ICNZB Member Louise Holmes supports the association by managing the relationship with IRD. Each month there is a different topic and this month she had the privilege to meet with Andrew Stott, IRD’s Head of Community Compliance, and hear about the IRD current workplan and compliance focus.  

The summary of key points from Louise’s monthly meeting with the IRD is below. 

Key Points from Andrew’s Presentation  

The IRD’s financial year begins on July 1st, and this year, they are ahead of their compliance goals. Andrew emphasised the IRD’s three-part approach to compliance:  

1. Make it easy to comply. 
2. Make it hard to avoid compliance. 
3. Make it costly for those who deliberately evade obligations.

 For 2024/25, the IRD plans to increase enforcement activity after a period of relative leniency and will make greater use of data and insights. Their primary focus is on collecting tax, particularly from those deliberately avoiding compliance. 

General Tax Compliance 

According to Andrew, most New Zealanders are generally compliant. After their focus on transforming systems and supporting businesses through COVID-19, the IRD is now shifting its attention to following up with those not meeting compliance. Year-to-date, audits are up by 50% compared to the previous year, supported by increased recruitment for audit teams.  

Audit Focus Areas  

The IRD divides its efforts equally between:  

- Large company audits (30%) and the technical tax area (20%), which together account for nearly 50% of their activity.  

- Fraud, hidden economy (e.g., cash jobs), and property-related audits, which make up the remaining 50%.  

Andrew confirmed that the hidden economy remains prevalent, despite the shift towards electronic payments. An example cited was a $26,000 “cash job” for a building project that went undeclared.  

Personal Income and the 39% Tax Threshold  

The IRD is scrutinising efforts to avoid the new 39% tax threshold, primarily through trusts or LAQC structures. Sectors like accounting, legal, medical, and architecture are under particular review. The IRD is looking for cases where personal income has been diverted, with data from previous income declarations being used to identify discrepancies.  

Property and the Construction Industry  

Property is a major focus for the IRD. They are investigating individuals who have ceased declaring rental income despite still owning property, and they are closely examining financial hardship claims, especially from those with equity in property assets. The construction industry also faces scrutiny, particularly around PAYE/WHT compliance and contractor tax. Construction site visits are being used to check compliance in these areas.  

Non-Compliance in the Liquor Store Industry  

Non-compliance in the liquor store sector has emerged as a significant issue. While the number of liquor stores has doubled in the past 5-10 years, the number of employees has not kept pace, suggesting potential non-compliance with tax laws. The IRD will focus on ensuring stores comply with PAYE and other obligations, with a strong emphasis on enforcement.  

Cryptocurrency and Offshore Income  

Andrew also discussed the compliance challenges surrounding cryptocurrency. The IRD is aware of the growing use of crypto in investment portfolios and payment systems. Andrew advised that businesses should ensure clients with crypto holdings declare them properly in Year-End records.  

In terms of offshore income, the global connected world is aiding the IRD’s efforts. Data-sharing agreements with 87 countries have helped close 219 cases involving offshore income, either through education or voluntary disclosures.  

High-Risk Clients  

The IRD has increased its focus on high-risk clients with outstanding returns or high levels of tax debt. They currently have 30 criminal investigations underway. Andrew advised reviewing client lists and disengaging from those who are not allowing accurate work to be done. The IRD has a specialist team collecting an average of $4 million per week from non-compliant taxpayers, utilizing site visits and legal actions when necessary.  

Small Business Cashflow Loans  

Another area of focus is the recovery of Small Business Cashflow loans issued during the COVID-19 pandemic. The IRD is targeting fraudulent activity, with legal action being taken against those who applied for loans without intending to repay them. Currently, 21 cases are before the courts, with three successful rulings in July and August.  

Electronic Sales Suppression Tools  

Andrew briefly touched on electronic sales suppression tools, a form of fraud where point-of-sale (POS) systems underreport actual sales. The IRD is focused on stopping this type of tax leakage and is investigating discrepancies between bank deposits and POS reports. There are currently 50 ongoing investigations.  

Final Thoughts  

This was an enlightening presentation that highlighted the IRD's strategic goals and their enforcement efforts. The IRD will be hosting a webinar in the first week of November to discuss this update further with tax agents, so keep an eye out for their newsletter with registration details. I hope you found these insights helpful. It was a great reminder of our role in supporting compliance and ensuring that taxes are filed and collected properly.