Sunday, December 09, 2007

Oh DEAR!! How sad...

...never mind.

Amongst all of the bad news stories over the past few months for local investors comes this little piece –
The country's top 1000 property speculators are being targeted in an Inland Revenue crackdown on unpaid taxes.
As part of the campaign, IRD staff are visiting real estate agents with warnings that sales and purchase information would have to be disclosed if requested.

In this year's budget, the IRD got an extra $14.6 million to target tax evasion in the property market.

A Wellington real estate firm, which declined to be named, said it was dismayed that a recent IRD visit warned of possible sales and purchase auditing.

"At the end of the day it shows they can come in here and do anything," an agent said.
IRD assurance group manager Martin Scott said its visits to real estate offices included a presentation on the obligations involved in property transactions.

The 1000 people identified with extremely high numbers of property transactions would be contacted to see if they would make "voluntary disclosures" about their tax returns.

"Some people have a belief you don't have to pay taxes on housing profits but depending on the purchaser's intent it could be taxable."

He declined to say how IRD identified property profiteers but said it used audit powers that required "third parties" such as real estate agents to disclose information about their clients.

"Yes, we do have powers to request information but at this stage these visits [to agents] are more about where we are going and what to expect from us. We would give them [agents] scenarios on what we would consider taxable and what we wouldn't."

By making voluntary disclosures people could limit or avoid penalties, Scott said.
"We are not trying to trap people. We are working to ensure that people have the information they need to do the right thing."

It is not as if the action was being taken without warning. The start came from the last Budget, with some $14 million being set aside for the purpose. It is not as if there has been any retrospective law change; the tax law being used has been largely unchanged since I did the tax law part of my professional qualifications in 1980.

Interesting too that the real estate boys are crying “Foul!”. I suspect that a good number of them will be among the people who will be getting “please explain” letters from IRD. The “invasion of privacy” argument is a total crock. All of the property transactions are a matter of public record through LINZ. It would not be difficult (or expensive) for IRD to tap into that source of information.

Essentially, the tax law distinguishes between trading as a business (which is subject to the tax laws) and the level of “trading” that a person might undertake in the normal course of living. There have been similar “attacks” from time to time in the past. First to come to mind is the people who were trading in motor vehicles; the guys who might buy a car from the local car fair in Paeroa and then sell at a profit the following weekend in Auckland. Good business, but that is what it is. It is not a hobby.

What the IRD is saying, what the law has always said, is that trading through perhaps four or five properties in a year and living in none of them is not necessarily a hobby or incidental transactions. There might even be no “intent” (as Rodney describes it). The fact that there has been both volume of trading and profit made is sufficient for IRD to get interested.

So Rodney Hide is quite wrong when he says, "The IRD has come up with new and novel ideas that have just tipped people over.” Rodney, there are a lot of people out there who have made assumptions, listened to advice with their confirmation bias at full volume, or in the saddest cases been given plain wrong advice. Some of those people might even be the mates who are getting in your ear.


And just to add to their woes...
A mini-boom is about to hit the property market, giving buyers a chance to bag bargains and make money as the market corrects.

That's the advice from Martin Evans, president of the New Zealand Property Investors Federation.

And, according to test-cricketer-turned-mortgage-broker Adam Parore, more deals are likely to come on to the market as homeowners, who have enjoyed low fixed rates for years, have to contend with the current high interest rates.

The Herald on Sunday's search of Trade Me's property website found dozens of properties already going below valuation.

Evans said: "The values have dropped and people are becoming more realistic. The cycle has gone over the top and is on its way back down again."

Interpretation -
Now that the market has topped, I want out and I want to sell to you so that you cop the loss instead of me.

No comments: