Tax crackdown on offshore earnings

Photo / Paul Estcourt

An accounting firm is warning New Zealanders earning revenue overseas an Inland Revenue crackdown could catch them out.

Dan Lowe, a tax associate for accounting firm Grant Thornton New Zealand, said an announcement from Inland Revenue showed it was going to target undeclared offshore income.

Some people would have "broken out in a cold sweat" on hearing the news.

The Inland Revenue move is part of a wider crackdown on tax avoidance and evasion following a $119 million policing boost announced in this year's budget.

"Inland Revenue's systems are becoming more sophisticated and their internal 'projects' more targeted."

Lowe said most New Zealand taxpayers knew they were required to declare all their worldwide income, including that from offshore deposits and money held in overseas structures, as well as from less obvious assets such as life insurance and superannuation schemes.

"What may come as a surprise to many who have overseas dealings, is that Inland Revenue is gathering information from offshore banks and tracking the use of foreign credit and debit cards," Lowe said.

New Zealand has 35 double tax agreements with our main trading and investment partners, and a further 15 tax information exchange agreements with low tax jurisdictions.

International tax rules were complex and continuously changing.

For example, an investment that previously received relief by being held in a "grey list" country may now be subject to tax on an unrealised basis.

Apart from the core tax at stake, Inland Revenue has the power to impose shortfall penalties ranging from 20 per cent to 150 per cent - and in serious cases they can also prosecute.

Voluntary disclosures, before audit notification, may reduce any subsequent shortfall penalties by 75 per cent to 100 per cent, he said.