Think twice before making an online bright-line disclosure
7 April 2022
For the past few years, the Inland Revenue Department (IRD) has been focused on ensuring taxpayers are complying with their tax obligations under the bright-line test for residential land sales. But recent enhancements to their IT system mean the IRD now has greater capability to collect data and use that data to target certain areas to ensure taxpayers remain compliant in a timely and efficient manner.
While this process has been going on for a few years, previously, the IRD automatically sent letters to taxpayers who had sold residential property within a the specified bright-line period. The letters asked taxpayers if they had complied with their obligations under the rules and provided details on how they could comply.
With the overhaul of their IT system, this process has taken a step forward into the digital age with the IRD now providing taxpayers with the ability to make such a disclosure via their myIR account with the IRD.
Bright-line disclosure – too easy
While this system provides convenience for taxpayers, it could lead to problems with incorrect disclosures.
As we have outlined previously determining the tax position under the bright-line test is not as easy as you would expect and with the recent changes it has become far more complicated and subjective in nature. Further, the consequences are significant and for many taxpayers, will be the biggest tax bill they ever face.
The new process makes it too easy for taxpayers to make a disclosure to the IRD and get themselves into trouble. First, users are provided with an alert which helpfully suggests – Our records show that you recently sold or transferred a residential property. Then, they are given a link to pre-populated information outlining the property in question, the date it was acquired, the date sold and the value on each of those dates. Users are then asked to confirm whether the property is a bright-line sale or not. If not, they are asked to provide a reason. Click next and, one confirmation later, a disclosure has been made to the IRD.
Get advice before making a bright-line disclosure
If you receive a link to make a bright-line disclosure through your myIR account, we strongly encourage you to think twice before clicking on the disclosure.
Before making any disclosures, it’s critical you have received the right advice on your tax position under a potential bright-line sale. With record prices in recent years, the impact of a bright-line sale is significant. Making a disclosure without getting advice on your tax position means you would be filing a tax position with the IRD. This comes with significant consequences if incorrect.