What is voluntary disclosure?
Voluntary disclosure is revealing matters to the IRD (before they find out) regarding aspects of your taxation obligations and liabilities. If something is wrong with your tax returns, the IRD encourages you to tell them about it so that it can be corrected as soon as possible. This is called making a “voluntary disclosure”.
If any taxpayer makes a voluntary disclosure to the IRD of any tax evasion, and this is made before any discovery or commencement of any action by the IRD, then a prosecution under the Act will not usually be taken. The IRD has a policy of exercising leniency with these people, so if you intend to make a “clean breast of it all” do it now before it’s picked up.
Inland Revenue’s role
Inland Revenue’s job is to collect tax for the Government. This is done best when people willingly comply with the tax laws. IRD calls this “voluntary compliance”. Inland Revenue help people to comply by producing information booklets, providing advisory services and a telephone enquiry service.
Another way they encourage people to keep to the tax laws is by carrying out audits. An audit is basically a check of tax records.
Leniency with voluntary disclosure
If any taxpayer makes a voluntary disclosure to the IRD of any tax evasion, and this is made before any discovery or commencement of any action by the IRD, then a prosecution under the Act may not be taken. The IRD has a policy of exercising leniency with these people, so if you intend to make a “clean breast of it all” do it now before it’s picked up.
For example you can reduce the shortfall penalty by making a full voluntary disclosure of all the shortfalls, either:
- Before you receive the first notice from the IRD indicating an audit investigation is to be conducted (in which case the penalty will be reduced by 75%).
- After the first notification, but before the audit or investigation has begun (for which the penalty will be reduced by 40%).
- In certain situations a 100% penalty reduction is possible – see below
For registration checks and other unannounced visits by Inland Revenue, the date of first contact will be the date of notification. So, if you make a voluntary disclosure during the visit, any resulting penalty will be reduced by 40%.
If, during an Inland Revenue audit of one tax type, you disclose a discrepancy in another tax type, any penalty for the second tax will be reduced by 75% or 100% if you weren’t notified that it would also be audited.
Voluntary disclosures eligible for the 100% reduction are those:
- made by customers before they are advised of a pending tax audit or investigation
- with a tax shortfall due to the customers “not taking reasonable care”, “making an unacceptable interpretation” or “taking an unacceptable tax position”
- made from 17 May 2007 onwards
If you want to make a voluntary disclosure at any time, simply contact the IRD in writing or by telephone. You can make a disclosure in writing by completing a Voluntary Disclosure form (IR281) or a Notice of Proposed Adjustment (IR770).
You can also make a disclosure relating to an unacceptable or abusive tax position when filing your tax return. This can be made in the form Statement and Support of a Tax Interpretation (IR282).
Disclose fully before IRD finds out
If Inland Revenue finds errors in your tax returns, you could face significant penalties. It is best to tell IRD what is wrong with your tax returns before they find out in some other way. The benefits of making a voluntary disclosure are greater if you make a full and complete disclosure before being notified of a pending tax audit or enquiry.
Some benefits are still available to you if you wait until you’re notified of an audit, but only if you make a full and complete disclosure before the audit actually commences.
The case for full voluntary disclosure
The New Zealand tax system is based on voluntary compliance. It relies on taxpayers meeting their obligations under the tax laws. E.g. filing tax returns and returning all income. The voluntary disclosure system provides an incentive to taxpayers to determine their correct tax liability. It also reflects the savings to the IRD from voluntary admissions of irregularities and other benefits of co-operation by taxpayers.
By making a full and complete voluntary disclosure, a taxpayer will get the advantage of reduced levels in any shortfall penalties imposed. If a taxpayer makes a pre-notification disclosure, the level of any shortfall penalty will be reduced by 75%. If a post-notification disclosure is made, the reduction in shortfall penalty will be 40%.
How to make a voluntary disclosure
Taxpayers can make a voluntary disclosure in any one of the following 4 ways:
- by completing a “voluntary disclosure” form (IR282A)
- by contacting IRD by phone, letter, fax or email
- by visiting an Inland Revenue office
- during an interview
If a taxpayer makes a voluntary disclosure by visiting or telephoning Inland Revenue, as much information as possible will need to be provided by the taxpayer. Any Inland Revenue officer is able to record a voluntary disclosure when a taxpayer comes into or contacts Inland Revenue. Inland Revenue will request that taxpayers making a voluntary disclosure sign a form reflecting their disclosure.
If a voluntary disclosure is received in writing between the time of first notification of an audit and the first interview it will be referred to the Tax Officer conducting the audit or investigation. The person (known as the “auditor”) will incorporate this as correspondence relating to the audit or investigation.
For disclosures made during the first interview, the Inland Revenue auditor will consider whether the disclosure is complete and reveals all the relevant information necessary to ascertain the correct tax position.
What is required for full disclosure
A taxpayer may make a voluntary disclosure either before being notified of a pending tax audit or investigation (“pre-notification disclosure”) or after the first notification but before the audit or investigation starts (“post-notification disclosure”). The disclosure must be full and complete.
It is not up to the Commissioner to try and obtain the required information from the taxpayer. This does not necessarily mean disclosing the discrepancies to the last dollar but does require providing enough information to enable the auditor, investigator or officer to make an assessment.
Each case may have to be considered on its own merits.
If a taxpayer is not able to provide full details at the first point of contact with Inland Revenue, the Commissioner will allow the taxpayer reasonable time to obtain more information. The time period for obtaining this information will be negotiated between the taxpayer and the Inland Revenue officer.
Once this information is provided and the disclosure is considered full and complete, the date of the voluntary disclosure will be the date of the first point of contact.
Where this information is not provided, the IRD may consider on a case by case basis whether the information provided is sufficient to satisfy the full and complete disclosure requirements. In doing so, the Commissioner of Inland Revenue will have regard to the taxpayer’s reasons for not making the specified information available.
Minimum details required in a disclosure
To satisfy full and complete disclosure, the following minimum details must be provided:
- taxpayer’s details – name, trade name, IRD number, address, date of birth or incorporation (if a company), contact telephone number and contact times
- the nature of the errors or omissions
- an explanation as to why the errors or omissions occurred
- adequate information to enable an assessment of the error or tax shortfall to be made
- a declaration signed by the taxpayer, if possible
- further information necessary to make a full assessment
Voluntary disclosure forms
Where possible it is desirable for the protection of both the taxpayer and Inland Revenue that disclosures are in writing and signed by the taxpayer. Voluntary disclosure form IR282A, which covers both pre-notification and post-notification disclosures, has been prepared for this purpose.
However, Inland Revenue will also accept other written disclosures and verbal disclosures without the need for the taxpayer to complete the standard form.
Prosecution and publication of name
If a voluntary disclosure is full and complete:
- Inland Revenue will not consider prosecution action for pre-notification disclosures.
- In post-notification cases, prosecution may be considered in cases of evasion or similar offending (i.e. those offences listed in the Tax Administration Act 1994).
- There will be no publication of the taxpayer’s name in the Gazette.