Kiwi businesses are being urged to organise their taxes and be ready to answer more questions this year, as the tax department increases its compliance measures.
According to business consultancy EY, the Budget this year saw an increase in enforcement funding for Inland Revenue (IR). $64 million was allocated to boosting tax collection activities and driving tax compliance.
Dean Madsen, EY tax leader, says that the additional funding would likely result in more scrutiny for taxpayers in New Zealand, extending beyond the usual tax compliance checks.
Madsen also notes that technology, data, processes, and corporate governance will be key areas of focus in compliance.
"(IR) will want to understand how you got there … (taxpayers) should prove that you have a system with the requisite integrity," he said.
The IR had a clear mandate that came with the budget: to eventually generate $8 for every dollar that was invested in the process.
What does this mean for businesses?
According to Madsen, businesses need to brace for a more active enforcement role from the IR. He said that the IR’s campaign would extend beyond general business compliance, with a specific focus on:
1. Properties: Business owners with multiple properties
2. Organised crime: Tax evasion and underreporting
3. The hidden economy: Cash transactions and electronic sales suppression to manipulate sales data
4. Trusts: Potential tax avoidance schemes involving trusts and companies.
"The changes could be seen as a warning for New Zealand businesses, who need to be ensuring their tax practices are fully compliant to avoid both the financial implications and the reputational risk of noncompliance," he said.
"Businesses should be making certain their tax structuring is adhering to IR's expectations, auditing previous years, and consistently seeking advice - because, with increased scrutiny from IR, businesses can't afford not to."
More than half a billion in undeclared tax
Earlier this year, the IR reported that it opened 3,600 audits between July and December 2024, which was 50% more than the same period in 2023. It uncovered more than $600 million in additional tax that should have been declared.
According to Tony Morris, segment lead for significant enterprises, IR had been in touch with 200 business owners who have multiple properties (some in a company name, some in trusts, and some personally). These business owners were told to refinance and pay their tax debts.
"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," Morris said.
"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."
Morris reiterates that IR has an ongoing programme to detect undeclared and inaccurately reported transactions. However, he does state that help is given to people who are unable to meet their tax obligations due to challenging circumstances.
"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," he said.
Compliance management and mitigating risks remain critical
Despite the increased scrutiny by the IR, businesses should note that the department’s primary focus is on compliance, not confrontation. Business owners should ensure that all tax documentation is in order and maintain good compliance habits within their processes.
Staying informed about the latest updates is also important, as it enables businesses to maintain peace of mind and stay compliant with any changes.
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