• Exposing the hidden economy
• Addressing income structuring
• Targeting customers who misuse charitable status
• Encouraging timely and accurate information
• Encouraging customers to manage their debt
• Working together to solve compliance issues
• Raising awareness and providing certainty

Each year we report back on our successes from our previous compliance focus. Here are some of our key initiatives and achievements over 2010-11.

Exposing the hidden economy

In the May 2010 Budget we were given additional funding to detect and take action against those who choose to operate in the hidden economy. We used this extra funding to enhance our existing fraud and evasion work and by the end of April we'd brought in a total of $118.5 million in revenue, exceeding the return on investment target for the 2010-11 year.

The funding also allowed us to invest in compliance and intelligence tools to help us identify and monitor those individuals and businesses trying to cheat the system and avoid paying tax. We've focused on high-risk areas and undertaken extra educational and audit work in the hospitality sector where we've identified non-compliance. In the cafe and restaurant sector alone, we completed 650 compliance visits and we're conducting over 100 investigations.

We completed 55 prosecutions of taxpayers operating in the hidden economy in the year to 30 April 2011 and received a number of voluntary disclosures, including one from within the hospitality industry for $2.2 million.

We've been building relationships with key industry groups, including the Hospitality Association of New Zealand and the Chinese Food and Beverage Association, to help educate their members on tax responsibilities. We've also established relationships with scrap metal and tourism bodies.

We've been working closely with other government departments, including the Department of Labour and the Ministry of Social Development to ensure compliance in the horticultural industry.

Over the last five years PAYE payments from the horticultural industry have almost doubled, from $88 million to $150 million, while the size of the industry has remained relatively unchanged. The increase is a direct result of our advisory and audit activity and the tightening of rules around schedular payments.

Addressing income structuring

Over the last year we've been reviewing customers using income splitting to reduce their taxable income. We've noticed that once we've completed our review the customer's behaviour changes. We've seen considerable increases in shareholder salaries, and customers are now paying the highest rate of tax on the majority of income.

We've resolved several cases where customers were diverting personal income and recovered a significant amount of tax as a result. Most importantly, the customer is now paying the correct amount of tax on what they earn.

We also identified non-custodial parents who appeared to be using structures to reduce their child support liability. We reviewed the most significant non-compliers and where appropriate, we've begun administrative reviews to reassess the non-custodial parent's situation and their liability.

Targeting customers who misuse charitable status

We've been working with the Charities Commission to reduce the opportunity for entities to misuse charitable status. In the last 12 months we've developed an agreement with guidelines for releasing information to the Commission to help identify areas of misuse. This growing relationship has included helping develop their compliance approach. As a result of this collaboration we've referred our first test case for the potential deregistration of a charity to the Charities Commission.

Encouraging timely and accurate information

Over the last year we've been working to raise customer awareness of tax rates. We've run advertising campaigns and written to customers, and worked with banks to provide specific messaging on interest certificates. As a result, we've seen fewer customers omitting interest income on their returns.

We've also run 794 employer workshops and seminars, along with letter campaigns, to help our customers understand their filing obligations and to encourage them to use ir-File, our online filing service for employers. Uptake of ir-File has increased and we've seen a reduction in errors and significantly fewer outstanding employer monthly schedules (EMS).

We ran a targeted outbound calling initiative for business customers with EMS returns outstanding and we've seen a significant increase in returns finalised as a result.

Encouraging customers to manage their debt

We've introduced a number of targeted campaigns over the last year to encourage customers to pay their tax on time. We piloted a major texting campaign aimed at customers with tax to pay on 7 February. Half of those who received a reminder text, and regularly don't meet their obligations, paid on time.

We introduced an early-intervention campaign to contact customers before their payment became overdue. As a result we've seen more than $48 million in debt repaid and the number of customers filing on time has increased. Further early intervention work has seen the number of new debts reduce, including a drop in debts less than a year old by almost a quarter.

We've also seen positive results from our initiative in Australia to encourage defaulting student loan borrowers to make repayments. More than $2 million in student loan debt has been repaid since the campaign began in October 2010.

Earlier this year we launched our Inland Revenue YouTube channel. The channel has several videos covering a range of topics including debt, filing returns, and making online payments. The site includes our latest television commercials as well as appearances of our staff in the news media. We're planning several more videos to educate customers about how to stay out of debt and how to manage their debt obligations.

In July 2010 we improved our credit card payment service for customers making student loan and child support payments. We've processed more than 18,760 payments since 1 July 2010, a total value of almost $21.4 million.

Our collaborative relationship with New Zealand Customs has improved our ability to quickly identify and act on defaulting non-custodial parents living overseas and visiting New Zealand. As a result, we've been able to make contact with customers who've been unobtainable for several years and update their customer records and set up repayment arrangements for $64.4 million.

Working together to solve compliance issues

We've been working closely with large enterprises to help improve the way they structure and manage their tax. We recently signed our first cooperative compliance agreement with a large enterprise, and have several others near completion. We've also developed strong relationships with industry groups such as the Investment Savings and Insurance Association and the Power Generators Group.

In February 2010 we introduced a new binding rulings process to improve the way we deliver rulings. This year we've delivered all binding rulings within the agreed timeframe - and more than 90% within three months.

Raising awareness and providing certainty

We've been working closely with the entities involved in the Auckland Local Authority reform to provide certainty around the legislative changes and tax implications of transitioning to their new structure. We've worked with the transitional team to complete the tax administration work required to establish relationships with the new Auckland Council.

We've also established cross-agency working groups to resolve difficult compliance issues for central and local government agencies. And we've raised awareness among central and local government customers of our GST and remuneration system and process review programme, resulting in more self-review work and voluntary disclosures.

We ran a campaign for customers who were identified with a mismatch between their losses to carry forward and their loss brought forward balance. We sent customers with a mismatch in the 2008 income year a letter outlining the mismatch and inviting a voluntary disclosure. A 100-case pilot resulted in 90% of customers making voluntary disclosures and $3.4 million of losses were adjusted. We've extended this pilot.

We identified 1,700 tax agents with clients who had losses from previous years. Before the agent lodged a return on behalf of their client we sent them a letter to let them know of common errors we've seen and how to get it right when preparing returns.

We've been working to improve our customers understanding of their tax obligations when buying or selling property. We developed a Tax and your property transactions (IR361) brochure to clarify what's involved in property ownership and cover areas where mistakes commonly occur.

We've seen a positive improvement in our work around international issues, including growth in the advance pricing agreements programme. We've achieved greater coverage of large enterprises with significant cross-border interactions with their parent or subsidiary company.

To help customers understand the changes to foreign investment fund tax rules we ran training with the New Zealand Institute of Chartered Accountants for users of foreign investment funds. We also published a list of the top ten international tax errors and omissions.

 

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