Inland Revenue (IR) has ramped up efforts to ensure tax compliance, with a sharp increase in audit activity uncovering more than half a billion dollars in undeclared tax.
Following a $29 million allocation in the most recent Budget to address outstanding tax debts, the department has provided an update on the progress of its enhanced compliance work.
In the first half of the financial year, between July and December 2024, IR opened 3600 audits – 50% more than the same period last year.
IR segment lead for significant enterprises Tony Morris said $600m in additional tax that should have been declared was found in the audits.
“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 IR 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.”
IR had been in touch with 200 business owners that have multiple properties – some in a company name, some in trusts, some personally – and were told they should be able to refinance to pay their tax debts.
Morris said the enforcement approach would have escalated if they had chosen not to.
“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.”
Corporate liquidations surge
From September to December last year, 164 companies were liquidated on application by IR – an increase of 84% over the same period in 2023.
$83.9 million was written off in relation to completed liquidations, Morris said.
Twenty-six people were declared bankrupt and seven prosecutions for tax evasion were completed in the quarter.
Combining IR data with Trust and Companies Office data found that 800 people may have been trying to avoid the top 39% tax rate by incorrectly keeping income in companies and trusts.
“These people and their accountants are being followed up,” Morris said.
Payment service provider data helps to track non-compliant businesses
Data from payment service providers have begun to be used by IR to investigate businesses.
Morris said there were several reasons the data might be a red flag.
“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.”
Furthermore, IR has issued 160 warning letters to customers involved in crypto transactions, urging them to declare an estimated $2.7 million in income.
On the child support front, IR has reported that child support debt has dropped to under $1 billion for the first time in two decades.
Morris said the primary reason was the ability to deduct payments through the PAYE system.
Just over three-quarters of children support assessments were paid on time – up 5% on the same time in 2023.
For student loans, IR is monitoring the border movements of those in the largest debt and contacting them when they arrive in New Zealand.
This focus has netted $111.6m between July and December last year, with December 2024 the month with the highest repayment on record from overseas-based borrowers.
‘Hidden economy’ targeted
IR has an ongoing programme covering a range of undeclared and inaccurately reported transactions, known as the “hidden economy”.
Sectors where cash jobs and under reporting of income are more prevalent are being targeted.
“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,” Morris said.
“We made 320 unannounced visits to independent liquor stores and around 450 vape stores.”
Around 50 investigations into the use of electronic sales suppression tools are ongoing.
These devices and software facilitate tax evasion by manipulating business sales records to under-report income.
IR will continue its extra compliance work to target people who due to challenging circumstances or a deliberate decision have not met 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.”
