Compliance focus 2009-10: Community and business segments

Tax agents

  

Our compliance approach

Tax agents play a key role in making the tax system work effectively by helping people and businesses understand and meet their obligations and modelling good compliance behaviours.

People and businesses using a tax agent can qualify for an extension of time to file their tax returns and can give their tax agent access to their tax information.

We provide online resources, tools and services through our website to help tax agents deliver accurate and timely services to their clients.

Agents currently have access to online information through the "Look at account information" service on our website. This lets them view account balances, transaction details and due dates for clients' accounts, and link and delink clients.

Our agent account managers work closely with tax agents, supporting them to meet their filing obligations, providing education and support, information about obligations under new laws, and helping to resolve tax issues.

The majority of tax agents are members of a professional body. We have a longstanding and valued relationship with tax professionals through the New Zealand Institute of Chartered Accountants, Tax Institute of New Zealand and the New Zealand Law Society. We find out what is happening in the tax profession, discuss common issues and take part in presentations to their members around the country.

AGENTSanswers is our monthly newsletter to tax agents on operational and technical issues.

Recent law changes require us to maintain a list of tax agents. We can refuse to list someone as a tax agent and remove their status as a tax agent under certain circumstances. For example, agents who have broken a client's trust or are caught defrauding their clients or Inland Revenue.

Areas of focus

Tax agent's own compliance behaviour

We have found the compliance behaviour and attitude of a tax agent towards their own personal tax affairs generally reflects the advice they give to their clients.

The majority of tax agents comply with the tax rules. At the end of November 2008 10% had outstanding personal debt not under arrangement and 9.6% had outstanding returns.

What we will be doing

We will be:

• working closely with professional industry groups
• monitoring and reporting on tax agents' filing and paying performance at the professional body level, and working directly with individual tax agents to manage and improve their performance
• recognising tax agents who have a good performance record.

Extension of time for filing returns

Tax agents have an extended amount of time to file clients' income tax returns. Under the extension of time agreement, agents have standard targets for the percentage of returns that must be filed. Approximately 56% of tax agents achieved this in 2008.

If an agent files less than the target, typically 80% of returns due, for two years in a row, they may lose their extension of time filing arrangement for all their clients' returns.

What we will be doing

We will be:

• advancing changes as a result of reviewing our extension of time agreement in 2008–09
• removing extension of time from tax agents who do not meet the requirements of the agreement
• enhancing e-services to include more self-service options, for example, client maintenance and look at account information
• enhancing our understanding of the environment tax agents operate in and the opportunities to increase compliance through research and direct interaction.

Advice on tax planning and structuring

Tax agents advise clients on how to plan and structure their tax affairs and whether to adopt particular tax planning opportunities.

We pay close attention to schemes to ensure they are appropriate. Some of the areas we closely monitor involve:

• intangible property
• loss companies charging an inflated management fee to the profit company but not physically providing a service or having a basis for charging the fee
• structuring income to maximise eligibility for working for families tax credits or decreasing obligations for student loans or child support
• diverting income from personal or professional services ¹
• structuring to avoid associated persons rules.

What we will be doing

We will be:

• clarifying what income structuring arrangements are tax avoidance and sharing the outcomes with people, businesses and tax agents
• analysing information collected from returns filed to profile and identify trends or unusual deductions and transactions
• analysing the role intermediaries have in aggressive tax planning schemes and undertaking targeted investigations of intermediaries who design, advise or on-sell products
• identifying schemes and how they are used to identify potential participants for investigation
• setting up special projects dedicated to tackling specific schemes, for example, where an individual's income (potentially parents) is filed as another's (possibly a child's under 16 year of age), and is taxed at a lower rate
• investigating offshore income not declared.

Awareness of fraud and evasion

Tax agents are in unique position to see indicators of evasion and fraud activity. Through early detection agents can give their clients the right advice to correct their compliance behaviour.

Potential indicators of fraud and evasion we are monitoring include:

• offshore tax havens, for example, people moving profits out of New Zealand through management fees and interest to a controlled foreign entity or associate, which enables them to break the audit trail and disguise the true nature of the transaction
• using foreign credit/bankcards to access funds held offshore and conceal the transactions
• using New Zealand or offshore entities to hide the true ownership of assets
• selling share options, earned by an individual, to an associated entity to limit the tax.

What we will be doing

We will continue to closely monitor fraud and evasion schemes and investigate, where appropriate.

---

¹ On the 19th of March 2009, in the case of Penny & Hooper v CIR, the Christchurch High Court found in favour of Mr Penny and Mr Hooper (both orthopaedic surgeons) holding that their respective arrangements (including trading trusts) did not amount to tax avoidance.

The Commissioner of Inland Revenue has filed a Notice of Appeal of that decision, and we have prepared a brief statement to be published in the May 2009Tax Information Bulletin stating that we consider:

• the decision does not correctly reflect the law on tax avoidance and we are appealing the decision
• that the use of company and trust structures to avoid higher personal tax rates can be tax avoidance.

 

 

 

Date published: 09 Jun 2009

Back to top