When the taxman calls…
Trigg, Des
IN THE LATTER part of 1998, the Inland Revenue Department (IRD) was being hit from all sides. The Court of Appeal decided Winston Peters did have substance to his Winebox claim that the IRD had failed to properly investigate potential tax avoidance or evasion.
Act MP Rodney Hide focused on the IRD having far greater powers than the Police and then routinely abusing that power. The headlines in the New Zealand Herald on November 28 accused the department of failing to attack the black economy.
What powers does the IRD have? What are the penalties people face who don’t pay their proper share of tax?
The Tax Commissioner has power to inspect books and documents and to request information from “any” person. However, the commissioner must believe the document or information is necessary or relevant in relation to any of the IRD Acts. The holder of the information or documents has very few defences available. The commissioner also has full and free access to all properties to inspect books and documents he considers relevant to tax collection.
Hide says the Police can’t barge into your house or office. Not so the IRD. It can barge into your business whenever it chooses. By way of retort, the IRD says Hide is rather short on facts.
IN SO FAR AS barging into one’s business premises, the department is subject to the provisions of the New Zealand Bill of Rights Act 1990. Section 21 of that Act provides that: “Everyone has the right to be secure against unreasonable search or seizure, whether of the person, property or correspondence or otherwise.”
Hide says: “If you are charged with murder you can refuse to answer any question on the grounds that you might incriminate yourself. You have no such rights in a tax case.”
The IRD says that unless it invokes its statutory powers any person can refuse to answer any question.
Hide says: “The Police must prove you guilty to punish you. The IRD suffers no such restraint… that well known principle of jurisprudence that you are innocent until proven guilty does not apply to taxpayers.”
The IRD says that in a criminal prosecution, it must prove the defendant guilty, beyond reasonable doubt. This is the same burden and standard of proof as the Police and most other prosecuting authorities. It says the commissioner has a legal obligation to assess a taxpayer’s liability. In a civil (tax) case against Inland Revenue, the taxpayer has the burden of proof because the taxpayer is asserting the commissioner’s assessment is wrong.
New Zealand has not yet seen the type of dawn raid occurring in Australia (Citibank) and the UK (Nissan). In the latter raid, British tax inspectors swooped on the offices of Nissan UK impounding thousands of documents in the biggest raid of its kind 135 officers were involved in the dawn raid in 13 locations. At the same time 13 inspectors arrived at the home of the founder of the company which distributes cars made by Japan’s Nissan Motor Company.
In my experience, the IRD adopts a fairly reasonable approach to tax audits. There is, of course, the odd exception. Recently an immigrant whose affluent lifestyle obviously upset someone was reported (anonymously) to the IRD. It conducted an audit, discovering an expensive home, a late model motor vehicle and some large bank deposits. The explanation? The money had been won at the casino. The IRD moved swiftly. It issued tax assessments for the last three years suggesting the taxpayer had earned a net income of $100,000 in each of those years. It followed by uplifting all the money sitting in the bank accounts before the taxpayer had any chance of objecting to the amended assessments which were rather arbitrary in determining the level of taxable income.
THE IRD WAS within its rights, except the money it uplifted from the bank account was in the names of the individual and his wife. The wife was not being investigated. The monies in the joint account were not available to the tax man.
Had the money been solely in the name of the individual, then after issuing an assessment, the IRD can simply walk into the bank and ask for all the monies to be applied to the tax allegedly owing under the assessment.
This is rather frightening. Generally, however, when the IRD conducts a tax audit it advises the taxpayer and their professional adviser it intends to carry out an audit, the information it requires and the date it expects it to be available. It usually co-operates with a request to minimise disruption to the business – dawn raids and the plucking of information from business premises and private homes are not in my experience.
Des Trigg is a tax partner at Spicer and Oppenheim.Email:
djt@akl.spicers.co.nz
Copyright Profile Publishing Limited Feb 1999
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