700 confess low pay to IRD

IRD said it received a total of 429 confessions in the final month. Photo / Getty Images

The Inland Revenue Department has been flooded by a last-minute rush of confessions from people who paid themselves artificially low salaries to avoid the top personal tax rate.

Taxpayers were offered a chance to make a voluntary disclosure - granted after the outcome of the Penny and Hooper case in 2011 - which finished at the end of March.

IRD said it received a total of 429 confessions in the final month leading up to the deadline, taking the final count to 700.

"It was a really good turnout in the end - we're pretty pleased with that," said group tax counsel Graham Tubb.

The confessions would result in about $20 million being collected, Tubb said.

Ian Penny and Gary Hooper were two Christchurch surgeons who used company structures and family trusts to artificially lower their salaries to avoid a higher personal income tax rate introduced in 2001.

The Supreme Court sided with the IRD when it ruled that "income derived from personal exertion should belong in its appropriate taxation band and should not be inappropriately diverted away".

IRD offered the concession in November 2011, calling on people "in a similar situation to Penny and Hooper" to come forward and discuss their arrangements.

By October last year, about 170 taxpayers had made voluntary disclosures and that figure had risen to 271 by February 28.

Tubb said the final-month rush was likely a case of people leaving it until the last minute, while others probably just wanted to get through the busy Christmas season before dealing with the issue.

The deal means those who made a voluntary disclosure before March 31 will only have to open up their books on the last two years filed before November 24, 2011, which was when the concession was made.

People who have not come forward may not only face penalties but Inland Revenue may also reassess their tax position over four years.

The IRD's first priority was to deal with those that had made disclosures, going through them case-by-case and finalising the exact amounts owed, Tubb said.

"We have obviously got a lot of work to do."

It would probably take "a couple of months" to get through them all and additional investigators were being hired to help out.

But the department would soon start investigating those who had not come forward, Tubb said.

"It's always hard to know the overall size of the issue, we don't know what we don't know. Clearly we will be taking action."

Although the official concession period has finished, the IRD still wants to hear from people who think they may be liable.

"They're best off making a voluntary disclosure and we will still be very happy to hear from them," Tubb said.

Tax lawyers and accountants have watched the Penny and Hooper case and subsequent action closely because of fears it strikes at the commonplace use of companies and trusts to organise individuals' commercial affairs.