Insult to farmers
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.