IRD takes $18m from tax dodgers

By Ben Chapman-Smith

Review of top taxation rate avoiders likely to recoup another $10m after end of voluntary disclosure period.

About 860 people ended up making a confession after the Penny and Hooper case. Photo / APN
About 860 people ended up making a confession after the Penny and Hooper case. Photo / APN

The Inland Revenue Department has clawed back more than $18 million from people who paid themselves artificially low salaries to avoid being subject to the top personal tax rate.

It hopes to recoup another $10 million before it has wrapped up its investigation.

Following the outcome of the Penny and Hooper case in 2011, people who had dodged tax payments were given a 16-month grace period to make a voluntary disclosure.

As a result, about 860 people ended up making a confession.

Graham Tubb, group tax counsel for IRD, said the department had so far closed 626 of those cases and recouped money accordingly.

"We're sitting at just over $18 million so I think we'll probably exceed the original forecast of $20 million," Tubb said.

"Realistically we've still got a couple of months to go - some of them are harder than others."

Meanwhile, the IRD is investigating another 500 people who did not, but probably should have, come forward during the disclosure period.

"Their incomes appear to be somewhat out of whack with what they probably should be. Sometimes there are logical explanations but the data we've got is pretty good these days," Tubb said.

The IRD estimates those people owe between $6 million and $8 million, and audit letters have so far been sent out to 80 of them.

Ian Penny and Gary Hooper were two Christchurch surgeons who used company structures and family trusts to artificially lower their salaries to avoid a higher personal income tax rate introduced in 2001.

The Supreme Court sided with the IRD when it ruled that "income derived from personal exertion should belong in its appropriate taxation band and should not be inappropriately diverted away".

The IRD then called on people "in a similar situation to Penny and Hooper" to come forward and discuss their arrangements.

The sweetener for those who made a confession was they would only have to open up their books on the past two years filed before November 24, 2011, which was when the concession was offered.

Tubb said those people who did not come forward would not only have their tax positions reassessed over a four-year period but could also face "substantial" penalties.

The 500 people being investigated by the IRD were from all over New Zealand. "This has not been a practice which has been concentrated in big cities or small towns."

Of the 80 people sent audit letters, none so far had raised a dispute, he said. "In around half the cases, the taxpayers or their agents have come forward to talk to us, which is the way we'd like to resolve these things rather than writing in to the disputes system, which can be quite expensive and time-consuming."

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