Speculators are making millions in an overheated housing market but as many as one in four didn’t pay the tax they owed on properties flipped last year, IRD figures reveal.
Of the 1701 property sales subject to the bright-line test in 2019 – a form of capital gains tax – just 1285 have paid up.
That’s a compliance rate of just 75 per cent, meaning one in every four speculators the tax applied to, hasn’t paid yet.
This is tax evasion. Tax evasion is a crime. So why aren’t these people being prosecuted for it?
Why the outrage that some property speculators haven't willingly paid their taxes? That is BAU for them.
As property flipping has been the flavour of the month, it will take IRD some time to run the ruler over all the deals the 5 year bright line test applies to and get onto taxing them. There is a formal statutory process for doing that, although computerised systems should make tracing land sales easier.
And even then, if people are determined enough they can contest their tax bill to delay the process. The downside to that is penalties for non-payment and for trying it on with the IRD, plus interest on the outstanding tax, add up to a huge tax bill.
IRD simply wants to get the tax paid. Prosecuting every dodger for evasion as well as getting the tax in would be a waste of resources. (For a prosecution the IRD must prove the offence was committed. But if you want to contest your tax assessment you must show the IRD got it wrong.)
Prosecuting every dodger for evasion as well as getting the tax in would be a waste of resources.
Not joined up thinking. Brightline taxes exist in part to deter sociopathic activity – especially property speculation. If there are no prosecutions, there is no deterrence. Our property sector is sufficiently dysfunctional already without letting malefactors off scot free.
Thanks for commenting. I didn't wish to imply that all tax evaders get a free pass. The IRD is well aware of human nature and will take firm action when necessary . Take a look at their website for the compliance model showing the different categories of defaulting taxpayer.
A VUW academic, Lisa Marriott., has studied where penalties for tax crimes fit in the overall scheme of things. See https://www.treasury.govt.nz/news-and-events/our-events/white-collar-and-blue-collar-financial-crime-new-zealand
NZ runs the most self-regulating hands off tax system in the world.
For that to work, you need to make the consequences of being caught far greater than the benefit of rorting the system,
Like just removing the house, and any others they own, from ownership of the evader.
Then flog them and lock them up for a couple of years.
Pity tax evasion is not treated as seriously, as sleeping with a non declared partner for a few nights.
Well yeah, but for a tax evader or white collar worker the non declared partner is a prostitute who is part of the business program.
And therefor deductible as an entertainment expense.
Is it deductible?
Do you have to pay FBT?
Enquiring minds. etc
This facet of financial penalty for having a partner has some serious consequence for society.
The data on children raised in one parent families, expressed crudely, is that every bad outcome for a child raised by a solo mum is 10 times more common than for children raised in a 2 parent family.
What is the rate for solo dads? Do you have a link?
No point crying over spilt milk – what is the IRD doing to ensure the rules are now followed for future sales?
Land sales are not easy to hide. They need a lawyer. Why can't the IRD require a special tax return be filed before a land transfer occurs, with the share of the profits diverted to the IRD?. The basic calculation should be quite easy!.
The IRD are following up property transactions – and from the media articles this is coming as a surprise to some advisers who clients did not tell them they were selling assets (for some selling may not need legal involvement. . .). In some cases they are going back further and identifying that even under previous law the pattern of behaviour is such that profit on other transactions should have been taxable. I don't know if there are automatic penalties for filing an incorrect return, but there should possibly be automatically higher penalties for subsequent mis-filings.
I had some tax to square up this year and the due date was 7 Feb. 2021
So for a house flipped in 2019,(unless flipped before 1 April 2019,) is not 7 Feb 2021 the due date?
If so they still have a while.
Unless you are doing it so reguarly you fall under providionsl rules.
One of Winstone's best policies he campaigned on in 2017 was setting up a land register.
Every single property in NZ would be on a database and the beneficial owners recorded on the register no matter the ownership vehicle, be it a company, trust or individual.
Would cost bugger all to set up, all the info is there it is just spread over various databases, and just needs to be collated.
Something as simple as this, which would cost a private enterprise a few million to set up, would tell us exactly who owns what, the % of foreign ownership, capital gains on every transaction, and you could add in a myriad of environmental information and stick it on a GIS platform and make meaningful planning decisions.
Who shot down that idea. It was by far the best idea the old squirt ever had.
https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/00DBHOH_BILL69701_1/land-transfer-foreign-ownership-of-land-register-amendment
Ok I'm probably wrong in some way, but that says 2016 when the Nats were in power.
My point was he campaigned on it again in 2017 and nothing ever happened.
You could well be correct but I don’t have time to do a search; somebody else may know.
If indeed he campaigned on it in 2017, it may not have ‘survived’ the coalition talks with Labour 😀
Yes, that was the point I was trying to make.
Neither National nor Labour want a register of the beneficial owners of land in NZ.
Beneficial is the key word.
The rightful profiteers and naturally born property owners (AKA heirs).
scum that floats in ponds
will fall to the bottom and
subsequently drown.
If we have to do Haiku here.
The IRD list relates to a further information required type scenario. On the list sent to our agency well over 1/3 are not liable due to other factors. Stuff once again wrote an article without all the facts.