1 Sep 2011

IRD to focus on more serious tax avoidance cases

8:14 pm on 1 September 2011

Inland Revenue says it'll concentrate on more serious cases of firms using their business to avoid tax, following a Supreme Court ruling.

Last month, the country's highest court found two orthopaedic surgeons, Ian Penny and Gary Hooper, had set up companies in the early 2000s and deliberately paid themselves a lower salary to avoid paying the top marginal tax rate.

Tax practitioners complained the ruling created uncertainty for firms, and IRD's tax counsel, Graham Tubb, says it's issued a guide for firms setting out how the tax department will approach this issue.

He says people need to be careful about the degree of risk they want to take when structuring their affairs.

Mr Tubb says the information issued by the department is designed to give people a fair view of the types of criteria that will be considered when the department decides whether to investigate.

He says the issue is about what is generated by the business, and how much of that ends up in the owner's pocket.

Mr Tubb says it's unfair if people are diverting income to entities on a lower tax rate.

He says IRD's unlikely to chase firms where at least 80% of business income is properly returned as individual income by the people who generated it from their own services.

Mr Tubb says the department only has limited resources and investigators will be looking at cases that are more severe.