11 Oct 2012

IRD gives tax dodgers until March 2013 to own up

9:10 am on 11 October 2012

Inland Revenue has extended a deadline for taxpayers to own up if they have used similar methods to two orthopaedic surgeons, Ian Penny and Gary Hooper, to reduce their personal income tax bills.

Last year, the Supreme Court found both men set up companies in the early 2000s and deliberately paid themselves a lower salary to avoid paying the top marginal tax rate.

Inland Revenue is targeting those who have not paid market salaries, or who haven't distributed 80% of their company's profit.

Under a deal with the Institute of Charter Accountants, taxpayers have until the end of March next year to volunteer their position, with any tax adjustment being limited to the past two years.

But the offer does not apply to those who have received a letter from IRD stating they are potentially under review, and have not volunteered the information.

Tax partner at Ernst and Young, Jo Doolan, says the decision reduces uncertainty.

"People don't need to panic, but they should look at this sooner rather than later and work out what their position is, if they're exposed and what they need to do about it.

"So it gives them that period of time to put together a voluntary disclosure if they do have an exposure to the issue".

Ms Doolan says in the first instance people should talk to their accountants rather than automatically making a voluntary disclosure.

She says there were very defined circumstances in the Penny and Hooper case that do not necessarily apply to anyone else.

Ms Doolan is critical of Inland Revenue's approach, saying it undermines the integrity of the tax system.

She says the legislation should be changed on a prospective, rather than retrospective, basis.

Inland Revenue says more than 170 taxpayers in a similar position to Penny and Hooper have made voluntary disclosures, resulting in an extra $4 million being collected.