TaxBlog

The National Government has moved to enact it’s five pronged attack to help small business.

The five key measures annouced are:

1. Tax changes,
2. Expanding the jurisdiction of the disputes tribunal
3. Expanding the role of the Export Credit Office,
4. Expanding business advice services, and
5. Creating a fast-payment requirement for government agencies.

See our coverage of numbers 2 -5 below:

Key has directed Government departments to pay bills promptly

State Services Minister Tony Ryall has announced that government departments have been directed to make sure they pay their bills on time, or earlier, especially invoices from small and medium-sized business suppliers.

The Government has told the State Services Commissioner Iain Rennie it expects all departments to urgently review their process for approving and paying invoices to their suppliers, and to bring forward payment dates where possible.

Government agencies are to, at a minimum, pay their invoices in accordance with their posted terms and conditions, and in any event, no later than the 20th of the month following the receipt of the invoice.

“Government agencies are substantial customers for many small to medium sized businesses. By ensuring these agencies pay their bills on time or earlier, we can help with business cashflow.

Changes to the disputes tribunal:

“Currently, the maximum claim level of the Disputes Tribunal is $7,500, or $12,000 with the consent of both parties. To make life easier and cheaper for small businesses, the Government will lift those levels to $15,000 and $20,000.

“This change will reduce costs in up to 3,600 cases a year which will now be able to be held in the Disputes Tribunal. Previously these cases would have been held in the district court and many would not have been pursued due to the costs involved.

“This is designed simply to lighten the load on small and medium-size business so they can get on with the business of producing goods and services.”

Free Advice service for businesses has been expanded:

The assistance includes a rejuvenated Biz 0800 hotline, free business health checks, and a free mentoring service.

The advice can extend from dealing with cash flow, to management strategies, the best ways of trading through an economic downturn, and how to maximise the advantages from the range of other government initiatives announced today.

“Many of these services have been available previously in some form, but they will be of greater value now if a small business operator comes under stress,” Mr Brownlee says.

The last change relates to trade credits:

“The global financial and economic downturn has affected the availability of short-term trade credit in New Zealand, making it very difficult for some exporters – particularly small-to-medium exporters – to continue trading in some countries,” says Mr Groser.

“These new measures will help to ensure trade opportunities won’t be missed – which is crucial in the current economic environment.”

NZECO has previously provided trade credit insurance only for contracts with payment terms of more than 360 days. This will be extended to include periods of fewer than 360 days.

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The Government should work to ease small and medium-sized businesses’ tax-compliance burden, says the accounting firm KPMG.

KPMG and Business New Zealand’s Compliance Cost Survey shows tax remains the biggest headache for businesses.

Over 41 per cent of total compliance costs were for tax-related issues, said KPMG tax partner Paul Dunne.

“Respondents are telling us that tax is too complicated for the average person to deal with. This is not helpful for starting or growing small businesses.”

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The Australian federal government expects its tax revenue to be boosted by more than $320 million from Australia’s biggest ever tax evasion crackdown.

The tax office’s estimate on the amount of lost revenue it expects to recoup indicates the $300 million operation will be a break-even proposition or better.

Operation Wickenby, a multi-authority investigation that includes the Australian Crime Commission and the Australian Tax Office (ATO), is investigating a range of schemes aimed at tax avoidance and minimisation.

“The tax office expects the Operation Wickenby to result in increased tax revenue of $323 million by the end of the 2009-10 financial year through compliance activities and improved compliance behaviour by the relevant taxpayers,” the ATO said in a statement.

“The tax office also believes that the operation will result in additional revenue being collected under the Proceeds of Crime Act 2002, although the tax office is unable to estimate these amounts at this early stage.”

The ATO was careful to emphasise that the investigation was not a revenue raising exercise.

“Operation Wickenby is driven by protection of the revenue base rather than pursuit of additional revenue, as there is no doubt participation in these or similar arrangements will spread if not acted on,” the ATO said.

“For this reason, the revenue estimates are conservative and based on what was known at the time of the joint agency costing proposal in October 2005.”

Wickenby has involved some high-profile operations, including a sweep last year by the tax office and crime commission in which they executed 48 search warrants in Perth, Sydney, Melbourne and Brisbane.

Does anyone believe it’s not a revenue gathering operation? Yeah Right.

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The tax department is again investigating developer Dave Henderson, who this week officially opens his $2 billion “whole new town� near Queenstown.

Henderson’s previous battle with the IRD – which left him bankrupt but triumphant -is being made into a movie by Whale Rider producer John Barnett.

Henderson said the movie, which will tell how he fought the IRD for four years, eventually winning a $65,000 refund after it claimed he owed it $1 million, would start filming in January for an October release.

Henderson’s good mate and Act leader Rodney Hide, who helped him write a book about his experiences, will on Saturday turn the first dirt on the Five Mile development. Described in its publicity blurb as a “whole new town�, Five Mile stretches across 33ha near Queenstown airport.

Henderson, who was discharged from bankruptcy in 1999, said the IRD this year began back-auditing five years of his dealings. He said the IRD wouldn’t let go and their officials’ “children’s children� would be investigating him. “I’ve just learnt to live with it … I’m up for whatever they throw at me.�

A spokeswoman for the IRD declined to say why the department was again investigating Henderson, saying it was unable to detail specific taxpayer affairs.

Follow up: Article in NZ Herald 

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Roth CPA has some interesting observations from the IRS convention in the States:

Mark Matthews, IRS deputy commissioner for services and enforecment, had a sharp observation on efforts to close the “tax gap,” the difference between the amount of taxes imposed in theory and the amount collected:

Matthews acknowledged that the IRS will also have to get better at using the data it already has, but said that with significant help on the funding side and some legislative improvements, $50 billion to $100 billion could be shaved from the $345 billion tax gap.

“We’ll never get it to zero. We’ll never get close to zero,” he said. “You wouldn’t want to live in a country where it was close to zero”.

A study released later in the day by three researchers, among them the IRS’s Edward Emblom, asserted in its preliminary results that increased audits can have a significant effect on compliance for all taxpayers.

According to the study, doubling the audit rate from 1 percent to 2 percent on businesses with incomes between $25,000 and $100,000 reduces noncompliance by 7 percent, while doubling the audit rate for larger businesses had similar but less pronounced results.

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Virgin Blue appears to be under the hammer from the ATO after conducting a restructure to maximise the GST benefits. Thanks to Esco for the story.

US-based International Lease Finance Corporation leased Virgin Blue the 11 Boeing planes that made up its first fleet. It charged the nation’s second-biggest airline a fee and, as a foreign company, was able to claim GST refunds from the tax office.

The restructuring proposed by Mr Godfrey was allegedly designed solely to extract extra GST credits by creating a series of transactions to shuffle the ownership of the airliners between different companies.

The ATO claims the deals are not eligible for GST credits because ILFC owned all the companies involved in the transactions, the sales were not conducted at “arm’s length” and had no Australian connection.

The ATO is demanding repayment of $71 million in GST credits and $42 million in penalties, saying ILFC and its agents “took steps to prevent or obstruct” tax office investigators.

Further details have been released that the ATO has accused Virgin Blue executives of destroying documents relating to an elaborate taxation scheme after the airline became the target of an investigation.

This is an interesting situation. Accounting firms have recently become gun shy because of all of the legal action happening in the States. However EY doesn’t seem too concerned and has waded into this one with all guns blazing.

In terms of the legal action by the ATO it’s the usual situation. Tax loophole, company takes advantage of it, ATO allege that the “restructuring” was conducted only for tax purposes. So when it goes to court, whether virgin will come out on top will depend on how well they’ve covered their backs on this one.

There’ll be more to come on this one…

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In Canada they are finding that tax amnesties don’t work.

Canada Revenue Agency’s voluntary disclosures program is pulling in more than 6,600 prodigal taxpayers each year — typically older, wealthier men — who last year belatedly wrote cheques to the government for more than $300 million in taxes owed.

But an internal review that looked at what these income-tax evaders did in the three years following their confession found that one in three again failed to file all the required returns, despite having started with a clean slate.

And about one-quarter of another group of GST cheats who confessed their sins to the taxman also failed to file required GST returns in the period after coming clean.

The main clients are self-employed men, average age 49, whose income is $220,000 on average, says the report, based on sample data from 2003-2004. Two of the men had incomes of more than a $1 million.

I remember last year there was some debate over whether we should use tax amnesties here. The best mental picture to use for tax compliance is the carrot and the stick approach. That is to say that taxpayers should be initially be given an incentive to comply, and then the full force of the law should be thrown at them if they don’t comply.

This approach makes the risk of non-compliance to great, and taxpayers will voluntarily comply. It seems the problem with this amnesty is that there is a carrot, but no stick is being used. In fact the article goes on:

A spokesperson for the agency said none of the tax cheats who volunteer information are routinely red-flagged to ensure their bad behaviour does not continue in later years.

Bad revenue administration. Just remember the Taxblog.co.nz carrot and the stick approach Canada…

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The IRS is stepping up its enforcement efforts in the hope to catch more tax cheats.

IRS Commissioner Mark Everson says as the number of audits went down, the number of cheats went up.

The IRS says honest taxpayers should be grateful that audits are on the rise — because they pay more when others cheat.

Don’t you love the spin that tax authorities try to put on how great tax audits are. Even if you ask the most honest taxpayers whether they would like an audit they wouldn’t say yes. In fact from stories I’ve heard it is usually the honest taxpayers who get caught at tax audit time because they’ll review their returns and come up front with the mistakes they’ve made straight off the bat.

Other taxpayers may try to sweep their mistakes under the rug, sometimes they get caught, sometimes they don’t, but the penalties are much larger if they do.

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Taxpayers are apparantly manipulating their income to be slightly less than $38,000 and $60,000.

Treasury figures on taxable income for the 2004-2005 tax year show sharp spikes just below the $38,000 threshold, at which the tax rate jumps from 19 per cent to 33 per cent, and the $60,000 threshold, above which taxpayers pay the top 39 per cent tax rate.

In 1999, when Labour raised the top tax rate to 39 per cent, only 5 per cent of taxpayers were liable for the top rate. But inflation has pushed that figure to 11 per cent, or more than 300,000 taxpayers.

Simply a case of bracket creep. Where the thresholds for different tax brackets have not risen in the last six years, more taxpayers will be caught in higher income tax brackets, and pay more income tax. It amounts to an effective tax increase.

The IRD will be looking into how to reduce this tax avoidance.

Whenever there are tax brackets taxpayers will take advantage of ways to reduce their taxable income to fall into a lower bracket. Quoting from a previous post on this site the late Kerry Packer described anyone who did not minimise their tax as an idiot.

Quite correct Kerry.

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United Future MP Gordon Copeland has obtained figures showing the IRD is in tax disputes with ANZ-National, ASB, BNZ, and Westpac banks to the tune of $1.935 billion, including tax and interest.

Mr. Copeland said that the banks should settle the disputes before New Zealanders lose faith in them.

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