Compliance Work Continues At Pace

Increased tax compliance work continues at pace with a noticeable increase in audit activity by Inland Revenue.

In the first half of the financial year, from July to December 2024, Inland Revenue (IR) opened 3,600 audits – 50 per cent more than the same time last year.

Inland Revenue’s Segment Lead for Significant Enterprises, Tony Morris, says “through the audits, IR has found $600m of additional tax that should have been declared.

“We’ve had a strong focus on the largest businesses in New Zealand and it’s worth noting that half of that additional tax came from less than 10 audits.

“The systems Inland Revenue now uses also screened more than three million returns, leading to reviews of 30,000 of those returns. The audits, screening and voluntary disclosures added $859m to tax revenue.

Property data

“We've been in touch with 200 business owners and told them we know they have multiple properties - some in a company name, some in trusts, some personally. We believe they should be able to refinance to pay their debts to us and told them so.

“If they chose not to, we’ve been clear that our approach to their debt will escalate.

“These 200 people had $14 million of debt between them, but within a month more than $10 million had been paid or put under arrangement,” Tony Morris says.

Liquidations and prosecutions

From September to December last year, 164 companies were liquidated by the courts on application by Inland Revenue – an increase of 84% over the same period in 2023. Inland Revenue wrote off $83.9m related to completed liquidations.

During that time, 26 people were declared bankrupt.

There were seven completed prosecutions for tax evasion in the quarter. Increased enforcement activities will lead to a higher number of prosecutions over time.

Trust and compliance data

Inland Revenue has combined its own data, information from Trusts, and Companies Office data and found 800 people who may be trying to avoid the top 39% tax rate by wrongly keeping income in companies or Trusts. These people and their accountants are being followed up.

Payment Service Providers data

Tony Morris says IR has started using data gathered from payment service providers to investigate businesses.

“That might be because the payments data shows they are selling goods or services, but we're not receiving GST returns. Or because the number of sales indicates they should be GST registered, and they are not. Or because we can see big value sales, but they simply aren't on our records at all.

Crypto data

“We have issued 160 warning letters advising customers to declare their income from crypto transactions which we estimate to be $2.7m.

Child Support

“For the first time in 20 years, child support debt dropped to under $1b. The primary reason for that is IR’s ability to deduct payments through the PAYE system.”

76% of child support assessments were paid on time – up by 5% from the same time in 2023 resulting in $182m being passed on to receiving carers.

Student loans

We’re actively monitoring the border movements of our largest debtors and contacting them when they arrive in New Zealand.

Our focus on these borrowers meant we collected $111.6m from July to December last year. December had the highest repayments we’ve seen from overseas based borrowers.

82.7% of student loan customers met their obligations – fractionally lower (.2%) than at the end of December 2023. And that excludes customers who have set up instalment arrangements or have paid their loan off in full during that time.

Hidden economy

The hidden economy covers a range of undeclared and inaccurately reported transactions and IR has an ongoing programme to target sectors where cash jobs and under-reporting of income are more prevalent.

“We have opened audit cases in the construction sector with a current value of $2.3m of discrepancies in tax assessed. A new selection of cases is now focussing on plasterers and painters,” Tony Morris says.

“We made 320 unannounced visits to independent liquor stores and around 450 vape stores.

Electronic Sales Suppression including ESS Tools

Inland Revenue has around 50 investigations ongoing into the use of ESST with some unannounced visits complete and more still to come. Our focus is across several larger cities and centres.

The future

Tony Morris says Inland Revenue (IR) will continue its extra compliance work, made possible by the $29 million allocated for compliance in Budget 2024, to target those people who - due to challenging circumstances or a deliberate decision - have not met their tax obligations.

“I encourage people who have a tax debt to talk to us early to avoid harsher outcomes. We have a range of options to support customers to get back on track and to meet their obligations.”

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