Powers of the Commissioner of Inland Revenue
The powers of the Commissioner of Inland Revenue are extensive. The Inland Revenue Department Act gives the Commissioner and officers of the department very wide powers, enabling them to obtain all the necessary information for the administration of the Tax Act, concerned principally with the collection of income tax and duties, etc.
The Act gives the Commissioner, on behalf of the IRD, powers perhaps unprecedented in any other public office.
The main powers conferred are briefly summarised as follows:
- Inspection of books and documents.
The Commissioner or his officers have powers of free access to all land, buildings and places, and all books and documents for the purpose of inspecting where they consider it necessary or relevant in the collection of tax. - Power to remove and copy documents.
The Commissioner of Inland Revenue or any officer of the IRD is authorised to remove any book or document inspected for the purpose of making copies. This power is intended to prevent taxpayers from destroying records that the IRD considers necessary to an investigation. - Power to carry out tax audits and investigations.
The Commissioner has the power to call for the examination of the returns of all taxpayers in depth within a 5 year cycle in addition conducting annual checking of returns (even if on a less detailed manner). The checking of returns are made on a more limited basis so routine enquiries are substantially reduced. - Owner or manager to provide assistance.
For the purpose of any investigation, the tax office may require the owner or manager of any property or business being investigated to give all reasonable assistance and answer all questions relating to an investigation. - Information must be given on request.
Any person, whether a taxpayer or not, shall if required by the Commissioner furnish in writing all information or produce any books or documents considered necessary. They may require information in writing or books and documents to be produced at any IRD office. - Enquiries before a district court judge.
The Commissioner is given power to hold any enquiry before a judge and for this purpose all persons called can be examined under oath. The enquiry is usually held in chambers. - Power to request attendance.
The Commissioner has the power to require any person to attend and give evidence and to produce all documents and information necessary to an investigation. It is an offence to refuse to attend or give evidence or to neglect to appear or take an oath. - Recovery of tax.
The Act empowers the Commissioner with special powers to enforce the recovery of tax not paid. He has the power to impose additional tax by penalty or sue for overdue tax in court, or require deductions from an employer’s income and debtors. - Power to deduct from wages.
The Commissioner has the power to deduct any overdue tax from wages or salaries. This power is also increased so the Commissioner can order any bank to deduct money from a bank account to clear any unpaid tax. - Determine loss and tax credit.
The Commissioner has the power to fix the current loss of a business, as well as determining any credits to be allowed to that business. - Determining loss carried forward.
The Commissioner can fix the loss the business can carry forward. A notice has to be issued showing the amount determined by the Commissioner. - Extending time to file.
The Commissioner has the power to extend time for furnishing tax returns. - Rule on residency status.
The Commissioner has the power to make a ruling on the residency status of any taxpayer.
Sworn to secrecy
All employees of the IRD are statutorily bound to secrecy over tax matters and the Commissioner enjoys express privilege against court disclosures of any tax information or for the production of confidential documents, except where necessary to enforce taxes or to collect ACC levies.
This secrecy has been eroded somewhat as disclosure is now permissible for prosecutions and also for statistical and data processing and double tax agreements. There is also now an exchange of information process enabling the Inland Revenue Department to match their records with those of the following departments:
- Work and Income NZ.
- The Department for Courts.
- The Ministry of Education.
- The Accident Compensation Corporation or their agencies.
The reason behind this exchange of information is so that people don’t receive what they are not entitled to and to help Work and Income clear any outstanding parent debts that are in place, as well as allow the IRD family support customers to get a community services card.
The Privacy Commissioner monitors all the information exchanged between the parties, so hopefully this ensures some form of privacy.
Privilege from disclosure
The powers of the Commissioners are sometimes hindered by the privilege of disclosure that the taxpayer enjoys. The taxpayer has privilege where information and documents have been passed or communicated to their legal representatives, or between their solicitor and another solicitor. This applies, whether made directly or indirectly through an agent such as an accountant.
This privilege, however, does not apply to a trust account records or to investments on behalf of clients.
It is important to realise that there exists no privilege in the relationship of a client and his accountant. It is best therefore that an accountant works together with a lawyer, if this right is to be preserved.
Tax Department rulings
The IRD is frequently asked for a ruling on a particular point, so that often a taxpayer will want to know the tax implication of a transaction before entering into it.
The IRD has stated that while every endeavour is made to give a ruling or interpretations that will stand, this advance advice is only an expression of an opinion and is not binding on the department.
If it is later to be found to be incorrect for any reason whatsoever, the IRD is bound to correct the position and apply the law. Always give full details correctly and in writing, and request a written reply.