Inland Revenue's hitting back at criticisms of its handling of property tax and the 'bright-line' rule and says any suggestion it has taken its eye off the ball when it comes to property investors is "thoroughly misleading".
Even before the Government's extension of the bright line test coverage period to five years from two years took effect, officials were warning over low compliance levels.
More recently the Newsroom website said the IRD had no team dedicated to pursuing property investors who fail to comply with the bright-line test, while there is a 64-strong student loan team to collect payment from overseas borrowers.
It's likely to have been this latter article that's prompted a lengthy response on the IRD website penned by Richard Owen, a customer segment leader at Inland Revenue.
Owen doesn't directly address the assertion that there's no team dedicated to pursuing property investors who fail to comply with the bright-line test.
But he says "just under" 100 Inland Revenue compliance specialists are focussed on making sure property investors are aware of their tax obligations – "including the bright-line test".
Likewise, Owen doesn't specifically address the low percentage numbers previously reported regarding bright-line test compliance, but he says compliance with the bright-line rules "is improving all the time".
"We expect this to continue as more customers have greater certainty about their obligations and our property compliance specialists will remain on hand to help them get it right."
Owen says the IRD's Property Compliance Programme was first established back in 2008.
"Some big changes this year in the way we work saw many of the job titles changed but the focus has stayed the same."
Enforcing the bright-line rule is a "priority" among those working on property compliance.
"We find that in the majority of cases our customers want to get their tax affairs properly in order. Inland Revenue compliance staff aim to make it as easy as possible for customers to comply by focusing on supporting them upfront, before issues arise, rather than just responding to non-compliance when it happens."
Unfortunately, there will still be some customers who ignore those messages and fail to comply, Owen says.
"It’s highly likely those people will be picked up in our audit work, which is intensifying over the next year."
Owen said that although the bright-line rules came into effect in October 2015 and the IRD was finding many customers remain unsure of their obligations.
However, awareness appears to be building all the time. Following the government’s decision to extend the bright-line period from two to five years, Inland Revenue had run social media promotions and newsletter drops pointing to updated information on our website. The marketing was specifically targeted so that customers with a property interest knew about the change.
Owen said property speculation is a centre of attention, especially in and around new developments, infill housing, regional hot spots and properties that have been sold within a short duration. Additional revenue of $117 million was assessed in the 12 months to June 30 2018 as a result of audit activities on property compliance issues.
"Bright-line, is of course, an area of particular focus and along with ongoing audit activity, data analytics techniques are being used to identify our bright-line cases early. This allows us to target our interventions to help our customers get it right from the start."
In 2017–18, over $7 million of Resident Land Withholding tax was deducted and paid from properties sold by overseas-based vendors who are subject to the bright-line test, Owen said.
"Bringing in the tax revenue from a property transaction is a long game.
"Depending on the point at which a property is sold, it can be up to three years before Inland Revenue receives the payment. Separating out the revenue that’s collected from a bright-line transaction is difficult to report as currently the taxpayer is only required to list it as amongst ‘other income’ on their tax return."
44 Comments
JJ
Not necessarily so simple using raw data.
The bright-line test doesn’t apply if the property was:
- your main home
- transferred as part of an inheritance
- transferred to you as an executor/ administrator of a deceased estate. (Source IRD)
So just because a house on a public site shows that it has sold within a five year period, it is not necessarily subject to the bright-line test for taxation purposes. Also such sites do not have any information relating to the owner.
However, the situation is monitored through LINZ - they are the legal body who hold the register of properties and who hold the information on titles. All transfers of property titles are registered through them.
From the LINZ site: "When LINZ collects additional information when people buy, sell or transfer property. The information is passed to Inland Revenue, to follow up on those who have property tax obligations – whether they are New Zealanders or from overseas."
Under The Taxation (Land Information and Offshore Persons Information) Bill (passed by Parliament on 10 September 2015) lawyers and conveyancers are required to provide:
- Property buyers/sellers IRD number and other tax details when transferring property unless the property is the main home or another non-notifiable reason applies.
- Trustees, and people who have claimed the main home non-notifiable reason more than 2 times within 2 years, may not claim the main home non-notifiable reason.
- Offshore persons (as defined in section 3(1) of the Tax Administration Act 1994) may not claim the main home or any other non-notifiable reason.
- Those who are tax resident in another jurisdiction must also provide the equivalent of their IRD number in that country (if the person is able to claim the main home exemption they do not need to provide this information).
- Offshore persons who need to apply for a New Zealand IRD number will be required to have an operational New Zealand bank account as a pre-requisite.
So don't think that it is a case of not voluntarily providing IRD information and hoping to fly under the radar. There is statutory requirement for your lawyer requiring photo ID in recent times, and you can bet your bottom dollar he/she will be providing LINZ with other information as is required under the legislation.
Im in. I reckon we could make millions in no time.
Just need audit data from real estate sales, property managers, banks, and data feeds from immigration, ird, voting register, companies office and power companies. Get the index sorted, do a retrospective cross reference to flag historical tax avoiders and then focus on every new transaction. A competent database admin could pull an audit list pretty quickly.
How hard is it to identify purchaser name not equal to voting or immigration or company directors database. People wouldnt deliberatley changing their name or use and alias to make tracking/correct identification difficult. Make it a requirement for agents to aite identification and record owner or intended owner.
If the audit teams starts getting delayed by "no english" the person being questioned clealry cheated/bribed their english requirement during immigration. Dont waste time on interpreters, just detain, revoke status and return to sender. They will remember english immediatly.
Could be good to quickly track the tax leakage from historical transactions to decide wether retrospective flipper legialation is worth it. I suspect it would be.
For the privacy phobes, big brother was here 20 years ago.
It'd be pretty easy to sort out using an Excel workbook + a few tabs/sheets.
Import the data, set up a pivot table. Run a few different =IF calculations on the data.
E.g. if i had house data from LINZ and income data from IRD and wanted to run a quick 3 year brightline test on the data:
=IF((buydate-selldate)>1095,0,(((sellprice-buyprice))*0.33)-incometaxpaid) would give me a result of 0 if the house was sold outside of 3 years, or how much tax is owing if the house was bought and sold within the 3 year period. Use filter to remove the 0 results and mail out some notices.
It depends on whether you want income tax being offset against the tax on the house price sale, can remove the -incometax from the calculation.
Hahaha, pays not to over-complicate a reasonably simple task. How many millions of dollars has been wasted on bogus IT systems where the desired functions can be found in an Office 365 business license?
The data is already being collated by various agencies, why go to the added expense of crunching the numbers with another IT module?
Likewise there is less value in oversimplifying a task.
If there is one thing I can guarantee, it is that you do not want to be using spreadsheets as a proxy for a database.
I do agree, though, having been a part of a few gravy train public sector IT initiatives - The projects are poorly spec'd by people who know little about their own jobs and less about the upstream or downstream and are more focused on a entry in their CV detailing an organisational IT change project.
Once you hook one of these projects, it's a gold mine. Trust me. I've seen projects run 5x over budget without a blink of the eye.
Fair enough, so I suppose the Government IT systems have "export to .csv" functionality removed from any report wizards in their software? Assuming they can even run reports?
I guess that's the challenge, you can safely store the data but how do you safely analyze the data with a degree of functionality?
The reports are designed by the BAs. You don't want to give staff the ability to run 3 hour queries.
We aren't talking Nzdan's Plumbing Supply company in Motueka, here.
Yes, the info you are talking about can be easily exported. However, it's much better to have the database do the heavy lifting than Mike's nonsensical, error prone 42 tab Excel workbook.
Sorry but your comment is extremely funny on a data administration level. Really you should check out a few introduction courses, they teach a few to schools nowadays with more compact introductory formats for a quick read. I am not sure where exactly to recommend for you to start down the path to discovery because for working with any level of data and service APIs I can only assume you do not even know what a database & service is. Yeah those school papers would be good but they also have a few online lesson guides. Or better yet, you know those websites with logins & data on them, pretty much all use more advanced data storage, (even as simple as a basic CMS), and have been for a couple of decades along with government IT systems. CSV would be limited as it does not transfer much more than a matrix that requires small data sizes of the same assumed type, (or else crashes and inability to adequately read & edit is slowed significantly) and limited functionality (i.e. none) for versioning, security & tracking. The moment you export & read a csv it can be out of date and cannot be used to post updates which is something unsurprisingly many people (and automated devices & machines) need to do.
Better to learn how to use simple API calls to services than to functionally lose data and services in aid of supporting a file type that is hamstrung far more by it's limitations than features it provides. A single line of code can provide up to date, easy to read, easy to edit data in easy to export and view forms, (even charting is easier and much more functional in code). Most of which can be secured & have multiple types, objects, relationships etc as well. Although I will admit right now I draw the line at php, the designers of that language could not even manage to check basic QA. But for charting & analysing data there are literally thousands of options, even as arcane & old as R & Matlab or as common as javascript charting libraries the kids can use.
We actually expect far more of the next generation. They learn how to pull data from a service, chart it and post to the service for changes. Went to talk to a few schools about on the job cases (advised by the lesson organiser would be good), building structural stress analysis, heart valve dynamic analysis, automated vehicle sensor readings, mass human interaction data collection, video data editing, graphics & modelling as examples. I picked the simple ones to use as examples as they could be quite flashy and less technical. Although some kids had never seen a human heart before but they all knew how to interact with a service & asked pretty good questions.
The size of some data files for certain things (e.g. medical scan data, en masse national data) is still often too large and too specific to be easily shared securely and hence we still have the quandary in the actual internet speeds preventing transfer or export and getting a copy can be more likely to occur with a manual transfer (rather than in many areas having the connection drop halfway through and having to start again). Likewise graphics, complex models, scientific data, anything that cannot fit on a single simple small table, (under a couple thousand data points & more complex than a x vs y association) etc uses and needs different formats for storage and interaction. CSV is for a monthy bank deposit and withdrawl statement, or a table you can read on a single page you can file away for later (extremely simple data as a reduced snapshot view), while the services can provide fine tune editing, display, searching, charting and interaction with more complex data. Not to say you could not throw a json list up there in a similar manner, but why should the country be en masse supporting an outdated and crippled form when the more advanced and functional access is easier, cheaper, practically standard in every service (csv is something you often get or can scrape anyway but not overtly so with a neon sign). But then I think integrating data across many APIs is doable given a coffee and a decent computer,... (preferably not a windows 10 at the point it is about to do an update).
TLDR Sorry, but the tech stuff has a lot of levels, if we limit ourselves technically with just what a manager with no technical experience in the field can handle on the surface NZ would never have online services. So many projects failed because a manager thought they could post an excel file online and still protect the BI included in it, and of course there would be a hundred different competing versions that would contradict each other, it could never be modified cleanly in a multi editor environment, it would not handle suitable datasets, all rather than using a easy to setup service which is practically designed so managers with no technical experience can interact with it because if they had to learn something really basic on the job like pressing a button that is marked Get Info they would die.
A lot of colleagues & fellow engineers do have a chuckle about the over reliance on excel and csv... it is called baby duck syndrome. It actually is one of the biggest psychological barriers to efficient productivity increases in software (alongside the appeal to novelty which hinders through wasted effort for the same or less functional benefit). The key with tech is we are all still learning continuously. There is not a human brain capable of knowing all the features of tech. We can learn specifics but memory is fallible and technology is rapidly changing every day. Even for something as basic as data administration & integration with services. I do thoroughly recommend checking through those resources as if even the current generation are expect to learn it as standard & necessary it is an expectation we all should address since every factor of our lives now is recorded through it from medical, business, financial, even social information. If anyone does not grasp the level of data & tech required they are skating on thin ice technically going forward.
Excel and the office suite are extraordinarily poor tools for any data analysis greater than a few terms and reduced to poor simple calculations. Brought it to it's knees with a simple couple of fluid dynamics equations when one manager was so poorly educated he even needed help in excel. Even word is not suitable for most reports over a certain data size & length, hence any scientific thesis have to swap to a sensible much easier to edit, customise & develop multi format editor. Using office would be like trying to build a house with a spoon. The optimisation method is rubbish and terrible as well. The Simplex method is exactly that and does not cover many optimisation cases. Then don't get me started on the lack of version control, lack of team integration & tracking (including change conflict resolution), poor update rollouts and rubbish bugs & bug resolutions. It is a tool for fools as really interesting data & most processes cannot be tracked in excel. Use only for simple basic things you could have done by hand quickly anyway. For which you pay for Office licenses while the functionality is free across many applications (and often better designed & supported in those other applications than Office). Not worth the time even bothering to use excel to even read the files with associated types, (as the updates will likely cause a net loss in productivity alone).
I think you mean the commission does not mean anything (rather than mean nothing). However I'd be happy to forensically investigate transactions for '$0.00, nadda, nil, naught' salary - the commission would be enough payment for me, that and the warm glow of satisfaction that I'd receive every day that I uncovered a tax dodger..... comprende? (not comprenda)
If the IRD are on stream. I want this opportunity even more now, not because I have had to correct HeavyG's poor English twice, but because I'd love to investigate his accounts to start my commission..
We have tried reporting tradesmen who do cashy jobs and they are not interested. Why would this be any different. Besides, all the evidence is contained in the official records of the property ownership and transfers. Should be an computer automated surveillance process.
Cris-M
Re reporting tradies doing cash jobs you can report through these through IRD website.
I wouldn't assume that they take no notice. It is so easy for IRD to wait and carry out an audit. From talking with a couple of people who have audits. I can assure you that they are very thorough and there is no feeling of innocence until proven guilty - it is the exact opposite of proving one's innocence (how could you afford that new car, where did the money for that overseas trip come from, how did your family live on $10 a week).
Rather than taking no notice; IRD will be looking at their tax return, and possibly waiting, and then hitting them up for the past seven years (with considerable and hefty penalty taxes accumulating over that seven years).
Those that play the cash job game may get away with it, however, they are risking their all as IRD will be merciless in bankrupting someone.
The major problem is that those who accept cash jobs are compliant and equally at fault. It needs more Kiiws reporting such incidents.
A place to start would be the Saturday market where no one takes eftpos despite thousands of dollars being handed over to the market stall holders... I won't make an ethnic comment because that may be considered rascist and after all we all like cheap fruit and vegies........ But is it being declared? is it bollocks... Same with cabbies, restaurants etc.... we're being scammed people...
At most regular Saturday markets you will find the majority of traders take eftpos. And IRD does check these operations and has been doing so for years. Of course these are merely verifiable facts and not as relevant as the ravings of interest.co's latest resident keyboard warrior.
I know last time I went to one of the Auckland night markets most of the food trucks did not have EFTPOS.. really restricted my dinner choices since I do not carry cash usually. And how well can IRD check? They can look at some ratio of inputs to turnover, and audit the paper trail, but that's got to have a huge level of variability, and if everyone is fiddling the books then the "industry norm" reflects that eventually.
Chris-M
When you say property flippers have a long history with impunity, appreciate that it only recently that there were legislation changes.
From the IRD website:
"From 29 March 2018, the bright-line test that is used to determine if you have tax to pay on the sale of residential property has changed.
If you entered into an agreement to purchase residential property on or after 29 March 2018 and sell it within 5 years, you’ll need to consider if it is taxable under the bright-line test.
If a property was purchased on or after 1 October 2015 through to 28 March 2018, the bright-line test will look at whether the property was sold within 2 years."
Yes, prior to 2015 the requirements were very loose.
However, along with the change in the bright-line requirements, there are also changes in reporting by your lawyer/conveyor at time of sale regarding tax liability to LINZ who pass it onto IRD. As lawyers are required to complete their statutory obligations, I don't think that they will risk the consequences to lie on your behalf so the days you refer to have now gone.
I heard 2,500 but it could be growing as I have heard the IT bill is blowing out so more staff need to go.
See https://www.stuff.co.nz/business/industries/94881890/inland-revenue-pul…
I think that there have been a number of emotive/envy and naive comments on this thread.
The reality is that if one is involved in property (and I think that some of the comments are from those with out such experience) then you need to take note of the headline:
"Inland Revenue says any suggestion it has taken its eye off the ball when it comes to property investors is 'thoroughly misleading'.
To think otherwise, one risks a situation where the consequences are very severe and they will pursue you. Ask David Henderson who took on the IRD - by his account (either book or film) he had a victory but IRD made his life hell and buried him a couple of times.
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