IRD’s New Benchmark is Unrealistic

September 27, 2011 New Zealand Taxation

IRD Tax rulesTax experts in New Zealand are calling out the Inladn Revenue Department for taking unreasonable new stances towards salary payments and tax evasion.

Over the weekend Jo Doolan, a tax partner at Ernst & Young New Zealand, commented on the recent court ruling in the “Penny & Hooper” tax case, saying that the Inland Revenue Department (IRD) is now using the case as justification for further tax measures on business owners.

According to Jo Doolan the Inland revenue Department is proposing that, in the future, at least 80 percent of the profits earned by a company in the service sector should be paid out to shareholder employees. Jo Doolan said that this decision would stir uncertainty with taxpayers, which could be particularly damaging at a time when businesses need to focus on job creation and growth. There was also a concern as to whether the IRD would enforce the new benchmark without first consulting with businesses and taxpayers. She added that the IRD’s approach virtually wipes out all of business’ interests in structuring their affairs.

Jo Doolan claimed that the IRD’s blanket approach to judging tax avoidance was not in line with reality, and 80 percent was a poor judge of whether a salary is in line with market conditions or not.

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