Is the IRD treating our migrants fairly?

There is always plenty happening in the income tax world. The Inland Revenue Department is a massive organisation constantly adjusting law and application of that law to achieve the policy objective set by the Minister. Likewise the tax advisory industry, which TvA is part of, is equally massive because of the NZ income tax system being a self-assessment one where the taxpayer tells the IRD how much tax the taxpayer is going to pay. 

The IRD make the rules and the tax advisory industry (firms like TvA) apply the rules.

So far no problem.

As a safeguard the IRD always reserves the right to challenge nearly anything and impose eye-watering penalties when, in their view, a tax return is wrong. Self-assessment by definition has the added advantage for the Government of transferring the cost of complying with the rules to the taxpayer!

But here's the problem.

What happens when the IRD use 20/20 vision of hindsight to challenge the tax return of migrants going back years!!!

We have heard this directly from the IRD.

The IRD did not appreciate the full impact of the law years ago, but now that the IRD does, they are going to challenge the tax return of new migrants going back many years.

To their credit the Government has put a hold on this IRD audit project while the Minister ponders the impact.

But the IRD are primed to launch the offensive.

To appreciate the scale of the IRD target they sight the example of $1.1 billon being transferred to NZ over 4 - 5 years. The IRD checked the NZ tax return of those migrant individuals and in their view 7 out of 10 tax returns were "wrong".

This is preposterous!

Normally there may be a margin of 5% 'wrong filing' from the NZ tax advisory industry every year. To suggest there is a 70% failure rate surely means there is something amiss with the law or its description. The NZ Tax advisory industry is not that incompetent.

NZ just cannot treat migrants like this. The politicians need to intervene.

[For an update see post 29 May 2012 "Common sense may be breaking out"]