The New Zealand Institute of Chartered Accountants (NZICA) has criticised the Inland Revenue Department's (IRD) proposals for stopping holiday home owners from claiming expenses against tax for their own holidays, saying the plans will just add an extra layer of complexity and inefficiency.
The IRD released issues papers on so-called Mixed Use assets in August. This followed the announcement in Budget 2011 in May that the government wanted to crack down on taxpayers who claimed all of the costs of their holiday homes, yachts and private planes for tax purposes, even though they might rent out out the 'mixed use assets' for just a few weeks every years. See our May 19 article on the crackdown.
"It's using a sledgehammer to crack a nut," said NZICA Tax Director Craig Macalister.
"It's as though Inland Revenue have set out to design something deliberately complicated," he said.
The NZICA supported the broad thrust of the changes, but it said the proposals would result in holiday home and yacht owners having to keep detailed log books of its use, "and that's only the beginning.
"The plethora of rules proposed to ensure all this works and can't be avoided will bring a collective groan from the industry."
'Watch out for IRD'
Meanwhile, the NZICA warned professions away from acting as trustees because IRD was actively pursuing trustees personally for tax debts owed by a trust, even if the trustees had no personal connections to the income or assets.
"NZICA is aware of a number of cases where Inland Revenue is seeking to recover substantial tax debts (including penalties and interest) owed by a trust from a professional advisor acting as a trustee," it said, adding that in many cases the trustee was the family lawyer or accountant.
It said professional trustees were likely to abandon their trustee positions if the IRD continued to pursue them personally for these trust debts.
'Convergence with Australia'
NZICA CEO Terry McLaughlin said the Institute was considering converging with its Australian counterpart, the Institue of Chartered Accountants of Australia.
He said due diligence was being done on fully converging the two organisations over the next 6 months, including looking at what legislative changes might be needed to the existing 1996 act governing chartered accountants.
The aim in any convergence was to provide more service for the same cost.
"Both sides see it as a no brainer," McLaughlin said.
He also said the the NZICA was pushing for professional liability for accountants to be made proportional or to be a capped in New Zealand to bring it into line with the rest of the world.
He also noted that 25% of the issuer audits for New Zealand companies were now done by foreigners.
27 Comments
No need for heaps of red tape is there...just terminate all claims. It was a rort to start with. Amounts to business pork. Why did the right to claim costs as a business expense start in the first place. Drop the business rate of tax a tad and clean the lot out. NO more claims...heaps saved at IRD....all the accountants could change to productive work....!
Well, exactly. But they need a government committed to amending tax law to reflect a 'terminate all claims' solution where these second homes are concerned. The only option, given the disinterest by government to close all these loopholes, is to increase the red tape in order to ferret out the rort.
As we can expect...all the effort will go into keeping the claims rort for business...hope somebody details the history of these expenses claims..they must have started out with one wee rort as a result of some lobby pressure...wonder what that polly received as a payoff.
You've hit the nail on the head exactly Wolly, the sooner this claiming back expenses rort is done away with, completely accross the board the better and we can get onto a fair tax system.
Even if it means like what you suggest just lower the company tax rate, but then they can't claim any expenses back, it's a currently a ridiculous model that encourages companies to be inefficient and waste money.
All of a sudden the need for unproductive lawyers and accountants is reduced too.Accountants and lawyers are incentived to make the tax system as bad and wastefull as possible, no wonder we are up there with one of the highest proportions of them in the world.
I can say now that the GST treatment of mixed use assets is un-compliable. That moron Dunne has made the rules around GST on mixed use assets so mind numbingly complicated, my clients will probably decide the huge penalties from non-compliance are still worth risking compared to the cost of trying to comply with the impossible.
IRD is out of control.
Tax law in NZ is only fit for a Monty Python skit.
Trying to do business in NZ is f&*%$ pathetic.
Dunne, English, and the tax policy bureaucrats should be hung, drawn and quartered if this was a 'fair' society. (Noting that Herr Dunne only ever uses the word 'fair' when he means someone should be paying more tax to the mincing machine of his State).
I totally agree that our tax laws are mind numbingly complicated.
Simplify it.... bring in the Big Kahuna - no need to categorise such capital assets as mixed use or whatever!
All the silly, contorted deductions etc. go out the window overnight and our accountants can get back to productive work.
Um, Wolly. If you mean to charge gross income, and not allow a nexus to expense earned to generate that income, there would be no businesses left to pay tax in New Zealand?
Kate, Marxist Morgan's Big KaTaker makes it much worse, because that taxes everything.
Got to scale the government back by 99% and get them out of our lives.
But it taxes everything that is capital and income equally.
So simple - you finally get to stop tangling with the IRD and it's plenthora of "guidance notes" and WINZ clients similarly don't need to report/manage their affairs with that entity either!
You might possibly pay more tax, but think how much happier you'll be!
edit: okay, maybe not happier, but less stressed anyway!
Yes, what's the problem?
I claim part of my house and vehicle costs as a business expense but I have to justify it to IRD. This is the same thing I would have thought. It's right out of order for these batch and boat owners to just pretend these things are a genuine business and then claim all their costs as an expense for tax purposes.
Another subsidy to the well off tax dodgers from the workers.
I totally agree.
If you can't manage the stress of trying to keep the IRD out of your tax rorts, just pay your taxes honestly as intended, just like Joe Bloggs working in a Pizza restaurant in Paraparaumu.
The reality is, NZ can no longer afford providing sweet loopholes the size of a Mack truck for the rich.
I laugh when I see the rich whining on this site or in the NBR. Poor babies!
Go the IRD! Or better yet, Go the Big Kahuna!
Cheers
Its not the allocation thats hard, i.e. have property available for rent 11 out of 12 months of the years, then claim 11/12s of expenses. Keeping a log book for the times it is used privately is no big deal.
The rort is where a holiday home exists which is predominantly only profitably lettable over the peak tourist season which then provides income for the not so good months, i.e. summer in Tauranga or Winter in Ruapehu and instead of maximising the rent, the owner uses it over the peak season then apportions as above. They create a business where a business does not exist to assist in the running costs.
We use Book-A-Batch alot. My estimate would be that 90% of the listings on there are not viable businesses (i.e. would be recording losses with the IRD) - and I note that of the many, many ads for property sales on TradeMe which suggest an income can be made from a B&B or self-contained operation - they never mention what that operation actually earned in the past year (unlike the fact they always mention what a rental income has previously been).
This is where the BK sorts out all this business 'play acting'. If the holiday home business earns greater than a 6% return - great, your business is on the right side of the tax equation. If not, it'll cost you in capital tax to hold the property.
The problem is how does one differentiate between a holiday home and a home purchased and leased for short term rent?
This is a rort, but not limited to holiday homes. It is pravalent with charter boats, aircraft, motor-sport, yachting and of course lifestyle properties - in fact most things the wealthy consider as entertainment are turned into business expenses (throw in corporate boxes as well if you like).
The big kahuna tax is one way of reducing the problem...but a CGT would be a help..
......strange really as meddling about with holiday homes is more a Labour Gummit approach.
yeah, IRD of NZ - crack down on businesses hard, Aussie and China need them more than us and anyway jobs are plentiful here - stuff NZ business owners etc. Lets focus on how to divide up the cake , its too hard growing it bigger.Govt spending is growing at 6 times the rate of tax revenue so obviously dont worry about the spending side of the equation too much,easier to tax grab
The reaction to the "Big Kahuna" amuses me.
I have GMs book and I also have Margaret Popes " At the Turning Point" which discusses among other things Lange's relationship with Sir Rog.Pages 208 and 209 talk about the "flat tax" which set Douglas slightly to the right of Atilla the Hun according to New Zealand Mythology.
The main aspects of the wide ranging proposals were a single rate of income tax, a guaranteed minimum family income and a range of property taxes to close the gap. There was some other stuff about assett sales and vouchers for services. It sounds a lot like the "Big Kahuna " to me and now people on this site seem to think it makes Gareth a Socialist.
Yeah, that irony has me puzzled as well. And Gareth himself assures audiences when speaking on the book that he is most certainly on the right of the political spectrum. The objection from those publics who normally see themselves as right (to my mind) can only be that they have money tied up in poorly performing assets (particularly property). Goes for most of the present Parliamentarians as well, of course.
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