Staying ahead of IRD Compliance: What you need to know
In recent months, we have seen growing attention for compliance activities by the Inland Revenue Department (IRD), and as business owners it pays to keep up to date and be aware of what they’re focusing on.
From monitoring data to chasing down outstanding tax debt and conducting audits, the IRD is increasingly targeting specific industries to ensure tax compliance.
Here’s a breakdown of what’s happening and how it might impact your business.
Monitoring Activities
The IRD has a variety of tools at its disposal to monitor tax compliance and spot discrepancies in returns. They can easily compare your current tax return with your previous submissions, and cross-check what others in the same industry are reporting. This gives them the ability to identify anomalies and areas where further investigation may be required.
Additionally, the IRD has access to vast amounts of third-party data. This includes:
Merchant transaction data from EFTPOS providers
Bank and investment data from both New Zealand and overseas institutions
Property transaction data from Land Information New Zealand (LINZ)
Cryptocurrency transaction data
International information-sharing agreements between tax authorities
Data from online marketplaces (e.g. Trade Me, Airbnb)
In recent times we have seen some of the results of their monitoring activities through targeted letters direct to taxpayers asking for clarification on areas such as such as overseas income, bank accounts, cryptocurrency transactions, or property sales/purchases that may be subject to the Brightline test. If you’ve recently received one of these letters, it’s important to respond promptly and accurately to avoid further scrutiny.
Increased Audit and Review Focus
As part of last year’s budget, the Government allocated additional funds to the IRD to ramp up compliance activities, particularly in areas of audit. As a result, the IRD has shifted more of its focus to the “hidden economy” - industries where cash transactions are common. This includes sectors like retail, hospitality, construction, and fast food.
For example, the IRD has conducted site visits to construction worksites, and last year, they visited many liquor and vape stores. The goal is to ensure businesses are accurately reporting all income, correctly classifying employee and contractor wages, and paying the appropriate PAYE (Pay As You Earn) taxes.
Businesses in the Spotlight
Small sole traders:
We have seen IRD paying more attention to small businesses, particularly sole traders in personal services industries, such as hairdressers, beauty therapists, and personal trainers. Some of these businesses have received letters notifying them of increased scrutiny over the coming year. While it's still early days, this could lead to more audits for small-scale businesses.
Professional services:
Earlier last year we also had an increased focus on some professional businesses including surveyors and valuers. We are expecting IRD to focus on other professionals and their level of personal income in the near future.
What next?
Know what your tax obligations are. Taking proactive steps now can help avoid potential issues down the road.
Regularly review your income and expenses to ensure everything is accurate and up to date. By keeping organised records, you’ll avoid unnecessary complications come tax time and have a clearer view of your business’s financial health.
Key Takeaways
The IRD has expanded its compliance monitoring using data from a wide range of sources, including banks, property transactions, and cryptocurrency exchanges.
Audits are increasing, particularly in industries with high cash transactions such as retail, construction, and hospitality.
Small businesses and sole traders in personal services are also seeing an increase in scrutiny.
Know your obligations and keep good records to avoid unnecessary complications.
By staying on top of your tax compliance now, you’ll be better prepared for any potential audits or investigations in the future. If you’re unsure about your tax obligations or have received a letter from the IRD, it’s always a good idea to consult with your CT Advisor who can help guide you through the process.
Upcoming Financial Literacy Series
Upskill in 2025! We have an upcoming seminar series focused on financial literacy. This includes a module on taxes, record keeping and expenses that you are able to claim against your income. If you are interested in attending, you can find more information here - Financial Literacy Series.
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This article contains general information only and based on information available at the date of publication. You should obtain advice for your personal circumstances.