Inland Revenue has shared insights into the first three months of its enhanced compliance initiatives, funded by this year’s budget.
Tony Morris, Segment Lead for Significant Enterprises, discussed the progress during a recent conference in Wellington, emphasising Inland Revenue's commitment to making compliance easy for taxpayers, challenging for evaders, and costly for deliberate offenders.
Key Achievements
High Compliance Rates: Between July and September, 97% of tax returns were filed on time, and 96% of owed tax was paid promptly.
Increased Audit Activity: IR opened almost 2,000 audit cases in the quarter, marking a 55% rise from the same period last year. These audits, combined with automated systems, led to $400 million in amended returns.
Debt Recovery Success: Over $1 billion in overdue debt was collected, with property ownership data playing a crucial role in expediting payments.
Utilising Data for Compliance
Inland Revenue has leveraged various datasets to enhance compliance across different areas:
Property Data: With nearly a decade of information from Land Information New Zealand (LINZ), Inland Revenue tracks ownership across individuals, trusts, companies, and partnerships. This data is used to monitor bright-line obligations, property trading, rental income, and debt recovery.
Trust and Company Data: Data from trust disclosures and the Companies Office reveals patterns such as income shifting to avoid higher tax rates. For example, Inland Revenue identified 3,500 individuals receiving significant trust distributions while still claiming Working for Families payments, prompting further investigation.
Payment Service Providers: Monthly summaries from payment platforms like EFTPOS help Inland Revenue detect discrepancies between reported sales and GST returns. Businesses underreporting sales or operating without registration are targeted for audits.
Cryptocurrency: Inland Revenue identified 227,000 crypto users in New Zealand, involved in transactions worth $7.8 billion. The focus is on large traders and debt collection from individuals with significant crypto holdings.
Cash Transactions: Despite perceptions of cash being hard to trace, Inland Revenue monitors spending patterns, trade material purchases, and banking activity to detect under-the-table transactions. Anonymous tip-offs, often from disgruntled employees or competitors, also aid investigations.
Debt and Liquidations
Collecting overdue debt remains a priority. Inland Revenue recovered $1.2 billion in the first quarter, a 33% increase compared to last year. Additionally, liquidation proceedings were initiated against approximately 500 entities - four times more than the previous year. While Inland Revenue supports solvent businesses in staying operational, unviable companies are wound up to maintain economic stability.
Future Direction
Inland Revenue plans to expand its use of data from both public and private sources to strengthen compliance efforts. Upcoming priorities include integrating new datasets, refining the use of payment service provider data, and maintaining a comprehensive view of taxpayers’ financial activities.
Tony Morris concluded by encouraging voluntary disclosures, highlighting that proactive compliance is significantly less costly for taxpayers than being pursued by Inland Revenue.