Inland Revenue to probe hospitality sector for businesses hiding cash sales

First published in Stuff 4th October 2019

This serves as a word of warning to anyone who owns a business where cash is regularly received as payment for goods and services

Four members of the Thai restaurant family have been sentenced to prison or home detention after a $2.3 million tax evasion case brought by Inland Revenue, and another was convicted but discharged.

They were also been ordered to pay more than $2.2 million in reparations by the High Court in Wellington over tax evasion carried out through 21 “Thai House Express” restaurants around the country.

The five – Boonrouen Thongskul, Sirirat Kampeng, Anchalee Minwong, Chanaratt Thongskul and Anuchit Tongskul – originally denied the charges but entered guilty please five weeks into the trial that had been expected to last ten weeks.

They were accused of having been part of co-ordinated tax evasion effort over a seven-year period which involved not reporting cash sales to the taxman, and distributing the cash directly to family members.

The charges related to the filing of 366 false income tax, GST and personal tax returns evasion relating to their own tax affairs and those of their 11 companies.

“Once they’d heard much of the Crown evidence against them, these five entered guilty pleas in relation to the GST and income tax returns of the businesses for which they were responsible, and their own income tax return,” said Inland Revenue spokesperson Richard Philp.

“By their guilty pleas the brothers and sisters acknowledged they knew their returns were false and were a deliberate ploy to evade tax. Cash sales were deliberately suppressed to pay less tax.

“An aggravating feature of the offending for Chanaratt Thongskul and Anuchit Tongskul was that their declared income was low enough to qualify for Working for Families Tax Credits in some of the years charged.

“The case followed an extensive investigation into the family group with searches of private properties disclosing business records, luxury goods and cash in some instances.

“The general allegation was that the family distributed the cash amongst themselves, as part of a deliberate practice of not reporting or recording cash sales and diverting the cash to private use.

“This is not trivial tax evasion. At one point in the trial the cash deposited in personal bank accounts was said to be more than $9 million. For these five defendants the sum is more than $5.2 million.”

At the High Court in Wellington today Chanaratt Thongskul was sentenced to two years and eight months in prison and ordered to pay $900,000 in reparation.

Sirirat Kampeng was sentenced to 12 months home detention and ordered to pay $600,000 in reparation.

Anchalee Minwong was sentenced to 10 months home detention with $400,000 in reparations.

Anuchit Tongskul was sentenced to nine months home detention and must pay $300,000 in reparations.

Boonruen Thongskul was convicted and discharged with $5000 in reparation to pay.

Moving on from cheques

IRD recently announced their decision to no longer accept cheque payments for any form of tax from 1st March 2020. We will be in touch with those who for one reason or another (ie no rural broadband) can’t pay online to help you identify other payment methods.

Here’s what IRD had to say in their news release:

Cheque usage continues to decline every year. Last year cheques only accounted for 5% of payments to Inland Revenue and some people who used cheques also used other payment methods.
From 1 March 2020, Inland Revenue will no longer be accepting cheques if customers have an alternative payment option available. This includes post-dated cheques (cheques dated after 1 March 2020).

Around 90% of the cheques we receive come from clients of tax agents. If you or your clients use cheques you will be instrumental in the transition to alternative payment methods. There’s plenty of time before next March for people to explore their options and find a convenient and secure way that works for them.

There are many different ways to pay – electronically or in person.

Ways to pay

Here’s a summary of payment options:

  • myIR: You can pay by direct debit and make debit card and credit card payments securely through myIR online services. Visit our website (ird.govt.nz) and login or register for myIR.
  • Online banking: You may be able to make payments using online banking. Contact your bank for more information.
  • Credit or debit card via our website: Use your credit or debit card to make online payments through our website. Visit ird.govt.nz/pay.
  • In person at Westpac: Pay by EFTPOS or cash at a Westpac branch or Smart ATM.
  • Money transfer: If you are overseas you can pay us using a money transfer service. Search for “make a payment” on our website for more information.

Charges may apply for some payment options.

We are soon going to start contacting cheque payers (and their tax agents) to let them know about this change and alternative ways to pay.

In the meantime, if you would like more information visit our website at ird.govt.nz/pay.

Supporting Volunteer Service Abroad

A tax specialist we work with, Geoff Falloon from BizRescue is taking six months out of his busy business to work as a volunteer with VSA

He is taking up a role as Finance Systems Trainer/Mentor with Kokonut Pacific SI, a social enterprise promoting rural livelihoods in the Solomon Islands.He will be developing a financial processes manual and training staff to manage and maintain the financial systems.

The Solomon Islands ranks among the 30 poorest countries in the world. Some of you will have read about the subject of sustainable development goals. This role addresses (in a small way) three of the sustainable development goals being the alleviation of poverty and hunger and promoting work and economic growth.

VSA works in partnership with MFAT which covers a significant portion of the work but VSA is required to cover 10% of the in-country costs for each volunteer. VSA therefore asks volunteers to raise $1,000 each – a small portion of the assignment cost – to help pay it forward for future volunteers.

If this is something you would like to contribute towards simply follow this link https://give.everydayhero.com/nz/geoff-and-carol-in-honiara and click the “Give Now” button at the bottom. All contributions are welcomed.

Ring-Fencing Residential Property Deductions

The proposed changes to residential property losses will once they are enacted likely to apply from 1 April 2019. The changes mean that residential property deductions can only be offset again residential property income, therefore losses from residential property cannot be used to offset other income.

The losses will need to be carried forward and utilised when the investment makes a profit. The ring-fencing can be applied on a property-by-property basis or on a portfolio basis. It will apply to all properties where the income is taxable in NZ and to all types of entities. The ring-fencing will work similarly to the ring-fencing of mixed use assets.

Payday Filing Q&A

What’s changing?

You need to file employment information more frequently

 

When does it start?

1 April 2019

You can switch early, but most software and paper returns are not available until 1 April 2019

 

What is payday info?

Employment information, similar to the current employer monthly schedule

 

When do I file it?

Payday info is due within 2 working days of paying staff if you file electronically (software or myIR). We would recommend filing when processing pays. Information can be amended if need be.

Payday info is due within 10 working days of paying staff if you file via paper (to allow time for the post)

Regional holidays are considered working days

Change over period: you will need to file the March 2019 employer monthly schedule on the 20th of April, while filing payday information for April during April.

 

When do I pay it?

Payment is still due on the 20th of the following month as before (or 5th and 20th of the month if applicable)

Penalties for late filing and late payment applies just like now

 

How do I file it?

Software

Most payroll software will enable you to file your payday info directly from the software at the click of a button much like the GST returns. It will simply add a step to your payroll process.

myIR

If you are currently filing through myIR (file transfer or onscreen), you will need to log in each payday after you’ve prepared the pays and enter the information. It will work similar to how it works now but moved to the My Business section.

Paper

If you are filing paper returns, you can either switch to online filing through myIR or continue filing papers returns (only available to Employers with less than $50,000 PAYE and ESCT per year). Paper returns can be filed on payday basis or twice monthly. A separate form required for new employee details.

Schedular Payments

Schedular payments:

  • Can file as part of regular payroll or
  • Twice monthly (periods covering 1-15th month and 16th-end of month)

Other Info

If you don’t pay anyone in the pay period, Nil returns are not required

If you have a myIR account you can amend previously filed returns online.

Possible to file in advance

 

What other information do I need to file?

Additional information now required to be filed for new employees, separately to payday information, on or before the new employee’s first payday. There will be a new tab in the My Business section under Payroll called Employees to provide this information.

  • date of birth (if it’s been given to you)
  • start and end date of employment
  • KiwiSaver status
  • Contact detail

 

International Automatic Exchange of Information

New Zealand has signed up to the Automatic Exchange of Information (AEOI) – a global OECD initiative to combat tax evasion.

Inland Revenue has been running an AEOI awareness campaign since 9th June 2018 with a primary focus of this campaign being to generate awareness among New Zealand tax residents most likely to have offshore accounts or financial interests, so they can take steps to determine if their tax affairs are in order and disclose if they identify issues. New Zealand tax residents with complex international tax affairs should contact us for support or advice.

This awareness campaign has included online advertising on relevant websites and via Facebook. These ads include a link to IRD’s campaign landing page.

As part of AEOI financial institutions will provide Inland Revenue with information about foreign tax residents with financial accounts in New Zealand, in line with the Common Reporting Standard (CRS).

IRD are now exchanging information with many other countries so it is vital you tell us about any income or assets you may have in other countries, if you don’t then chances are IRD will find out about it and that may cause you a few problems, something no one likes happening with IRD

The requirement of New Zealand Tax Residents to report world-wide income hasn’t changed, but IRD are now more likely to find out about it even if you don’t declare it. Please make sure information regarding ALL overseas income, bank accounts or assets is provided to us for your tax return preparation, even if you think it’s non-taxable income!

AIM Method of Calculating Provisional Tax

Many of our clients may have seen or received information from IRD about the AIM method of Provisional Tax calculation

This method will become available for use on 1st April 2018. We are not recommending it to our clients for the following reasons:

  1. Most SMEs (Small Medium Enterprises) qualify to use Standard Provisional Payments without any Use of Money Interest
  2. Depending on your business you may have to do things such as a physical stock take every two months
  3. While IRD are promoting that this is an easy method to use in fact, in our opinion, it is not and also the option is not available through Xero and MYOB for clients to use – it is only available to firms such as ours to use.

If you want to discuss the AIM option please give Sari or Anna a call.

Tax Refund Companies – First published on Stuff website 13.06.17

The matter of how Tax Agents, particularly tax refund companies has been raised in the media again and the most recent article comes with a warning about how your refund could be paid into their bank account even if you do your own tax return online.

At Savage & Savage we never receive client tax refunds into our account, not even our Trust Account. All client refunds go directly to the client and that is why we ask for your bank account details in our client questionnaire each year. And we most certainly do not take fees from your refund.

It is important you fill in your bank account details on the Client Questionnaire Forms each year as we never assume you haven’t changed bank accounts.

To see the original article as posted by Fairfax Media on their Stuff website click here

The article is copied here;

You might still have to pay a tax refund company a fee – even if you do your return yourself.

Casey Kaumatule thought she was being sensible and saving money when she decided to take matters into her own hands and do her partner’s tax return herself, online.

She opted to do it via the Inland Revenue website rather than paying a tax refund company to handle it.

“We got a good amount that was owed to us. But when I checked, I noticed it was paid to a different bank account. I rang IRD and the tax return money had been sent to Savvy Tax Agents. They did my partner’s tax return before and their account wasn’t removed.”

She spoke to the firm, which agreed to waive the fee it would normally charge to release the money that had been sent to it. Kaumatule said it was her mistake not to have checked the details, but it was still frustrating.

Another woman, Samantha Dallas, was also caught out. She said she was not sure when she had signed up with the tax refund firm, but discovered after she had processed her personal tax statement that they were listed as her tax agents.

“I think all tax should just be done through IRD. We already get taxed and private tax agents make it feel like you are getting taxed on your tax.”

People who sign up to have a tax refund company prepare their tax returns usually agree to have those firms act as their tax agents from then on, with their bank accounts set up to process future refund payments.

That means, even if they do their return themselves in future, the agent can end up with the refund.

Consumer NZ spokeswoman Jessica Wilson said it was something her organisation had received complaints about.

Many companies charge a fee to release tax refunds that have been put in their banks accounts in error.

“Problems arise when people aren’t aware they’re giving the company the authority to act as their tax agent – and it remains so until the arrangement is cancelled,” she said.

“There’s an onus on tax refund companies to keep their customers informed the arrangement is still in place. If a company hasn’t done so and receives the refund as a result of a return the customer has filed, we think it shouldn’t deduct a handling fee.”

NZ Tax Refunds, or WooHoo, charges a $25 handling fee in these circumstances.

Managing director Gabrielle Purchas said her firm would automatically push money back to Inland Revenue when a client had not completed the return within its system.

She said it was an administrative burden for her organisation to have to deal with and was something that could be overlooked. “We send it straight back to IRD if we can see it hasn’t been requested.”

Savvy Tax Agents said it would do the same but would not charge.

An Inland Revenue spokesman said it was clear on its MyIR online service whether a person’s account was linked to a tax agent.

“The best advice would be that if you have used a tax refund company in the past then you should check all your details are correct on MyIR before you start applying for a refund yourself.

“Once the customer has reached the My Tax Agent tab on MyIR, they can see who their tax agent is but to de-link they would need to give us this instruction by phone or through secure mail in MyIR.”

 – Stuff

Deductibility of Farmhouse Expenses

IRD have released a Statement considering the deductibility of expenses relating to a farmhouse that forms part of a farming business. The general rules of deductibility and apportionment applies, ie you will be able to claim a percentage based on values and usage.

However, the minimum deduction of 25% for all farmers has been reduced to, and now available only in situations where the compliance cost of calculating private use element outweighs any likely deductions,  20% for farmhouse expenses ie power, while rates and interest remains at 100%. These deductions are allowed for some sole traders and partnerships when the value of the farmhouse is 20% or less than the total value of the farm. If the value of the farmhouse is more than 20% of the total value of the farm, all expenses that relates to both the farm house and the farm (rates, insurance, power, interest) must be apportioned.

Tax Refund Companies

Yes, it’s that time of year again – the tax refund companies are back advertising!

Remember, if you are a client of ours, that we automatically check your tax situation so will advise you if there are any refunds due.

These tax refund companies take a percentage of any refund due. So, if you have a friend or family member who is thinking about using a tax refund company let them know that they can check on IRD’s website whether they are due a tax refund or not, at no cost.