IRD Audit Activity
After a relatively quiet few years through the Covid pandemic, the Inland Revenue Department’s (IRD) audit activity has slowly started to increase over the past few years.
In 2021, IRD’s campaign had a focus on the real estate sector, where the concern was around real estate agents claiming a disproportionately large amount of expenses relative to their income. As a result, a trend of increasing private expenditure claims, reversed.
In 2023, IRD launched a ‘Tax Toolbox’ campaign aimed at engaging and educating construction (‘Tradie’) taxpayers. The Tax Toolbox resources include a detailed web page with information on items such as claimable expenditure, income tax and GST, access to free online Tradies seminars covering tax tips for Tradies, and the option to request a business advisory visit for one-on-one support.
As part of the 2024 budget announcement, IR has confirmed that they will be increasing their enforcement on this sector this year, with unannounced visits to construction sites starting July 2024.
This year’s Budget allocated $29 million to Inland Revenue for compliance, to target taxpayers who are not meeting their tax obligations. Specifically, areas that are expected to be closely scrutinised include the following: - the hidden economy, - organised crime, - retail sector, - trust compliance, - cryptocurrency, - corporate restructures, and - electronic sales suppression tools.
Overdue student loan debt, for which those in default are mainly based overseas, will be allocated $4 million of the compliance funding. Individuals who own New Zealand property that are based overseas and are not meeting their student loan repayment obligations will likely be contacted by Inland Revenue.
In terms of the hidden economy work, in June 2024, IR released some insights from their investigation on small liquor stores. The investigation involved 220 unannounced visits nationwide, where investigators were looking for signs of income suppression, unreported sales and non-registered staff. It was found that over 100 employees had PAYE deducted from their wages which had not been paid to IR. Nine liquor stores have been escalated to the IR audit phase.
An IR campaign that has spanned across a number of years is the Tax Governance campaign. This campaign is aimed at New Zealand significant enterprises (taxpayers with >$30m annual turnover), and using the results of questionnaires issued to these taxpayers, the areas of improvement include the documentation of tax strategy and tax controls framework, regular reporting to the board on key tax matters, and the independent testing of controls. As IR reviews and investigations increase, there will be the need for both accountants and IR staff to rehone their skills on how to conduct an investigation, given the comparatively lower level of activity that has been seen since the Covid pandemic.