Inland Revenue has issued a summary of its compliance focus for the coming year, 2010 - 2011. This the second time this type of summary has been published. By way of background the IRD has been able to trumpet a return of $5 for every $1 spent in its assurance work. The compliance focus signals a proactive approach by the Revenue to investigatory functions.
These can expect IRD attention on IFRS compliance, complex and hybrid financing instruments (particularly across the Tasman), mergers and acquisitions, leasing including the manipulation of asset values, and structures designed to create deductions for what would otherwise be capital payments.
Property developers and speculators can expect continuing inquiry from the IRD regardless of the pain the sector has undergone recently. The IRD has noted that involvement in property development is one of the critical risk assesment factors taken into account in selecting high wealth individuals for review.
High Wealth Individuals
A new risk assessment model will be used to rank HWI's according to perceived tax risk.
Following the Court of Appeal's decision in Penny and Hooper the IRD is targeting so-called personal income diversion. This extends not just to "professional salary" levels but also to diversion into portfolio investment entities ("PIEs"). Expatriate employees and non resident contractors remain in focus.
The Hidden Economy
This is a perennial but the IRD has singled out the hospitality and scrap metal industries for special mention, along with agriculture/horticulture and organised crime.
IRD sees a connection between tax agents and the introduction or promotion of "inappropriate tax arrangments". Promoter penalties are likely to be used more to deter aggressive advice by tax agents.
The areas being targeted especially are the "importing" of offshore losses through non-market pricing and the creation of losses through thin capitalisation, and cross border financing. The IRD will emphasise the utility of advance pricing agreements.
Central and Local Government Sectors
GST compliance within Crown entities and departments will be a focus. Remuneration systems for local government will also be reviewed, especially in light of the Auckland City amalgamation.
Industries Under the Microscope
Targeted industries include energy, banking and insurance sectors.