Scaling up enforcement

IR has steadily increased enforcement activities this year. While we have worked to ensure customers get things right, a few needed our attention because they ignored us or tried to deliberately flout the rules.

IR has carried out more audits and liquidations this year than in 2022–23. We’re also rebuilding the pipeline of tax offence prosecutions that were deferred due our prioritising delivery of COVID-19 and emergency weather events support. To help us best direct our enforcement efforts, we’re improving analytics tools, using more third-party data and increasing our visibility in industries where cash jobs are more prevalent.

This year, IR has assessed $975 million in additional revenue or disallowed expenditure through our compliance programme and worked hard to retain the public’s confidence in the tax system. This year, 80% of customers we surveyed agreed that, if someone tries to avoid paying the right amount of tax, we will take action.

Who is getting more of our attention

Many parts of IR contribute to the decisions we make as an organisation about where to focus our efforts. Our people bring a range of perspectives such as capabilities in intelligence, data analytics, community relations and business knowledge to understand and address the most serious risks.

Risks can centre around customer behaviours, tax products, industries with the greatest prevalence of non-compliance or misuse of new technologies.

As you can read on the page below, IR is increasing enforcement activities targeted at high-risk, persistent defaulters and non-compliant overseas-based student loan borrowers. We have also stepped up efforts to tackle organised crime, people taking part in the hidden economy and people with crypto-assets who are not paying their share of tax.

Our priorities for collecting overdue debt

Organised crime

Organised crime is a focus for the Government and IR because of the extensive damage it poses to the financial and social wellbeing of New Zealanders. Such activities often include tax evasion, fraud, identity theft and money laundering.

IR is a key player in disrupting organised criminal groups and tackling schemes intentionally set up to evade tax. Our approach covers all aspects of a customer’s tax affairs, including their social policy entitlements and compliance with child support and tax obligations.

As at 30 June 2024, our special audit team was overseeing the compliance of approximately 8,000 customers identified as high risk because of their potential involvement in organised crime and other behaviours. We’ve had a dedicated focus on outstanding returns and debt collection, which continues into 2024-25, as well as an increased focus on information sharing across government, joint task-force operations, fraud, money laundering and tax evasion, and undertaking audit and other compliance work targeted at local and international organised crime.

Organised crime is an area where we share intelligence and coordinate with other government agencies, such as taking part in joint task-forces and pooling resources and expertise to target criminal networks. As you can read on the page below, this year has seen an increase in our information shares with New Zealand Police Ngā Pirihimana o Aotearoa, the Serious Fraud Office Te Tari Hara Tāwhare and New Zealand Customs Service Te Mana Ārai o Aotearoa.

Information sharing with New Zealand Police Ngā Pirihimana o Aotearoa, the New Zealand Customs Service Te Mana Ārai o Aotearoa and the Serious Fraud Office Te Tari Hara Tāware

The hidden economy

The hidden economy covers a range of undeclared or inaccurately reported transactions that obstruct our ability to collect tax revenue. IR has an ongoing programme to target the sectors where cash jobs are more prevalent—the work we do plays an important part in creating a level playing field for businesses and sole traders who do operate fairly.

IR has run nationwide surveys since 2012 to monitor perceptions and trends towards tax and cash jobs. Our 2024 survey provided insights on how people’s attitudes and behaviours have changed following COVID-19 and how we can combat non-compliance more effectively. While it found no significant increase in people actually doing cash jobs, findings indicated people are more tolerant of them and there has been an increase in the perception that IR has limited ability to know about them.

The survey results reinforced the need for a more active programme. We have lifted our presence in communities and industries through campaigns and raising general awareness of the consequences of deliberately not paying the correct amount of tax.

Using information from other parties is increasingly in the mix to help understand more about the accuracy of customers’ reported incomes. For example, we’re starting to get merchant electronic sales transaction data from payment service providers, with the intention that it will help validate the accuracy of GST reported sales and the extent to which transactions may be under-reported.

An emerging risk is the use of electronic sales suppression tools that are designed to alter point-of-sale data. These tools exist only to evade tax and launder money and IR has been taking an assertive approach to identify both users and promoters. For example, our compliance staff carried out a range of search operations and unannounced visits this year to hospitality businesses in Christchurch Ōtautahi, Dunedin Ōtepoti and a number of other centres.

Targeted campaigns and interventions

• Advice
• Assistance
• Collections
• Litigation
• Disputes
• Reviews & Investigations

¹See the footnote 1 on this page for more information on the difference in voluntary disclosure numbers between years.

Outcome 1 – Revenue is available to fund government programmes through people meeting payment obligations of their own accord

Growing focus on crypto-assets

A growing number of customers are now trading in crypto-currency as a means to pay for cash jobs and to evade tax so IR has a mix of policy, education and targeted compliance interventions under way to address this.

There’s extensive guidance to help people assess their situations, and, despite popular thinking that people are invisible on blockchain, IR has the information collection powers and analytical tools to identify and expose crypto-asset activities and holdings. We have identified around 227,000 crypto-asset users in New Zealand undertaking around 7 million transactions worth over $8 billion.

IR has contacted customers emphasising that now is the time to think seriously about tax and the risks of not declaring all taxable activities.

Employee issues and income suppression in smaller liquor stores

In February and March this year, IR carried out a campaign focused on smaller liquor outlets around the country.

The number of off-licence liquor stores has grown rapidly since 2020 to approximately 3,000 businesses.

Our data showed these outlets:

• had total sales of $1.95 billion and taxable profits of $34.7 million in 2020
• paid a collected $11.4 million in income tax and IR collected $29.4 million in GST.

Our compliance staff made 220 unannounced visits nationwide. While most of the businesses visited had things in order, we found issues such as high levels of unreported cash sales, poor record-keeping and directors with minimal knowledge of their businesses or responsibilities.

We discovered PAYE being deducted from the wages of more than 100 staff that was not then paid to IR.

This was a deliberately light touch campaign and only the beginning of a wider look into smaller liquor stores nationwide and how they operate.

Following on from our visits, we started investigations, with 9 outlets referred for audit.

We have also advised businesses in the sector that we will be increasing our monitoring with additional visits and further audit activity.