We recently received a letter from the IRD in respect of a non-resident client whom only two days later received the same letter to there NZ address. The letter opened with:
“As part of our Compliance Focus Plan, Inland Revenue completes a range of work to ensure New Zealand tax residents return the correct amount of income, including overseas income.
New Zealand tax residents are required to return their income from world-wide sources even if it is not remitted to New Zealand and, in most instances, even if it is being returned in a foreign jurisdiction and tax paid on it there
Information is received by Inland Revenue from a number of sources and the purpose of this letter is to make initial enquiries regarding information we have received and to verify the overseas income your client has returned. The information received shows that a credit card, issued by a foreign bank, was used by your client in New Zealand”
The letter went on to ask for additional information and request bank statement, in this case covering 6 years, and providing an “Attachment A” (Overseas Income Questionnaire).
The client in question had already started gathering the information, when we called a halt and wrote back to IRD to advise the client in question was non-resident for tax purposes, filed tax returns here only in respect of NZ sourced income, and therefore the letter could not apply to him. We are expecting IRD will respond asking us to justify that he is in fact non-resident, and we will deal with that if/when that arrives.
IRD in NZ has no right to ask a non-resident for such information in respect of overseas earnings.The important learning from this experience is that if you are non-resident, IRD here has limited ability to ask for information, and you should not respond to any correspondence from them without checking with us first.
If you are unsure of your residency status we would advise that you seek professional advice. The online residency test on the link below is also a useful guide:
Any advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.