Voluntary tax disclosures
Question from Mike updated on 27th September 2016:
We bought our first home in 2006 and rented it out in 2009. As a young couple who migrated to New Zealand from Asia, we were not very familiar with rental property tax liability so we sought advice. However the advice that was given to us was that we do not need to file a tax return as we do not gain income from our rental property.
I have only recently found out that this advice is incorrect. So I have done some calculations and also found out that we have been gaining minimal income ($1,000 annually) since 2013. I will file a tax return very soon but will I be penalized for not completing a tax return in the past years? Please advice.
Our expert Mark Withers responded:
The Inland Revenue Department run a very favourable voluntary disclosure regime which is designed to give taxpayers an incentive to bring forward issues with their tax voluntarily, even in situations where tax has been evaded deliberately. Voluntary disclosures provide immunity from prosecution and automatic reductions in any shortfall penalty charges.
In your case it is likely that no short fall penalties would be issued. There is though the chance that some use of money interest could be added to the tax liability but in the scheme of things this is likely to be minimal.
To furnish a voluntary disclosure you must provide sufficient information to enable the inland revenue to raise an accurate assessment of the tax due. In my view, its also best to call and make an appointment to see an IRD officer face to face so that you can explain the circumstances around the disclosure.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.