For many years, there has been very little audit/investigations and audit activity from the New Zealand Inland Revenue Department because the IRD was focussing on its internal “Transformation” project. Then COVID came along just as the Transformation project finished. In recent years, IRD audit activity has basically been limited to large multinational corporates, GST refunds, and bright-line property sales.
Since mid-to-late 2024, the IRD has been far more active in investigations and this is a direct result of additional investigations and enforcement funding announced in Budget 2024. IRD has begun to receive that increased funding and is on a mission to recover as much outstanding debt as possible. In fact, in their own words, IRD is “going full throttle on compliance work” and has already collected more than $1 billion overdue debt since the middle of July last year.
The Transformation project has given the IRD far more powerful tools to access and analyse data. As data collection and data integration continue to become more evolved, we expect to see IRD continue to target specific risk areas. It has already been signalled that IRD is using Payment Service Provider data, and that this data will start to be used to direct enforcement activity, particularly in the GST space.
Property
We have certainly seen a pickup in IRD activity over the past few months, most recently in relation to property sales. IRD’s property data is becoming more and more comprehensive and with data sharing from Land Information New Zealand, IRD can see the ownership of all New Zealand property.
The first example we saw of a more proactive IRD was multiple examples of IRD contacting a number of our clients that were GST registered trusts that recently sold properties but didn’t include the property sale in their GST returns. In each of these cases, the properties were the sale of private homes or rental properties that were not subject to GST on sale, so there was no error, but it did demonstrate IRD’s increased use of data matching.
Cryptocurrency
IRD claims to have obtained data for 227,000 crypto users in New Zealand. In the past, the tax treatment for Crypto was an area of confusion for many, including the IRD. However, a few years ago, the IRD clarified its position that its starting point is that all crypto trades are taxable and should be included in your income tax return. IRD is approaching large crypto traders individually, with a wider campaign being planned for smaller traders.
At this stage, IRD does not have foreign cryptocurrency data, but we understand that they are trying their best to obtain it.
Industry monitoring
Very recently, IRD sent letters to many businesses and sole traders in the beauty industry and the gym/personal training industry. These industries have been targeted before (approx. 10-15 years ago) and it was signalled a couple of months ago that the beauty industry was on IRD’s radar.
IRD has been sending out letters to businesses in these industries that have been selected as part of an “industry monitoring” exercise. This is a new process, and it is not specifically an investigation, and claims to be more of an intelligence gathering exercise. The letters even state that no action is required if the taxpayer is up to date with their obligations. Of course, for those not complying with their tax obligations, this is IRD’s not so subtle hint (or threat?) to get things right, and to do it now!
39% tax rate avoidance
The IRD have also signalled investigations into arrangements to avoid the 39% top tax rate for individuals and trusts. The types of arrangements they are looking for are arrangements to divert personal services income and arrangements to restructure affairs into companies (with certain additional features).
We have heard of audit activity in this space, but we have not seen any first-hand.