Cash only and other tax avoidance tricks

 

We have all heard of, and probably been involved in, cash only jobs.

These non-recorded transactions are illegal but often used to avoid the paperwork and hopefully don't involve large
sums of money. 

While cash jobs is part of the kiwi psyche, the UK treasury minister commented that this common practise defrauds the state by reducing revenue towards health, police and public infrastructure projects, so we are not unique, but the outcome is the same.

In fact any cash project of non-declared income is seen as tax evasion and is illegal. Therefore if you have made a mistake or filed an incorrect tax return then tell Inland Revenue before they find out in some other way. For example, you may have left out some income from your return or incorrectly claimed expenses. 

Voluntary disclosure by salary or wage earners, individuals, businesses, trustees and employers of such historical errors will avoid prosecution and the penalties (if any) will be much lighter than if you wait for them to find out.

Also be warned that dissatisfied and disgruntled cash customers have dobbed in their builder to Inland Revenue who have all sorts of powers to investigate any suspicious activity.

Avoidance by other means

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There is increasing anecdotal evidence of a more insidious practise than just paying cash, which includes avoiding the Building Consent Authority, the LBP system and includes illegal employment issues.

In a nutshell, it is claimed that alteration work and houses are being constructed for cash without a building consent, and the work done by unskilled and underpaid [often migrant] workers.
Word is that builders and especially subtrades, are being seriously undercut and is expected to compete with or mirror such actions conducted by some of our more recent immigrants.

Work attitudes, production efficiencies, clever application of technology, longer hours, extra staff and focused outputs by anyone can mean a more productive and therefore competitive quote but paying subtrades cash in order to undercut competitors is illegal and unfair competition and the IRD has announced that it will be targeting the cash economy in coming months.

Bad practices as noted above are obviously not good for the residential construction industry that has some repairs to its reputation to be done, not helped by leaky homes,

But if it is happening what can you do?

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•    talk with your mates, sub-contractors and competitors to share knowledge and identify the extent of possible illegal practices 
•    get articles in your local newspaper identifying the legal construction process
•    promote best practice principles in your own marketing referring to use of qualified and Licensed builders, work council inspected with a Code of Compliance on completion, etc…
•    tell the public of Government’s proposed requirement for a signed building contract        
•    highlight worst possible scenario in articles of houses being totally demolished because of no inspections
•    provide articles to publishers for translation and inclusion in their publications to ethnic groups, both local and national
•    draw your building inspector’s attention to other construction being undertaken in the neighbourhood
•    remember all parties in the residential construction sector have a responsibility to provide the public best and fair trade practices

 

Earlier we notes Inland Revenue’s option for fronting up with non-declared tax. You can also anonymously report details related to tax payments or lack of them by others. The information you provide remains anonymous and is used to coordinate a response, depending on the severity of the allegations. Should they discover the builder is non-compliant, penalties and prosecution may result.

As the IRD website states "Industry groups are playing a part in our targeted approach against those who cheat the system. Our anonymous information service has been refined to make it easier for industry bodies to support us by providing information about people who are not meeting their tax responsibilities and, as a result, undermining other businesses".


Naming and shaming those guilty of tax avoidance make sense. It allows authorities to expose people, be forced to do what is right, return the money they owe and become compliant.

It also contributes to providing a more level playing field for competition and hopefully eliminating the unqualified cowboys from the industry.

If you have any doubts, problems or questions over tax matters go to their comprehensive website herehttp://www.ird.govt.nz/ for explanations and guidance.