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IRD Vigilant On Speculative Land Transactions

IRD Vigilant On Speculative Land Transactions

An unusual phone call from the IRD reveals an interesting new strategy for enforcing tax compliance around speculative property transactions, writes Mark Withers.

By: Mark Withers

31 August 2016

One of the planks of tax enforcement is that there is one rule for all and all must pay their fair share. Many speculative property transactions are conducted by taxpayers who are well intentioned and entirely willing to meet their tax obligations and pay tax on speculative property gains.

Reading the newspaper, you could be forgiven for thinking the media believe every gain on a property deal goes undeclared - but this is miles off the mark.

This fuels doubts for compliant taxpayers who are often heard voicing concerns that many people don’t declare and don’t get picked up by Inland Revenue. Well this week I enjoyed a face to face encounter with the IRD that shows the length to which IRD are going to encourage compliance with the land taxing provisions.

Land Transaction Gain

My encounter went like this: the taxpayer was a new client of our firm. He had contacted us and asked for assistance to file his 2016 income tax return that included a gain from a land transaction that had involved a section purchase, build and then on-sale of the new home.

We duly met with him and explained the rules and linked his IRD number to our tax agency list to officially provide him with representation. This also notifies IRD that he has appointed a tax agent and gives us access to his information at IRD.

The new client then dropped his papers in to us so that we could prepare his return. Nothing unusual in that. Interestingly, a couple of days after speaking to me my client took a direct call from IRD.

The officer had introduced himself as a member of Takapuna IRD’s property compliance division and offered to meet with my client to explain the tax laws concerning land, all very up front and helpful.

Why Was My Client Called?

My client called me and relayed this information. What was fascinating though was that the IRD call had come before our firm lodged the client’s 2016 tax return that would include the land transaction. So how did IRD know about it and why was my client called?

My client and I called the officer back and together set up a meeting at our office. The IRD officer duly attended and discussed the fact that the IRD had a list of many hundreds of land transactions undertaken in short timeframes that were gathered from the land transfer office records.

They were being proactive with the owners of these properties and had a 10-man team from Takapuna alone working on contacting them to ensure they understood the tax issues.

So this was a top of the cliff initiative rather than a bottom of the cliff initiative. The IRD aren’t waiting to see whether these taxpayers do in fact include the gains in their returns before following them up, they are contacting them even before the returns fall due.

This is the first time I have seen this level of engagement from the IRD and I consider it a healthy thing.

It all ended well for my client – it was clear he had taken the steps he needed to and would declare the income.

The IRD aren’t Waiting to see Whether these Taxpayers do in Fact include the Gains in their Returns before Following them Up, they are Contacting them Even before the Returns fall Due! – Mark Withers