Using company and trust ownership structures for business. Though the trust and top personal tax rates are now aligned at 33 per cent, this continues to be an area of interest for Inland Revenue. The arbitrage opportunity of using the 28 per cent corporate tax rate (resulting in a 5 per cent tax savings) may be tempting but be cautious.
If you're drawing a professional salary, it should reflect market salaries for your industry or profession. Inland Revenue generally requires your salary to be 80 per cent of your business' total profits but calculating that salary, particularly at the beginning of the year, is surprisingly difficult. So any estimation of salary should be reviewed regularly to ensure it continues to be commercially justifiable.
If you own "mixed-use" assets that are available for rental or charter - particularly holiday homes and yachts - be aware they're now caught by new rules limiting the tax breaks available from private use of these assets. Previously, the cost of these assets could be deducted and offset against other income; now taxpayers must treat most of these costs as private expenditure.
Property development is still firmly in the IRD's sights. Despite Labour's election loss and the shelving of a comprehensive capital gains tax, some gains related to profits from developing and selling property will be taxable under rules that have been in place for some years. If you are unsure, get expert advice. It is easier than you think to get this wrong.
For large or multinational taxpayers the risk areas are
Multi-jurisdictional audits, where IRD may audit taxpayers simultaneously with other overseas tax authorities. Tax authorities can now share information via several legal channels and are increasingly obliged to do so where they discover aggressive tax behaviour in another country by a taxpayer they are auditing. Multinational taxpayers are already in the spotlight because of the OECD Base Erosion and Profit Shifting (BEPS) project.
Transfer pricing remains a huge focus as it can represent big-ticket revenue takes for Governments where pricing is successfully challenged. The cost of goods or services sold or bought for related parties overseas must be at market value to prevent profits being shifted to obtain abnormal tax outcomes. The IRD is increasingly requiring taxpayers to justify fees or charges paid to overseas groups to ensure NZ gets its fair share of tax on profits.
Using tax havens, or exploiting any mismatch in the treatment of income between countries (so-called "hybrid instruments" or "hybrid entities") to reduce tax bills is another big-ticket item for Inland Revenue. Scrutiny can be expected even though the outcome may ultimately be accepted. This is a good time to revisit and update your advice to ensure you are on the right side of the line. Things are changing fast and you must keep abreast of these changes to avoid tax risk, and potentially huge tax and penalty costs.
If there is one overriding message for taxpayers - corporates of all sizes and individuals - for the coming year, it is to ensure the tax structure you choose matches the underlying reality of your business. Clever tax plans can come unstuck if they lack commercial reality or are unrelated to your actual business. Think of it this way: tax avoidance is often described as very clever people doing things that would otherwise be extremely stupid if it were not for the tax benefits.
So ask yourself "why am I doing this?" Or "why am I doing it this way?" If the answer is "because of the tax savings", you should consider revisiting your plans. But if you are cautious and get good advice to keep up with changes, you may go forth and have a happy and prosperous 2015.
Kirsty Keating is a partner at EY Law.
