Property tax cheats in IRD sights

The tax office is stepping up a campaign against property speculators who are not paying tax in the booming Auckland real estate market.

An initial crackdown on people making money out of property transactions in the city has been so successful that Inland Revenue is pouring more money and staff into uncovering what it says is an escalating problem.

Targeting property tax cheats resulted in the department getting an extra $106.6 million nationally, including an extra $52.9 million from Auckland.

One senior Auckland official says he is "stunned" at the level of tax evasion on Auckland property deals, and the IRD plans to step up its resources in the area by 30 per cent.

The high volume of Auckland residential property sales and building consents issued in the past two years alerted the department to investigate, after a crackdown in Queenstown, Wanaka and Te Anau.

The department is pleading for people to declare profits on property transactions and has stiff penalties and court prosecutions for those who deliberately cover up their deals.

In the past 18 months, the department actively looked for those not paying tax, a practice that in the year to June pulled in an extra $29.9 million from the city.

But staff were surprised when further Auckland investigations resulted in the department getting an extra $23 million from GST and income tax not paid in the six months from July to December.

Richard Philp, a senior Auckland Inland Revenue official, said he was stunned by the scale of the problem. More staff had been engaged at the Takapuna and Manukau offices to investigate cases.

"We devoted 10 per cent of our audit resources nationally to property cases last year, but 14 per cent of those resources to Auckland cases," Mr Philp said.

The department investigated 5692 property tax cases nationally and 3377 cases in Auckland.

This year it would step up Auckland investigative resources by 30 per cent, he said.

Of the extra $106.6 million gathered in tax on property deals nationally, $62.4 million was gathered in the year to June and a further $44.2 million came in the last six months.

"That is the amount of money involved in the cases where we have made adjustments to the tax position of people," Mr Philp said.

"Some of the cases will result in court prosecutions."

He encouraged people who were concerned or unaware of the rules to contact the department, saying people who made a voluntary disclosure of non-payment were entitled to a 75 per cent reduction in penalties on any tax shortfall they owed.

Economist Dr Gareth Morgan said that last year the department was making people in Central Otago and Nelson nervous after four teams of investigators were sent in.

Calling the units "death squads", he said they were giving people the jitters, and predicted the four squads were just warming up before hitting Auckland.

Auckland Property Investors Association president Andrew King defended residential investors, saying most were honest, keenly aware of the rules and only a few evaded tax.

They paid tax because they knew of the consequences of not following the rules, he said.

The association, which has about 1000 landlord members who own thousands of Auckland residential rental properties, went to some lengths to impart more tax knowledge, he said.

"We have magazine articles, courses and seminars on tax and once a year we invite a tax accountant to talk to the members and present on changes to the tax regime," Mr King said.

"Most landlords would pay tax on the sale of their properties because they use accountants and they are aware that the penalties of not paying are huge."

Mr King warned of the penalties, citing a 150 per cent increase in a tax bill if a property investor was caught deliberately evading tax, a 100 per cent fee for an abusive tax position, 40 per cent for gross carelessness, 20 per cent for unacceptable interpretation of tax rules and 20 per cent if a landlord did not take reasonable care with tax.

* People with queries about tax should consult a tax adviser or phone Inland Revenue on 0800-227774

Tax rules

New Zealanders pay no tax on the sale of their private homes, but they are liable to pay tax in some cases on investment properties.

If you invest in property for the long term and your principal income is rental money, there is no tax on the amount you get when you sell your rental property.

But if you invest in property with the main aim of selling that place for a profit, any money you make is taxable.