Tue, 08 Dec 2009 1:47p.m.
Inland Revenue (IRD) has put out a warning to taxpayers who have joined network marketing businesses in order to pay less tax, write off personal expenses and get Working for Families benefits.
The department issued an alert on its website warning those involved in tax minimisation through the schemes they are engaging in tax avoidance.
The organisations often recruited people by telling them they could claim their personal expenses for GST and income tax reductions, the IRD said.
The promoters of the schemes often took control of participants' tax matters, often overstating how much they spent, with members of the scheme not making much money.
"Little or no subsequent sales action takes place, except for what are essentially personal purchases of the participant or relatives," the IRD said.
However, some of those in the schemes were using their tax position to write off or claim back personal expenses like telephone bills, motor vehicle expenses, power, rates and insurance.
Some participants were also gaming other non-income tax benefits which relied on income calculations, like the Working for Families system, or paying less in child support or on student loans.
People joining the schemes to avoid tax, rather than start legitimate businesses for themselves could face penalties and interest, or be prosecuted for filing false returns, IRD group tax counsel Graham Tubb said
"We're concerned people aren't actually carrying on a business and so shouldn't be claiming what are personal expenses. Likewise, if they only occasionally sell something at a fairly low value they probably shouldn't register for GST," he said.
Mr Tubb advised people who had unwittingly become involved in claiming tax benefits they weren't entitled to should talk to Inland Revenue as soon as possible.
"If something is wrong with your tax returns, it's best to tell us before we find out in some other way."
Though a tax department spokeswoman could not estimate the amount the IRD was missing out on, she said it was "substantial".
"We know there are 14,000 people who have put down network marketing as their profession on their tax returns," spokeswoman Saskia van Rijn said.
She declined to say what companies were involved, or what they specifically did, other than to call them "network or direct marketing".
NZPA