Inland Revenue’s Compliance Crackdown: What You Need to Know

Inland Revenue (IR) has significantly ramped up its compliance activity – and the message is loud and clear: they’re watching, and they’re acting. 

This increase in activity has been backed by dedicated government funding, allowing IR to expand audits, improve data analytics, and intensify enforcement efforts.

In the last six months of 2024 alone, IR initiated 3,600 audits – a 50% increase compared to the same period the previous year – uncovering $600 million in undeclared taxes. From student loan borrowers to crypto investors, no stone is being left unturned.

Here’s where IR is focusing its firepower:

• Property Owners: IR contacted 200 business owners with multiple properties, calling on them to refinance their loans using property assets to pay off outstanding tax debts – indicating that a “we can’t pay” approach would not be accepted. This approach led to over $10 million being settled or arranged within a month.
• Liquidations and Prosecutions: Between September and December 2024, 164 companies were liquidated on IR's application – an 84% increase year-on-year. There were also seven prosecutions completed for tax evasion in the same quarter. 
• Trusts and Compliance: By analysing Trusts and Companies Office data, IR identified 800 individuals potentially avoiding the top 39% tax rate by improperly retaining income in companies or trusts. These cases are now under investigation. 
• Payment Service Provider Data: Leveraging data analytics, IR is working closely with payment service providers to track business revenue – a key strategy in detecting underreported income. 
• Cryptocurrency Transactions: IR issued 160 warning letters to customers, prompting them to declare income from crypto transactions, estimated at $2.7 million.
• Child Support and Student Loans: Enforcement extends beyond income tax. Child support debt has fallen below $1 billion, largely due to IR’s ability to deduct payments through the PAYE system. Border movements of the largest student loan debtors are also monitored, with follow-ups when they re-enter New Zealand.
• Hidden Economy & Electronic Sales Suppression (ESS): IR is cracking down on the cash economy and the use of ESS tools – devices that allows businesses to manipulate sales data – through audits and unannounced site visits.

These developments highlight IR's robust approach to enforcing tax compliance, with substantial resources dedicated to identifying and addressing non-compliance.

What this means for you

While the enforcement efforts are serious, it’s not all daunting news. IR has made it clear: they prefer cooperation over confrontation. Engaging early, making voluntary disclosures, and correcting errors before they’re discovered can significantly reduce penalties – or avoid them entirely.

As your trusted tax advisors, we are here to assist you in navigating these complexities, ensuring your affairs are in order and mitigating potential risks. Don't wait for IR to reach out – let's work together to maintain your compliance and peace of mind.

Author - Serjit Singh