficial ownership of the crypto, making it a disposal for tax purposes.

The second taxable event occurs when the coins from participation in an ICO are received.

As you can see its a complicated affair and one that trips up many traders of cryptocurrency in New Zealand.

Mary Nelson is a seasoned expert in crypto currency tax and can help with any crypto currency issues you have.

If you are looking for a crypto currency lawyer then look no further.

The post Taxing Crypto 101 appeared first on Crawford Nelson Law.

Or alternatively you have chosen to wait and see what is happening in this sphere or to see if the IRD will find the crypto transactions.
Many believe that dealing with foreign crypto exchanges means IRD will not see their transactions which is a flawed logic as detailed below.

The IRD have access to crypto exchange data both here and overseas and in the Inland Revenue’s recent publications online and by mail they emphasise the importance of accurately reporting cryptoasset income or potentially facing hefty penalties.

If you already have received a letter from the IRD in New Zealand Titled “Inland Revenue is reviewing cryptoasset activity” then they will have access to transactions from crypto exchanges including Easy Crypto, Binance and Independent Reserve and will be matching those transactions to your income tax returns and bank statements.

Here’s what you need to know to ensure compliance and avoid potential severe penalties.

Inland Revenue is looking at bank accounts and crypto exchanges, including offshore crypto exchanges and then matching that data to the tax returns. If you’ve engaged in cryptoasset activities, they’re likely scrutinising your returns as you read this.

The Red Flag
The red flag for IRD is when income declared does not match the data extracted from the exchanges and your bank accounts.

If you have reported crypto asset income, Inland Revenue requires detailed calculations for each tax year, along with your end-of-year holdings.

This transparency is crucial for an IRD review and will require the supporting documentation from your crypto exchange that matches your bank statements.

Using online tools such as Koinly given the complexity of calculating cryptoasset income, can help ensure accuracy in your reporting. There are many other such tools out there which can manage your complete tax reporting including the losses.

Engaging a Tax Professional.
The complexity of cryptoasset taxation might necessitate professional assistance. Engaging a tax lawyer can ensure that your reporting meets all requirements and you can get assistance with a voluntary disclosure that could reduce your shortfall penalties by up to 100%

Click here to get help from Mary
.
The Benefits of Voluntary Disclosure
The advantages of coming forward early and making a voluntary disclosure can significantly reduce penalties, with potential reductions of up to 100% on shortfall penalties if full disclosure is made. Acting proactively is in your best interest.

There is a specific process for making voluntary disclosures, including updating returns with detailed income calculations and end-of-year holdings and writing to the IRD.
We can act on your behalf and deal with the IRD with your voluntary disclosure.

The Inland Revenue may escalate your review to an audit, which could lead to more severe penalties if you fail to respond.

Ensuring your cryptoasset activities are fully compliant with Inland Revenue requirements is essential. Whether you handle it personally or seek professional advice, taking prompt action now can protect you from unnecessary penalties and stress.

The post How to Navigate Your Cryptoasset Activities With The IRD (Inland Revenue Department) appeared first on Crawford Nelson Law.

“IRD have sent papers, what should I do”?
“IRD have sent prosecution documents, please help”

Currently IRD is very active in pursuing past income tax infractions, and this year we have been very busy helping our clients in court.

We have created a FAQ on IRD prosecutions to help you below and also at the bottom of the article are some case studies you may find interesting.

You can of course reach out to us at any time with any questions about tax here

IRD Prosecutions Frequently Asked Questions

1. What triggers an IRD tax prosecution in New Zealand?

IRD may initiate a criminal prosecution if they find significant discrepancies or non-compliance in tax affairs, including unpaid taxes, incorrect tax returns, falsifying tax returns or failure to file returns with the intention of not paying tax (tax evasion).

If someone does not to comply with their tax obligations or intentionally mis-represents their personal or business circumstances to pay less tax or get refunds they are not entitled to, then IRD may take prosecution actions.

Inland Revenue may also prosecute third parties for aiding, abetting another taxpayer to not pay tax. This is relevant where a company has not paid tax and IRD prosecute the director of the company or the person in the business responsible for the taxes.

2. I received a prosecution notice for unpaid taxes from a few years ago. What should I do first?

Immediately consult a tax lawyer or a professional tax advisor. They can help you understand the notice and advise on the best course of action.

3. Can I negotiate with IRD once I’ve received a prosecution notice?

Yes, you can negotiate, but it’s best to do so through a professional. They can help set up a payment plan or discuss other options with IRD.

4. What are the potential consequences of tax prosecution?

Consequences can include a conviction, fines, penalties, and in severe cases, imprisonment. Each case varies, so it’s important to seek legal advice.

5. How can I avoid tax prosecution in the future?

Ensure accurate and timely filing of tax returns and payment of tax, maintain good records, and consult with a tax professional regularly to stay compliant.

6. Is it possible to challenge the IRD’s decision on tax prosecution?

Yes, you can challenge their decision, but it requires a formal legal process. A tax lawyer can guide you on the feasibility and process of doing so.

7. What documentation should I prepare if I’m facing a tax prosecution?

Gather all relevant financial records, tax returns, and any communication with IRD. This documentation is crucial for your defence.

8. How long does a tax prosecution process take?

The duration varies depending on the complexity of the case and the legal processes involved. It can range from several months to a few years.

9. Can ignorance of tax laws be a defence in a prosecution case?

Generally, ignorance of the law is not considered a valid defence. However, the specific circumstances of your case may provide mitigating factors.

10. What are the chances of a successful outcome in a tax prosecution case?

This heavily depends on the specifics of your case. Success can mean different things, from reduced penalties to complete dismissal. A skilled tax lawyer can provide a more accurate assessment.

11. If I am convicted and found guilty, will this be publicised?

IRD may publicise convictions for tax offences based on public interest.

———————————————–

Prosecution outcomes – 2023

1. A client with a serious gambling problem evaded $700,000 of taxes. The 18 charges over a 6-year period included tax evasion, and knowingly providing false or misleading information to Inland Revenue to get Working for Families payments.

On 8 August 2023, the client was sentenced in the Manukau District Court to 11 months of home detention 150 hours of community work and ordered to pay $100,000 in reparation.

The sentencing judge accepted the client has a serious gambling problem, said the fraud was premeditated and long, and told him he had only narrowly avoided prison.

The judge noted the home detention sentence meant the client could continue to work to support his family.

2. On 4 April 2023, the director of a labour supply business was sentenced to 11 months of community detention for failing to pay nearly $960,000 of employee PAYE to Inland Revenue.

By sentencing almost $800,000 had been repaid to Inland Revenue. When handing down the sentence for community detention, the sentencing judge acknowledged the client was responsible for her disabled son and elderly mother.

3. On 12 May 2023, a brothel owner was sentenced in the Wellington District Court to 11 months of home detention for evading income tax and GST totalling $663.513.83 – made up of $183,682.04 in income tax, $452,834.01 in GST, and $26,997.78 in Working for Families Tax Credits.

IRD used sources such as text messages, sex worker rosters and hand-written records of customers to work out what the average daily gross earnings of the business were.

The sentencing judge said there were cases where home detention had been available, and he had not allowed home detention.

In this case, the sentencing judge noted there were several factors that made home detention an appropriate option, including the damaging impact on his wife and young children, and the end of the business. The client was a very good employer in a business where good employers were uncommon. If the client was imprisoned it would have taken away a working environment that was fair and where the sex workers felt secure.

These are just a few from what was a busy 2023

Best wishes the team at Crawford Nelson.

The post FAQ on Tax Prosecutions appeared first on Crawford Nelson Law.

Until recently, reporting the income to the New Zealand authorities has been a matter of volunteering the information in your tax return. Not anymore.

The same process of globalisation that has made it easier to travel and do business overseas has provided lucrative opportunities for offshore tax evasion. To close off the loopholes, governments have started to cooperate more closely.

The result has the dry name of the Common Reporting Standards (CRS). But what it really means is that governments are now sharing information.

That US bank account, Australian share portfolio, British pension or rental property in Spain. If you earned income from it, the New Zealand Inland Revenue Department will find out about it. And it will want its cut.

What you need to know about the CRS.

The CRS were developed by the Organisation for Economic Co-operation and Development (OECD)to provide a global framework for the collection, reporting, and exchange of financial account information about persons who invest outside of their countries of tax residence.

Over 100 countries have committed to exchanging information with each other under the CRS. The New Zealand Government implemented the CRS on 1 July 2017. The information received from other countries is used by Inland Revenue to detect and deter offshore tax evasion by verifying that these people have paid the correct tax on these offshore investments.

Cross-border information sharing now happens automatically.

According to the CRS, each country will annually automatically exchange with the other country the following information:

1. Name, address, taxpayer identification number (TIN) and date and place of birth of each Reportable Person.
2. Account number.
3. Name and identifying number of the reporting financial institution.
4. Account balance or value as of the end of the relevant calendar year (or other appropriate reporting period) or at its closure if the account was closed.
5. Capital gains, depending on the type of the account (dividends, interest, gross proceeds/redemptions, other).

As of December 2020, there were over 4,400 bilateral exchange relationships activated with respect to more than 100 countries committed to the CRS.

What does this mean for those with foreign income?

The process is quite straightforward. Inland Revenue will compare the information it receives about your foreign income, look at your old tax returns, and then send you a letter enquiring politely if there’s something you haven’t told them.

Here’s the process in more detail.

If you are a New Zealand tax resident:

If you have financial accounts in any of the participating countries, this information may be shared with Inland Revenue. Inland Revenue will notify you they have received information from one or more jurisdictions concerning foreign accounts in your name.

Enclosed with the letter will be:

1. A list of information Inland Revenue ask you to provide to understand the nature and tax treatment of your overseas income and assets; and,
2. Information on the IRD voluntary disclosure process.

Those who aren’t New Zealand tax residents don’t escape scrutiny. Inland Revenue has the power to share your local financial information with the authorities in your tax-resident country, who will follow a similar process, as follows.

If you identify as being a foreign tax resident:

If you currently hold (and, in certain circumstances, control) an account with a New Zealand financial institution, your financial account information may be reported to Inland Revenue. Inland Revenue may share this information with your home country or jurisdiction if New Zealand has an information exchange relationship with them. This applies whether you are currently living in or outside of New Zealand.

What should you do if you haven’t paid the correct tax on offshore income?

First of all – don’t panic. Contact us, and we will discuss your options, which may include making a Voluntary Disclosure. This is when Crawford Nelson, on your behalf, formally notifies Inland Revenue of undeclared income, along with any explanations you might have for how this situation arose.

The good news is that this often leads to a less scary outcome.

We find the Voluntary Disclosures made on behalf of our clients often lead to Inland Revenue reducing assessments and waiving penalties. Every case is different, but by front-footing the tax discussion, you may find that the result is less unpleasant than you imagined.

At Crawford Nelson, we often find ourselves representing taxpayers who have accumulated years – or even decades – of offshore revenue they never paid tax on.

If that sounds like you, your first step should be to contact us.

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