As part of Budget 2024 the Government allocated $116m over the next four years to support Inland Revenue in collecting debt and improving compliance in the tax system.

Since COVID we have seen very little collection and compliance activity from Inland Revenue amongst our clients as Inland Revenue put their resources into administering COVID subsidies and the Small Business Cashflow loans.  

As a result of the increased funding, we have seen a significant increase in Inland Revenue activity over the last few months.  This activity has included Inland Revenue instigating risk reviews for clients that have not filed returns for a number of years, as well as contacting us regarding clients with tax arrears.

In some instances it is possible to request Inland Revenue to write off tax arrears if you are not in a position to pay it.  However, Inland Revenue is taking a much tougher stance in these situations and requiring clients to exhaust all avenues to find ways to pay the arrears before they will consider writing any amount off.  In some instances, before considering whether to write off any tax Inland Revenue is requiring letters from at least two banks stating that finance cannot be obtained. 

Inland Revenue has access to Land Information New Zealand (LINZ) records that enables them to see what property a taxpayer owns.  If a taxpayer owns multiple properties then Inland Revenue is reluctant to write off tax arrears if consideration has not been given to a sale of the property before requesting a write off of tax debt.

As part of Inland Revenue’s compliance and collection activities, the focus for the 2024/25 year is in the following areas:

• Collection of overdue debt – tax arrears have increased significantly since COVID
• Collection of student loan arrears from overseas based borrowers who are in default
• Working closely with the construction industry to ensure they are complying with tax laws
• Profits from cryptoassets not being returned for income tax purposes.  Inland Revenue recently undertook a project to identify approximately 250,000 of the largest cryptocurrency traders in New Zealand.  They will be checking the tax returns of these taxpayers to ensure profits from cryptocurrency trading have been included and, if not, contacting them to amend historic tax returns.
• Audits of businesses using sales suppression software to evade payment of tax
• Property developers/speculators who are not including profits on the sale of properties in their tax returns
• Cash economy within the retail sector

Inland Revenue has a lot more sophisticated tools these days to identify taxpayers who are not complying with their tax obligations, therefore, it is likely it is only a matter of time before non-compliant taxpayers receive a call or visit from Inland Revenue.

If you have tax arrears we recommend you contact us to work out a repayment plan that we can put forward to Inland Revenue rather than leaving it to Inland Revenue to take enforcement action.  Early engagement with Inland Revenue on these matters is key.

If you are unsure whether you have correctly complied with your tax obligations then please call us to discuss.  We can then determine what your tax obligations are and what action, if any, needs to be taken to get this corrected with Inland Revenue.  In these situations it is better to front up to Inland Revenue rather than waiting for Inland Revenue to come calling.  In fronting up to Inland Revenue, there are more favourable provisions to have penalties remitted or discounted, and it provides us with more room to negotiate.