David Weaver talks: Inland Revenue targeting real estate agents

David Weaver, Tax Barrister, began his career working with the Inland Revenue, providing legal advice to investigators and debt collection staff at Inland Revenue, as well as representing Inland Revenue in Court. David has represented both Inland Revenue and individuals, so he really does know both sides of the coin.

Since 2007, David has worked ‘on the other side of the fence,’ helping business owners struggling with tax debt, facing liquidation and bankruptcy or criminal prosecution. Utilising his knowledge of the tax laws and Inland Revenue policy to represent his clients and help them get back on track.

Each year the Inland Revenue undertakes more than 100 prosecutions under either the Tax Administration Act or Crimes Act. Prosecutions are generally for ‘tax evasion’ which includes: PAYE prosecution, GST fraud, under reporting income or failing to file returns. Post-COVID, IRD has resumed their crackdowns on different industries, targeting their behaviours and auditing accounts.

Last month, Inland Revenue announced their next target will be real estate agents who under-report their income, or overstate their expenses, to pay less tax than they should.

IRD spokesperson, Richard Owen said that the industry was the next focus of its ongoing enforcement work to target the “hidden economy” and that, “real estate agents have been claiming high level of expenses relative to their income.”

“Inland Revenue believes the issue is widespread and we must act. People are claiming private expenditure, but not keeping logbooks or other business records to support the claim.”

Owen said that if IRD had concerns someone was over-claiming expenses, they would receive a letter requesting they proved the expenses claimed, for example by providing bank statements, invoices, or a logbook.

Owen said the IRD was working with the Real Estate Authority and the Real Estate Institute of New Zealand (REINZ) to “engage and educate their members”.

“We would far rather encourage customers to do the right thing from the start,” he said.

David Weaver offers, “The IRD knows exactly how much real estate agents earn in commission income. Their agency is required to declare commission income paid to its agents. Therefore, it is simple for IRD to match the commission income shown by the agency with the amount declared by the agent.”

Mr. Weaver continues, “To ensure that you are protected from prosecution, a Voluntary Disclosure is the best course of action.”

A voluntary disclosure means that you generally won’t be penalised or face prosecution. It also gives your representative the ability to negotiate any tax to pay. It is important to action this yourself, prior to any action taken by IRD – if they commence an audit prior to a voluntary disclosure being made, all potential protection is negated.

It is better to be up front and declare any under or over-reporting, prior to IRD investigating and a voluntary disclosure can protect you from any other potential action the IRD may take.

Mr. Weaver has already managed several real estate agent cases in 2021, showing that the IRD is already active.

Mr. Weaver and his team perform voluntary disclosures and negotiate the resulting tax bill, meaning that the client is able to continue earning without distraction and without the fear of bankruptcy, liquidation or pending prosecution action.

Mr. Weaver’s team of experienced tax professionals take a holistic approach to tax problems, knowing that if you do not solve the issues which led to the debt in the first place, the problem can often be repeated.

Here are their top tips for ensuring you are protecting yourself and accounting for tax correctly:

1. Commencing logbooks and keeping business records is not only advisable with regards to audits, but good business sense as well

2. Commence a GST savings account and contribute 15% to it each time you are paid – do not touch it until your GST payment is due!

3. Consider tax-pooling for your income tax if you are a sole trader – or placing yourself on PAYE if you are operating under a company, providing in advance for tax is critical for cashflow and compliance

4. Do not ignore a tax problem – the quicker it is disclosed, the better the outcome

5. Remember, you are ultimately responsible for your tax position – if you aren’t happy with your accountant, change them and seek assistance for any debt from a qualified tax professional.

Stay abreast of the latest tax advice or seek legal assistance for any tax issue at taxlawyernz.co.nz or call David on 0800 706 960.

David Weaver

Tax Barrister