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Penny & Hooper – extended timeframe for voluntary disclosure concession

Following the Penny & Hooper decision, Inland Revenue, in the hope of encouraging voluntary disclosures, offered a concession to other taxpayers that had the same type of arrangement in place. Where the tax position taken is broadly equivalent to the facts in Penny & Hooper, the Commissioner, on receipt of a voluntary disclosure, agreed to only adjust for the most recent two years, rather than four years permitted by tax law. In most cases this would be the two tax returns filed prior to the Supreme Court decision. Under this arrangement, the Inland Revenue would also not impose shortfall penalties, although use of money interest would apply.

To date approximately 128 voluntary disclosures have been received with an average of $27,000 in tax shortfall being paid. Inland Revenue believe, based on information that it holds, that there are still a number of taxpayers that have yet to come forward voluntarily. Specifically it is expecting more disclosures from dentists, GPs, anaesthesiologists, orthopaedic surgeons, engineers, ophthalmologists, surgeons, urologists, consultants, architects and even some accounting firms. The key point to note (and it is not clear how sophisticated Inland Revenue information is in this regard) is that the facts of the arrangement must be “on all fours” with the facts in Penny & Hooper and so many professionals will not actually have structured in this way.

Inland Revenue had been contemplating bringing this concession to a close at the end of November 2012 and starting more aggressive action. However NZICA has successfully negotiated an extension of time for this concession until 31 March 2013.

Should an audit commence before making a voluntary disclosure, Inland Revenue may seek to adjust all periods and impose shortfall penalties where aggressive tax positions have been taken post the Supreme Court decision. So for taxpayers who are at risk, a voluntary disclosure is definitely the best course of action here before Inland Revenue come knocking.

Taxpayers who are worried they may be at risk, particularly in the above professions, should seek tax advice before making any disclosure, to see if the tax arrangements they have in place pose a risk in this regard.

Tax Alert November 2012 Contents:
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