TaxBlog

My thanks go out to Dennis over at AccMan Pro for helping me out with a couple of things.

His blog on innovation for professional accountants raises some good issues, and is always on point. I think more accountants here should read it.
I especially enjoyed reading his about page and this quote especially.

When I suggested selling around 2,000 clients, selling surplus space and getting everyone in one room with a computer network, the senior partner nearly had a heart attack. I resigned. That was in 1993.

Maybe one day when I figure out how to setup some links I’ll link up these great blogs that I read. In the mean time, perhaps I should write more posts like this one.

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I’ve been reading international tax blogs such as this one:

http://mauledagain.blogspot.com/

You find interesting tax businesses which don’t exist (or aren’t well advertised) in New Zealand or Australia.

“Tax Refund Anticipation Loans” or RAL’s is one such business.

How this works is that banks lend money through tax return preparers such as H & R Block using the tax refund as collateral for the loan. The risk of the return being wrongly prepared is low because H & R Block are a reputable firm.

Questions come to mind regarding the mechanics of this process?

How can a bank be certain that the information provided to the tax return preparer is correct?

I guess the answer is that they can’t but based on the law of averages the information is generally correct. This puts the loans into the high risk, high interest basket of lending, and as such the loans carry punative rates of interest.

Another question is how the tax return preparer makes money out of the deal? Perhaps some kind of bank hander from the lender?

It’s not uncommon for lending firms to pay large bonuses to retail staff who encourage purchasers to take out hire-purchase loans to cover the cost of their purchase. Perhaps this process works in the same way.

Maule focuses on the ethical considerations of such loans:

Two questions popped up as I read the article. First, is it appropriate for the company that is preparing the tax return and thus calculating the refund to make loans based on that refund? Second, is it appropriate to charge interest at the rates being charged?

The first question should be answered in the negative because there is a conflict of interest. The higher the loan, the more interest income is generated for H&R Block. This puts the company in the position of trying to maximize the refund, when the company should be maximizing the client’s compliance with the tax law. Every “close call” is going to be affected, subtly or not so subtly, by the impact on the lending activity. It’s best to leave the refund anticipation loan to some other lender, to whom the customer can go after he or she is handed a copy of the return by the preparer. H&R Block, after all, should stick to tax return preparation and not open up a bank.

The second question must be answered in the negative. According to the story, and I’ve read similar reports elsewhere, the annualized interest rates on these refund anticipation loans are as high as 700 percent. SEVEN HUNDRED PERCENT? Toss in the fact that roughly 80 percent of the people using refund anticipation loans are low-income, and suddenly there is a recipe for all sorts of unacceptable situations. I’m not alone in this reaction. H&R Block has been sued on account of its refund anticipation loan practices, has paid out tens of millions in damages, and still must defend charges brought by the California Attorney General. State banking commissioners have been asked to investigate.

This is not a blog on politics, however, it seems to me that if RAL’s are outlawed then people will find other methods to finance their consumption.

There is also further information on RAL’s in his posts here and here

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There will be significant changes to the way provisional tax revenue is estimated in future Crown financial statements, the Treasury said today at the release of the June 2006 Tax Outturn.

The Treasury has received advice from the Inland Revenue Department that it has reviewed its provisional tax revenue estimation method and concluded that provisional tax revenue can be reliably estimated when it is incurred or earned, rather than when ‘payment is due’, as has been the case up until now.

“The Treasury concurs that the new method will enable a more timely estimate of provisional tax owing to the Crown and should therefore be incorporated into all future Tax Outturn reports and Crown Financial Statements,� said Peter Bushnell, the Treasury’s Deputy Secretary responsible for the Budget and Macroeconomic Branch.

“The change will provide a more reliable estimate of provisional taxes owed to the Crown at any point in time, better reflect revenue actually earned for a reporting period and it will also avoid the fluctuations in provisional tax revenue due to changes in payment dates, as occurred in the 2005 Budget tax revenue forecasts for instance.

“This revised method for estimating revenue, combined with tax receipt data currently provided, gives a more complete picture of both the Crown’s tax revenues and cash flows.

“The transition to the new estimation method will result in a one-off adjustment reflecting more than just the usual 12 months of provisional tax revenue being reported in the 30 June 2006 financial statements. This is simply bringing forward revenue that would have been recognised in the 2006/07 financial year under the ‘payment due’ approach, so is not an increase in total tax revenue. At this stage, the Treasury expects that the increase in tax receivable in the 2005/06 year may be in the order of $1.5 to $2 billion,� he said.

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Is here:

http://www.scoop.co.nz/stories/PA0608/S00428.htm

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There are some crooks out there. This one is no execption.

A Palmerston North accountant stole more than $300,000 from clients, depositing cheques made out to the Inland Revenue Department in his personal bank accounts.

The Manawatu Standard has obtained a letter from an accountancy practice detailing how former employee Lindsay Chapman ripped off about 80 of the company’s clients.

Chapman, in his early 50s, pleaded guilty this month to 83 charges of using a document for pecuniary advantage. He was remanded in custody to be sentenced on October 20.

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In a shock story today there is talk that the trust tax rate may rise to 36%.

The government is facing a second major rebellion over its tax policy amid growing certainty that it’s planning to raise trust tax to 36 per cent.

The potential tax grab, which would affect hundreds of thousands of New Zealanders, has prompted opponents to form a fighting fund aimed at forcing a government rethink.

The protest follows a storm of opposition to legislation introducing a capital gains tax on overseas investments.

The Trustees Association believes the government is plotting to raise the trust tax rate from 33 per cent as part of its proposals to drop the company tax rate. Not only would the trust tax hike help compensate for reductions in the company tax take, it would also hit back at people using trusts to shelter their assets from the taxman.

The plan would create a new range of rates, with company tax cut from 33 per cent to 30 per cent, top personal tax cut from 39 per cent to 36 per cent, and trusts increased from 33 per cent to 36 per cent.

Association chief executive Errol Anderson said the plan would mean that children, often the beneficiaries of trusts, would end up paying more tax than giant corporates.

“That’s a very cruel tax -targeting people who can’t defend themselves. (The government) will see trusts as an easy touch for raising tax, unless we unite,” Anderson said.

Though no final decision had been taken, Dunne admitted one option, backed by the IRD, was equalising the top personal trust and income tax rates at 36 per cent, and added that the government had crunched the tax numbers on tax paid by trusts.

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Phil has some excellent insight and analysis on the current tax changes:

In less than 24 hours three major government projects in the financial services sector have been put back. The Ministry of Economic Development, yesterday, said that it is giving another month for submissions on adviser regulation and today a raincheck has been given on KiwiSaver and tax changes.

A question one must ask is this: Are these policies such a mess that the government is about to start back peddling on them?
Put another way: Are they so ill-thought out and in urgent need of a rethink that extensions are a good way of buying time to find a fix?

My guess is no on KiwiSaver and possibly yes on tax.

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The finance select committee yesterday held its first public sessions on the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill.

Amongst other things, it puts in a new tax regime for New Zealanders directly investing overseas and also proposes changes to the taxation of portfolio investment entities in New Zealand.

Ernst and Young told MPs in a written submission that the tax on overseas investment was inconsistent with the regime in New Zealand and would result in over taxation.

The accountancy firm and others also argued that the $50,000 threshold was too low and would “discourage” compliance because the rules were too complex.

The Institute of Chartered Accountants said the proposals on portfolio investment entities were “complex and tortuous” and would create results to defeat the positive policy objective.

The institute called for the abandonment of the overseas investment changes.

The Law Society said the proposals as drafted would be “detrimental to the New Zealand economy and potentially the New Zealand tax base” because it would stop foreign investors taking up residence here and drive New Zealand investors overseas.

“A capital gains tax on unrealised gains is the harshest possible form of tax treatment,” the society said.

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Details of the NZICA 2006 tax conference are available at:

https://www.nzica.com/staticcontent/PD/Conference.cfm?ConferenceID=1533

Does anyone else still want to call them ICANZ?

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The Government is flagging a review of New Zealand’s international tax rules.

Revenue Minister Peter Dunne says the main focus will be on the taxation of outbound, non-portfolio investment.

He says the government is committed to taking a fresh look at whether New Zealand should continue with its current controlled foreign company tax rules.

The review will also consider whether there should be any adjustment to the long-standing policy on non-resident withholding tax rates on dividends, interest and royalties.

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