IRD InvestigationsDecember 20, 2016
For many years the Inland Revenue Department have been provided funding to target investigations of tax payer’s compliance. Over the recent year that funding is significant.
Their aim is to not just encourage compliance but also identify and recover under returned and under paid tax.
Each year the IRD issue a statement describing their key focus areas – these being either targeted practices or industries where they intend to focus their efforts to identify potential non-compliance.
As an example, one such key focus area is described as the ‘hidden economy’. This in some cases is referring to deliberate tax evasion but also includes the aggressive tax planning for small business as well as ‘basic non-compliance derived through ignorance’. We’ve probably all heard the stories around the ‘cash based’ jobs taking place in the construction and related industries.
A few hundred dollars here or there paid to tradies doesn’t seem like much. Although most people use eftpos when purchasing from cafes, dairies or restaurants, they probably think little of it if a cash sale is not rung through the till.
But the hidden economy isn’t just the building and hospitality sectors. It includes any industry where cash is frequently used such as the scrap metal industry and also the myriad of micro-businesses carrying out service activities who do not register for GST. (Unofficially, maybe 15% of all contractors do not fully comply with their income tax and GST obligations).
So how do the IRD go about enforcement – well that’s where the IRD audit and investigation unit steps in.
There are various types of business audits. These include reviews of a particular transaction or return, such as a GST refund claim; employer obligation checks, e.g. PAYE and KiwiSaver, FBT; and numerous technical checks, such as deductibility of expenditure, shareholder continuity etc.
There are a number of reasons you may be selected for an audit which can be based on analytical review or simply a random selection.
Often audits are preceded by a “risk review”. A risk review is where information is requested from you in order to evaluate the risk of non-compliance. Where a risk review detects an issue that requires more in-depth inspection, that’s when a potential next step to initiate an audit is undertaken.
- IRD Audit, Investigation and Risk Review activity continues to increase and this is not likely to change in the future.
- The Inland Revenue audit officers are well trained and more aggressive.
- Audit, Investigation and Risk Review activity tend to be stressful and can take years to conclude.
- A considerable about of information is requested and this can take time to gather together and generally incur significant professional fees. So even if you have not committed any tax fraud (as is the case in most Inland Revenue audits), you are likely to be exposed to major costs if selected for a review or audit.
How we can help
One of the services we offer is a Tax Audit Retainer Service (TARS). This service provides a benefit in terms of a level of professional fee cover over the course of a 12-month period. Therefore, you can reduce the stress on yourself by having professional help without the worry about the cost of the professional fee. There is no doubt that having professional advice during a tax investigation is a good idea - we can tell you some horror stories about people who have tried to “go it alone”.
For more information about TARS including fee cover levels and terms and conditions please contact Carole email@example.com