Whether it is an official audit or just reviewing a specific transaction, Inland Revenue is always undertaking checks on taxpayers returns to ensure the tax rules are being complied with. Over the last few months we have identified the following areas where Inland Revenue is taking a closer look:
- GST zero-rating of land transactions. Care needs to be taken when buying and selling land. Generally, when land is sold between two GST registered persons the transaction is zero-rated and has GST charged at 0%. The seller is required to put the sale in the zero-rated goods box of the GST return.
- Residential properties sold within the five-year bright-line test. As discussed in previous editions of Topical Taxes, if you sell a residential property within five years of acquisition, which is not your main home, any profit may be subject to income tax.
- Deductible maintenance versus capital improvements. Expenditure which is reoccurring, repairs an asset and doesn’t significantly improve an asset’s value can, generally, be claimed immediately as a tax deduction. Expenditure which increases the value of an asset, replaces fundamentally all of the asset or changes the character of an asset is, generally, capital and cannot be claimed as a tax deduction.
- Vehicle logbooks. Inland Revenue is checking taxpayers have valid logbooks in place to justify how much they are claiming for vehicle expenses. Generally, all taxpayers, except companies, who use a vehicle for business and private purposes need to keep a logbook for a 90 day period. This logbook is valid for 3 years at which time a new logbook is required to be kept. In the absence of having a logbook a tax deduction for motor vehicle expenditure could be denied.
If you have any concerns regarding the above areas please give us a call before it becomes a bigger issue.
Here at McIntyre Dick, we offer clients Audit Shield. It is an insurance cover which will pay for any of our costs incurred as a result of any Inland Revenue review or audit of their tax returns.
You can view the brochure here