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Inland Revenue is waking up from hibernation

TAXATION

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You may not have heard much from Inland Revenue over the last couple of years. They have had a few big projects and policies keeping them occupied, such as processing wage subsidy claims and the cost-of-living payments and the internal IT business transformation project.

Now, as these projects wrap up, Inland Revenue is ramping back up its compliance activities and you might be in line for some attention. They are currently running four campaigns in key areas where they consider errors might have been made.

1. FBT

As I have written before, FBT can be a very confusing and complex tax to calculate correctly. Inland Revenue have identified a number of areas where they commonly see errors, and this is what they want to check.

Starting in October, Inland Revenue has been sending emails to smaller businesses that are registered for FBT, pointing out some common errors that occur in FBT returns.

Motor vehicles, especially the work-related vehicle exemption, are singled out for a special mention as an area where the rules are commonly incorrectly applied. If you have received one of these emails you don’t need to respond to Inland Revenue, unless of course it makes you realise you have made an error that needs correcting.

Even if you haven’t been the recipient of one of these emails, this is a good prompt to review the non-cash benefits you provide to your staff and consider if you are filing your returns correctly. And if you are not filing FBT returns, you should consider whether perhaps you should be.

2. Wage subsidy, Resurgence and other payments

As they did with the wage subsidy, Inland Revenue is now reviewing claims that were paid out for the Resurgence Support Payment, Covid-19 Support Payment, or the Small Business Cashflow Scheme loan.

Because all of the relief payment schemes were based on a high trust model it was impossible for Inland Revenue and the other Government agencies involved to verify each business was making a valid application before processing the payments.

As you would expect, Inland Revenue is now reviewing a sample of those that applied for those payments.

You might be contacted by Inland Revenue where they consider that some of the eligibility criteria were not met.

If you are contacted, you will need to be able to show adequate documentation supporting your claim, including evidence of actual revenue losses, how the losses are attributable to Covid-19 and what steps had been taken to mitigate the loss.

3. GST invoicing

If you are GST registered you need to know that the rules around the information you have to provide to customers, and the information you need to keep to support GST claims on your expenses, are changing from 1 April 2023.

Inland Revenue is making sure everyone is aware of the changes in case they need to make changes to their systems prior to 1 April 2023, so if you are GST registered you may have received an email about this.

I have outlined some of these changes in a previous article here.

As a general rule you probably don’t need to update invoices you issue to customers, but the invoices you receive from others might start to look a little different.

We have recently seen an uptick in the number of GST refunds that IRD are requesting further information on before releasing the refunds, and they have also been identifying businesses that continually file nil GST returns and actively deregistering them.

4. Transfer pricing

Finally, at the big business end of town, Inland Revenue is focusing on a small number of large multinational businesses where they think there is a material risk that profits may be moved offshore through transfer pricing arrangements.

You might have already received emails from Inland Revenue as they run these various campaigns targeting tax across the board. If they have set alarm bells ringing, you should seek advice from your accountant or tax adviser.

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Andrea Scatchard
Andrea Scatchard
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz

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