For many years now, the New Zealand Inland Revenue has not been overly active, or at least not visible, in investigations or enforcement. There have been various reasons for this. The main reason was that the IRD was undergoing a massive digital transformation and that took up a lot of the organisation’s resources. Additionally, the IRD deliberately took a soft approach to tax debt during, and in the immediate aftermath of, the Covid pandemic.
In the past decade or so, what limited enforcement resources the Inland Revenue had were generally allocated to the lowest hanging fruit – large multinationals, bright line property sales, GST refund reviews, and industry targeted reviews (often more of an educational nature). Investigations outside of these areas have been few and far between.
In this year’s budget, the Inland Revenue, IRD was allocated $29m to improve taxpayer compliance. This funding is going to be used for a mix of debt recovery and investigations. Last week, the IRD released a press statement giving a flavour for how that $29m will be used.
It is fair to say that there is already a noticeable increase in IRD investigation activity.
Areas of focus
The press release is not overly detailed, but the IRD does discuss the following areas of focus:
Student loan and SBCS loan debt
Specifically, $4m of the $29m in funding will be to chase Student loan debt for overseas borrowers and those in arrears on COVID related Small Business Cashflow Scheme loans.
Construction
The IRD has been focusing on debt and compliance in construction for a few months now, initially this was a soft, and largely educational approach. Now IRD say that they are shifting into the enforcement phase and “debt collections and audits are now getting underway in earnest”.
Hospitality and retail
The IRD looking at the hospitality sector is nothing new as this is an industry with a history of poor tax compliance. In the past, IRD has used statistical analysis to identify hospitality venues that sales and/or margins seem low and used that as the basis for selecting taxpayers for investigations. Presumably, the same will occur now, especially as the IRD’s analytical capability is far more powerful than it was when it rolled these kinds of reviews a decade or so ago.
For retail, no further detail given on the nature of the reviews here, but the IRD does specifically refer to Sales Suppression Tools in its press release so that logically that could be the focus of reviews in retail. Possession of Sales Suppression Tools was made an offence a few years ago.
Further, the IRD did publicly state that it was looking at small/independent liquor stores a few weeks ago.
Multinationals
Over the past decade or so, the vast majority of IRD investigations resources have gone into multi-nationals because the tax issues are complex and the amounts of tax involved can be significant. The IRD have stated that they are increasing the audits of multi-nationals and corporate restructures.
Cryptocurrency/crypto assets
The IRD considers that buying and selling cryptocurrency is virtually always taxable. IRD says that they are “seeing significant under-reporting of income” from cryptoasset transactions. IRD says it will be progressively approaching crypto traders and giving them a final chance to report their income. Investigation activity in this space has been coming for a long time but IRD will be the first to admit that it took them quite a long time to understand cryptoassets and how they fit into tax rules