A Week in Review
AEOI Awareness Campaign
You may have noticed the tax agents release earlier in the week by IR, alerting you to the fact that they have signed up to the Automatic Exchange of Information (AEOI), which is the OECD’s global initiative to attempt to combat tax evasion.
The IR update will not have been much of a surprise to most however, as there has been quite a bit of publicity surrounding the OECD information sharing protocol, and the fact that NZ, along with over 100 other countries was a signatory.
What I would expect to see now from the Revenue, and particularly once the proposed roadshow of its awareness campaign draws to a close in mid-October 2018, is a ramping up of enquiry letters about offshore transactions your clients may be engaged in, with some rather pointed questions being asked if checks of your client’s filed tax returns do not reflect any foreign activities.
In this respect, and to draw on an example relatively close to one’s heart, being directly involved in the case for nearly a year, I had a client who was receiving child support payments from a non-resident father, into an offshore bank account, which my client then used to fund her NZ credit card payments. We received an enquiry letter from IR, provided what we thought was a fairly straight forward response, with a view that no more would be heard from the Revenue.
This was not to be the case however, and things certainly went downhill from there. Gone were the days (perhaps I’m showing my age!) when we could simply provide copies of emails (from my client to the fathers PA, which detailed payments required for the child’s monthly expenses), the Revenue’s response being that emails are being falsified all the time now, so they were no longer considered to be an acceptable medium of evidence (although I would suggest unfortunately it’s a case of who you are dealing with at the Revenue).
Ok, so not exactly the response we were expecting, and particularly because I thought we had a pretty good reputation as a firm with the Revenue, so my ego was somewhat bruised that they were potentially suggesting we were assisting our client in some type of fraudulent activity, but so be it, let’s just provide the next best thing, an affidavit from the client’s ex, confirming the nature of the payments.
Now add to all the usual emotions your client has with any IR review, the fact the client was re-partnered and heavily pregnant, with a rather acrimonious relationship with the ex (himself re-partnered) who lived in a country which was well away from NZ’s child support jurisdiction, and my client was heavily reliant on the payments which could essentially have just stopped at any time. Well we eventually managed to extract a letter from the ex’s legal adviser (he was a rather high-flying lawyer himself and was not prepared to put his signature to anything), but still this was not enough in the Revenue’s eyes. Really??
Ok, so now we were starting to get rather nervous, because what had commenced as something very simple to deal with in our eyes, was suddenly very drawn out and becoming a mountain there appeared to be no way to cross, worsened by the fact that the monthly payments were quite significant amounts and naturally the Revenue was looking at treating them as income. And don’t forget my client’s present physical condition and emotional state at the time…
So what was the saving grace that brought an end to this nightmare for my client? Only the fact that because her ex was a lawyer, with a relatively hot temper, my client still had every single email sitting in her gmail account. The ability of the Revenue therefore, to come into the office and physically watch my client actually log into her email in front of them, and show them all the messages sitting there closed the case.
A message, and perhaps a warning, to your own clients therefore, to ensure that they have their i’s dotted and t’s crossed, in case that letter arrives out of the blue, because as this example has hopefully demonstrated, the apparently simple is often not the case unfortunately. Oh, and having accountancy insurance certainly assisted my client too!!
What If the Commissioner Changes her Mind??
IR’s latest QWBA (Questions We’ve Been Asked in case you are not familiar with the acronym), QB 18/08, answers the question of what happens to binding rulings that have already been issued by IR, on the application of the general avoidance provisions (either BG 1 of ITA07 and/or 76 GSTA85) to an arrangement, and then the Commissioner changes her mind as to how the legislation should apply.
The answer – as long as the particular ruling has not ceased to apply for another reason, then the Commissioner is not permitted to change her mind during the remaining period of the ruling.
Once the ruling period has ended however, then the new interpretation can be applied, however only to the extent that it does not have the effect of reversing the tax outcomes in the period covered by the previous ruling.
Richard Ashby BBus, CA, CPA PARTNER
Ph: +64 9 365 5532
Fx: +64 9 309 5260
Mb: +64 21 823 464