Govt unveils series of tax tweaks for banks, farmers and rich families as cashed up IRD reaps extra NZ$115.2 mln in unpaid tax

By Bernard Hickey

The government has detailed a series of tweaks for banks, farmers and rich families claiming Working For Families payments that could raise at least NZ$31 million.

The Budget 2011 announcements came as the government revealed the Inland Revenue Department's crackdown on tax avoidance had already gathered NZ$115.2 million of tax inside the first nine months of the crackdown.

Last year the IRD was allocated NZ$119.3 million over four years to help chase down tax avoiders. So far the IRD had recovered NZ$5.74 in tax for every NZ$1 spent on investigating avoidance.

"In these difficult times, anything short of full compliance with tax obligations is effectively stealing from the honest New Zealand taxpayers paying their due. I am committed to following up on tax evaders," Revenue Minister Peter Dunne said.

Dunne said the government would change 'thin capitalisation rules' for foreign-owned banks from 4% to 6% from April 1 2012. The change limits the amount of debt that non-banking multinationals can use to increase their interest deductions for tax purposes.

The change would raise around NZ$8 million of extra tax revenues in the first year and a further NZ$31 million in each subseqent fiscal year, Dunne said.

He also announced plans to review the treatment of non cash benefits for employees claiming Working For Families so they could not be used to dampen down taxable income.

The government would also review the tax treatment of 'mixed-use' assets such as yachts and holiday homes.

"There have been instances where high-value assets such as yachts and holiday homes which are both rented out and used privately have provided owners with inflated tax deductions, which either result in less taxable rental income or tax losses that can be used to offset other income," Dunne said.

"Everyone would like to own a holiday home, but it should not be subsidised by the taxpayer," he said.

Livestock valuations

Dunne said the government had begun looking at options for fairer rules covering livestock valuation elections.

Under the current rules, farmers usually value their livestock for tax purposes under one of two valuation methods -- the herd scheme or the national standard cost scheme.

"Under current rules, a farmer can switch back and forth between the two methods, choosing the more favourable outcome for tax purposes. This can mean increases in market valuations go untaxed, while decreases in valuation can be eligible for tax deductions," Dunne said.