What is a voluntary disclosure?
A voluntary disclosure is when someone tells Inland Revenue they have made an error in their tax return. Errors can include under declaring income, such as rental, cryptocurrency earnings, cash payments, and overseas income. Or it could be over claiming expenses.
A voluntarily disclosure can be made for any tax type (PAYE, GST, income tax etc) or any of the payments that IRD monitor, including child support, student loan repayments or working for family’s tax credits (WfFTC).
Currently Inland Revenue is running a campaign on the Resurgence Support Payment (RSP).
There are 2 types of voluntary disclosures:
- A pre-notification voluntary disclosure is made any time before IRD notify the taxpayer of an impending IRD audit or IRD investigation.
- A post-notification voluntary disclosure is made after IRD notify the taxpayer of an impending tax audit/ investigation, but before the IRD audit/ IRD investigation begins.
Why make a voluntary disclosure to IRD
Inland Revenue has wide ranging powers and routinely reviews the tax affairs of people and businesses, so there is a real chance that errors will be identified by Inland Revenue.
Inland Revenue also receives anonymous tip offs through the IRD website, information from other overseas tax departments and information from overseas financial institutions under the international Common Reporting Standards.
Other times IRD may be investigating another taxpayer and your name comes up. Or a taxpayer might discover funds they have been receiving should have been taxed. This may be the case with rental payments which people often confuse with capital gains.
Inland Revenue undertakes campaigns on particular industries, and tax types. Currently Inland Revenue is running a campaign on the Resurgence Support Payment (RSP).
It is a criminal offense to knowingly not pay tax or overclaim expenses. Being proactive reduces the risk of a full blown IRD tax audit or criminal prosecution.
Why make a voluntary disclosure to IRD
It is important to manage tax correctly. The New Zealand tax administration system is based on voluntary compliance. Under tax laws, a taxpayers’ basic obligations are to work out the correct amount of tax to pay, keep all relating records, then file the tax returns and pay tax on time.
Inland Revenue routinely audits the tax affairs of people and businesses. An IRD audit may be well underway before a taxpayer is even aware they are under investigation. IRD has very wide powers. By the time a taxpayer has been notified of an audit, IRD may already have a lot of information including bank statements, interviews. Even photographs of people at cash machines withdrawing or depositing funds.
Under the tax administration laws, tax evasion is a criminal offense. Making a pre-notification voluntary disclosure to IRD will significantly reduce the risk of a criminal prosecution.
How to make a voluntary disclosure.
The voluntary disclosure needs to contain enough information for IRD to make a tax assessment, including:
- name, IRD number and contact details
- the tax periods and tax types involved, eg: income tax/ GST.
- an explanation as to why the error occurred.
- sufficient information for IRD to make a correct assessment of the tax shortfall.
- a signed statutory declaration that what has been submitted in the voluntary disclosure is full and complete.
Ideally the tax payable as a result of the voluntary disclosure should also be calculated.
Inland Revenue shortfall penalties and prosecutions
If you underpay your tax, Inland Revenue may charge a shortfall penalty or prosecute you.
There are 5 shortfall penalties that range from 20% for not taking reasonable care, to 150% for tax evasion.
It is a criminal offense to knowingly not pay tax. If prosecuted and convicted, the sentence can be up to 5 years in prison and/ or up to a $50,000 fine. IRD will also seek reparation for tax they say was not paid.
When we submit a first-time accurate pre-notification voluntary disclosure to IRD, Inland Revenue will waive shortfall penalties and will not prosecute you.
Why you need us along for the journey
An incorrect voluntary disclosure can leave you exposed to large shortfall penalties and a potential criminal prosecution.
We specialise in voluntary disclosure applications. Mary Nelson is an expert tax lawyer who understands the IRD requirements and IRD audit process. She knows tax law and has a proven track record in successfully resolving issues with Inland Revenue. Mary understands IRD’s tax technical requirements and is a highly skilled negotiator. Once the disclosure is accepted, she will negotiate a payment proposal with payment options that are affordable to the client and acceptable to Inland Revenue.
If you have received a letter from Inland Revenue, or think your tax returns may be incorrect, please contact us immediately. Any information you share with us is legally privileged and kept strictly confidential.
Dealing with Inland Revenue or an IRD audit can be daunting. We handle the entire process, keeping you out of the firing line, whilst ensuring the voluntary disclosure is compliant, accepted and successful. We will give you practical and trusted advice. We contact IRD on your behalf and all contact with Inland Revenue will be through us.
Contact us and get the process started.