People who avoid income tax by paying themselves artificially low salaries through a company or trust have until 31 March 2013 to take advantage of an IRD amnesty. The amnesty was granted in the wake of the Supreme Court case of Penny and Hooper. In that case, two orthopedic surgeons paid themselves salaries that were a fraction of the actual earnings from their personal work. It amounted to tax avoidance.

If you are in a similar situation, making a voluntary disclosure to the IRD prior to 31 March 2013 means that you will avoid penalties and the IRD will only reassess two years. If you don’t make a voluntary disclosure you will face penalties (and these are likely to be at the higher end of the scale given the publicity about the case) and reassessment for four years (in some cases the IRD can reassess for an indefinite period of time).

If you’re not sure about your personal situation please make contact.

The Sunday Star Times reported today that in the year to June 2012, $74.8 million in penalty tax was saved by around 5,000 taxpayers because they provided the IRD with a voluntary disclosure.

If you underpay tax, the Inland Revenue Department can impose a shortfall penalty of between 20% and 150%. Circumstances that can lead to this situation range from inadvertently not recording a sale in your cashbook, claiming a GST refund for a purchase that did not include GST, failing to declare and repay depreciation when you sell an asset, estimating items for your tax return because your records are so poor you don’t have the actual figures, including personal items in your business tax deductions, and failing to pay money due to the IRD.

Penalty tax can be reduced or eliminated by making a voluntary disclosure to the IRD. This should be done carefully by a tax professional so your case, and the relevant legal and accounting position, is presented in the most helpful light. Anytime is a good time to consider making a voluntary disclosure. Doing so will eliminate the risk of a disgruntled employee or spouse reporting you to the IRD, and will give you peace of mind. Even if you have been advised that you are about to be investigated by the IRD, it is not too late; however, if you are in this position we recommend that you seek very urgent advice.