Tax departments sharing information
What do you do if you receive a letter from the IRD around foreign income?
Recent activity by the Inland Revenue Department (IRD) targeted at those who earn income or own properties overseas has created a few nerves for some homeowners and investors.
In the interests of making sure customers are on top of their tax obligations in relation to assets and income, in New Zealand and abroad we checked in with Daniel Gibbons; a property tax specialist to get some background around the recent IRD activity in this space and some tips for keeping out of strife when it comes to the tax man.
Gibbons notes that, “Globalisation has made it easier for investments to be made around the world. This provides challenges to tax authorities”
The result of this is that we now have the Automatic Exchange of Information (“AEOI”) regime that requires financial institutions to provide information about their customers to tax authorities.
“Using this AEOI sourced information, the IRD has commenced an enforcement project by issuing letters to some taxpayers regarding details of overseas income, investments and tax residence status” says Gibbons
There appears to be a common theme between the letters, but also discernible differences that indicate this could be a targeted project, suggests Gibbons.
Who could be impacted?
- Have you moved to New Zealand in recent years, bought a property and or obtained residency but still have close ties to home, such as business interest or a property?
- Are you a Kiwi citizen who also has business interests, property and other investments or earn an income overseas?
What should you do?
Gibbons says “tax rules relating to overseas income and investments can be complex and there may be valid reasons as to why people have not returned (declared) overseas income”.
He recommends the following actions.
- Don’t panic: While it's never ideal to get a letter from the IRD, it doesn't necessarily mean you have done anything wrong.
- Do take it seriously: Take a very considered approach in response as the implications could be significant.
- Don’t try going it alone: Seek professional assistance before responding to check the position you have taken is correct.
- Be proactive. Gibbons warns this may only be the first step in the IRD’s enforcement project and encourages people to keep an eye out and be proactive to ensure their affairs are in order. Even if you have never been contacted by the IRD, but have overseas income or hold overseas assets, such as: property, foreign shares, bank accounts, or other types of foreign-based investments, it could be sensible to proactively review your situation to ensure the correct tax position has been taken.
For non residents, Gibbons says “it’s possible a similar programme is underway in their home jurisdiction. Details of New Zealand income and assets (such as New Zealand bank accounts) could be made available to the tax authority in their home jurisdiction. Therefore, they should also take care to ensure that tax affairs are in order in their home country”
It's always good to be able to call experts like accountants who I deal with on a regular basis to provide you with insight into things we don’t always consider as carefully as we should. This is some sage advice from Daniel and it could prevent a lot of pain down the track.
Be aware this is general advice only, If you would like further information to understand more about the tax treatment of foreign investments or you have received a letter from the IRD and would like assistance responding, reach out to your trusted accounting adviser. If you don’t have an accountant with property tax experience I’m happy to link you up with someone who can help you out.