The New Zealand Institute of Chartered Accountants (NZICA) has criticised the Inland Revenue Department's (IRD) proposals for stopping holiday home owners from claiming expenses against tax for their own holidays, saying the plans will just add an extra layer of complexity and inefficiency.
The IRD released issues papers on so-called Mixed Use assets in August. This followed the announcement in Budget 2011 in May that the government wanted to crack down on taxpayers who claimed all of the costs of their holiday homes, yachts and private planes for tax purposes, even though they might rent out out the 'mixed use assets' for just a few weeks every years. See our May 19 article on the crackdown.
"It's using a sledgehammer to crack a nut," said NZICA Tax Director Craig Macalister.
"It's as though Inland Revenue have set out to design something deliberately complicated," he said.
The NZICA supported the broad thrust of the changes, but it said the proposals would result in holiday home and yacht owners having to keep detailed log books of its use, "and that's only the beginning.
"The plethora of rules proposed to ensure all this works and can't be avoided will bring a collective groan from the industry."
'Watch out for IRD'
Meanwhile, the NZICA warned professions away from acting as trustees because IRD was actively pursuing trustees personally for tax debts owed by a trust, even if the trustees had no personal connections to the income or assets.
"NZICA is aware of a number of cases where Inland Revenue is seeking to recover substantial tax debts (including penalties and interest) owed by a trust from a professional advisor acting as a trustee," it said, adding that in many cases the trustee was the family lawyer or accountant.
It said professional trustees were likely to abandon their trustee positions if the IRD continued to pursue them personally for these trust debts.
'Convergence with Australia'
NZICA CEO Terry McLaughlin said the Institute was considering converging with its Australian counterpart, the Institue of Chartered Accountants of Australia.
He said due diligence was being done on fully converging the two organisations over the next 6 months, including looking at what legislative changes might be needed to the existing 1996 act governing chartered accountants.
The aim in any convergence was to provide more service for the same cost.
"Both sides see it as a no brainer," McLaughlin said.
He also said the the NZICA was pushing for professional liability for accountants to be made proportional or to be a capped in New Zealand to bring it into line with the rest of the world.
He also noted that 25% of the issuer audits for New Zealand companies were now done by foreigners.
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