In­sult to farm­ers

South Waikato News - - RURAL DELIVERY -

The IRD needs to stop un­der­min­ing the in­tegrity of the tax sys­tem with al­le­ga­tions of avoid­ance, Jo Doolan says.

As the New Zealand ru­ral community strug­gles with re­duced farm­ing pay­outs, In­land Rev­enue (IRD) is pre­par­ing to ham­mer more than 400 farm­ers, al­leg­ing tax avoid­ance.

At most risk are those who gained a tax ad­van­tage by elect­ing to value their stock us­ing the herd scheme when val­u­a­tions peaked in 2008 and 2009, then sold their livestock to an as­so­ci­ated per­son or en­tity when val­ues dropped. The as­so­ci­ated per­son or en­tity got a tax de­duc­tion for the de­crease in herd val­ues while no tax was payable on the ear­lier in­crease in val­u­a­tions.

Iron­i­cally, our tax leg­is­la­tion specif­i­cally al­lows farm­ers to do this. The IRD knows this but, once again, is re­sort­ing to claims of tax avoid­ance to ef­fec­tively re­write the leg­is­la­tion.

It is dis­ap­point­ing this sort of be­hav­iour con­tin­ues to un­der­mine the in­tegrity of our tax sys­tem. We seem to have lost sight of the con­cept that tax­pay­ers are the back­bone of this coun­try. With­out them, the Gov­ern­ment does not have the money to continue oper­at­ing, let alone meet its obli­ga­tions to cit­i­zens who are forced to rely on it for tax­payer-funded as­sis­tance.

The IRD’s high-handed ap­proach is even more in­sult­ing when aimed at our farm­ers. Un­like many of their coun­ter­parts over­seas, New Zealand farm­ers do not re­ceive tax­payer-funded as­sis­tance. They are es­sen­tial to our econ­omy.

When loop­holes are per­ceived in our tax leg­is­la­tion, the proper pro­ce­dure is for con­sul­ta­tion to take place and changes made through leg­is­la­tion.

The leg­isla­tive changes to herd val­u­a­tion schemes are be­ing made. They were in­tro­duced into Par­lia­ment as part of the lat­est tax bill, which had its first read­ing last Fri­day. The per­ceived loop­hole is ef­fec­tively closed.

But the IRD is try­ing to ap­ply this leg­is­la­tion ret­ro­spec­tively, us­ing the anti-avoid­ance rules.

If you are tar­geted by the IRD, it is im­por­tant you man­age the sit­u­a­tion proac­tively. It is also crit­i­cal that you ex­am­ine any re­struc­tur­ing plans – or any moves that give you a tax ben­e­fit – at the time the trans­ac­tion takes place so you can jus­tify your ac­tions on a com­mer­cial ba­sis.

Your only other op­tion is a trip to the tax con­fes­sional as a way of manag­ing the po­ten­tial penal­ties and in­ter­est that will re­sult if you sim­ply wait for a visit from the tax of­fice.

Sir Win­ston Churchill said: “Some peo­ple re­gard pri­vate en­ter­prise as a preda­tory tiger to be shot. Oth­ers look at it as a cow they can milk. Not enough peo­ple see it as a healthy horse, pulling a sturdy wagon.”

We can only hope tax­pay­ers – farm­ers and ex­porters in par­tic­u­lar – start re­ceiv­ing the ap­pre­ci­a­tion they de­serve and the neg­a­tive non­sense re­sult­ing from ex­ces­sive use of the anti-avoid­ance rules ceases.

Jo Doolan is a tax part­ner at Ernst & Young. The views are her own and not nec­es­sar­ily those of Ernst & Young.

BE PROAC­TIVE: When it comes to tax­ing times.

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