Full Throttle On Compliance Work

Inland Revenue (IR) has updated the tax community with an overview of the first three months of its increased compliance work.

Inland Revenue’s Segment Lead for Significant Enterprises, Tony Morris, spoke at a recent conference in Wellington about the work done between July to September using increased funding from this year’s budget.

Tony Morris says IR makes it easy for people to get things right; hard for people to get it wrong; and costly for the few who deliberately try to avoid their tax obligations.

“Most people do get things right without IR chasing them. Between July and September 97% of returns filed were on time, and 96% of the tax collected was paid on time,” Tony Morris says.

“But we also opened almost 2,000 audit cases in the first quarter, 55% more than the July to September quarter last year. IR has collected more than $1 billion of overdue debt in the three months.

“Between our audits, and our automated systems, we amended returns to the tune of almost $400 million.”

Property data

“We’ve received data for nearly a decade from Land Information New Zealand. The requirement for people to provide IRD numbers on the LINZ Tax Statement has given us an improved view of all New Zealand property and how it is held, including properties held by Individuals, Trusts, Companies and Partnerships.

“We use that data in various ways including reminding people about their bright-line obligations or identifying people who are trading in property or potentially getting rental income.

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“We’ve started audits on people we know previously filed income tax returns which included rental income. We’re interested in why they’ve stopped including rental income in their returns when they still own multiple properties.

“Using property data is also proving very useful in debt collection. We’re finding that letting people know we’re aware of their property holdings gets debts paid faster.

Trust and companies data

“Property ownership isn’t the only way we use data from the Trust Disclosures, the Companies Office, and other sources. We also look at revenue flows between entities with the same or related ownership.

“We saw a definite shift to retaining more earnings in a company or trust as the 39% top personal tax rate came into force.

“IR is using the data from trusts’ disclosures to look for people receiving large distributions from while continuing to receive Working for Families payments.

“We’ve found 3,500 people with very large distributions who haven’t made any income adjustment to their Working for Families calculations. We believe that’s mostly unintentional, but we also consider it fairly obvious that if someone receives $100k from a trust on top of other income they probably shouldn’t be receiving Working for Families”, Tony Morris says.

Payment Service Providers – GST

“Inland Revenue receives data from payment service providers like EFTPOS. We’ve received it for some time but we’re now using it to target enforcement activity.

“We’re not collecting information on every transaction – we don’t know where someone buys their coffee or whether it was oat or regular milk. We collect the data in a monthly summarised form, and use it in small and manageable ways.

“We’re targeting audits at businesses that show a lot more sales in their payment service provider data than in their GST returns. We also find people that seem to be conducting a business who aren’t showing on our books at all.”

Crypto data

Tony Morris says IR has found 227,000 crypto users in New Zealand, making around 7 million transactions with a value of $7.8 billion.

“We're approaching the largest traders individually. But because there is still confusion about what the obligations are, we’re planning a wider campaign for smaller traders.

“And like property, we’re starting to target our debt collection at people who we know own enough crypto assets to pay their debts.

Cash

“With all this data collection, people may think businesses are running back to cash to avoid our scrutiny.

“But cash still leaves a trail, and we’ve got various ways to find businesses doing that. Cash needs to be spent or banked somewhere, and when it is it shows along the chain.

“If it’s spent to buy trade materials using a trade account for example, we can see that. If it’s banked, we have arrangements in place with banks to report anything suspicious.

Anonymous information

“Another way the use of cash comes to light is through anonymous tip-offs. We receive around 7,000 reports a year from people passing on information, usually about the use of cash to pay staff or suppliers.

“It can be diligent citizens doing the reporting, but often it’s disgruntled staff, customers, competitors, or even Ex’s. And the number of these tip-offs is growing.

“We use that information to identify areas that need attention and to initiate investigations wherever necessary" Tony Morris says.

“It’s always better though, for people to reach out to us to set things right first. A voluntary disclosure is a lot less costly for taxpayers than if they wait for us to come to them.

Debt and liquidations

Tony Morris says collecting overdue debt is still a focus for IR.

“In the first quarter we collected more than $1.2 billion dollars in overdue debt, 33% up on last year. And we started the liquidation process against around 500 customers this quarter, more than four times the same quarter last year.

“While we will do what we can to help solvent companies keep trading, it’s important for the economy that companies which simply aren’t viable are wound up.”

Future work

“Clearly the ongoing collection and use of data, from both public and private sector organisations, is not going away. In the short-term, we’ll continue to bring in new datasets that help us target specific risks we’re concerned about.

“We’ll continue to use data to get a complete picture of each customers’ ownership of entities and financial interests.

“And we’ll continue to extend the use of the data we’re already gathering. Payment Service Provider data being an obvious example,” Tony Morris says.

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