IRD likely to catch up with those not declaring FIF income
A tax consultant is warning those who aren't declaring their foreign investment fund (FIF) income that Inland Revenue may soon catch up with them.
Friday, October 25th 2024, 12:55PM
by Jenny Ruth
New Zealand adopted the Common Reporting Standard (CRS) in 2018 and now receives huge amount of data from other jurisdictions globally, says Terry Baucher of Baucher Consulting.
“There's an enormous amount of information being shared around the globe. The likelihood is there's going to be significant numbers of disclosures happening,” Baucher says.
Information the IRD released under an Official Information Act request showed there were only 18,140 people who declared FIF income in the year ended March 2023 and a provisional estimate of 10,200 in the year ended March 2024.
“I was really quite astonished” at how low the numbers were, Baucher told GoodReturns, and it appears compliance with the FIF regime is very low.
“At any one time I'm dealing with a disclosure related to undeclared FIF and regularly filing voluntary disclosures” on behalf of clients.
It's obviously far better to make such a voluntary disclosure than to wait for IRD to catch up with you if you have FIF income.
Baucher said covid had interrupted IRD's data matching process but now it's cross-checking income tax returns with CRS data in earnest.
“IRD is actively checking and contacting people it believes have not been complying.”
Baucher posted the OIA information on LinkedIn and Multiply managing director Thomas Salmen agreed that 18,000 was far too low.
“No doubt a lot of FIF income will be via entities but still there must be a lot of non-compliance out there. Shame the FIF regime is so painful.”
The FIF regime is indeed painful, although IRD has recently published an interpretation statement on how to comply using the cost method, which is generally applied to unlisted investments.
Baucher jokes that those saying a capital gains tax would be too complicated: “I think to myself, you don't deal with FIF,” he says.
The IRD interpretation statement notes there are five different methods of calculating FIF income, depending on the type of investment, such as whether it's listed on a public exchange, and whether it is a fund or an individual receiving the income but the basic assumption is that the income will be 5%.
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