Recently I read a blog on stuff.co.nz written by Bruce Sheppard, who by his own admission worked as a tax accountant including 3 years with the IRD. This surprised me.
Although this blog was posted in 2010, I believe what he had to say then is just as relevant today.
"Many New Zealanders, either deliberately or innocently, fail to comply with what is quite complex and comprehensive law. Due to a lack of IRD resources and the inexperience of the IRD tax officers charged with enforcing the law, taxpayers have got away with it and told their friends who have done the same thing."
Bruce then goes on to say the "the quantum of property gains derived by NZ taxpayers that potentially have a tax consequence and are never reported would reach quite exceptional proportions. If tracked down, they would have the potential to transfer to the rest of us via the IRD, much of the wealth of some middle class baby boomers and others".
That's fairly strong and scary stuff but I don't think this is completely unrecognised by the NZ Government. Successive budgets have seen more money and resources allocated to IRD to assist with tax payer collections. The 2016 budget is going to invest $857 million to deliver a modern tax system. $503 million is for new operating funding over the next 4 years and $354 million is for new capital funding for the administration system. IRD just like any business talks about a return on investment and is expecting additional tax revenue of $280 million from greater compliance each year.
Bruce also has few things that every taxpayer should be aware of:
The IRD has wide access to data, "They have always had the power to examine public records and request 3rd party records regarding you from anyone they like and without your knowledge or your consent." That means that everything you tell your Bank Manager that he or she writes in a diary note can be accessed by IRD on request.
The Land Transfer Office converted all paper based Certificate of Titles to computer registers between 1999 and 2002. So it's not hard for IRD to trace sales and purchases or the frequency of vendor transactions.
The IRD is "partnering" with business associations to better understand the income and expense of each of those types of businesses and the "norms". And remember when you file an Income Tax Return you must also complete an IR10 which is a summarised profit and loss, making it very easy for IRD to electronically compare your IR10 to all the others around the country and to the industry "norms".
Just this year, IRD sentenced Mr Wang to 3 years imprisonment for the shortfall of tax, use of money interest and shortfall penalties. Penalties for tax evasion are 150% of the tax shortfall. Mr Wang was a Mid-North Island retailer and IRD discovered Mr Wang's evasion just by comparing his operating results with other similar retailers.
Another IRD audit focus has been transfers of funds into NZ from overseas, investments overseas and NZ tax residents working offshore. And this is where information supplied to IRD from the Banks and from the offshore Banks that are subject to Double Tax Agreements with NZ make the investigation and collection of tax fairly efficient.
The best defence is to always get good advice, make voluntary disclosure if required rather than suffer the consequences later down the track and if you are facing an IRD review or audit don't go at it alone, it can be stressful, uncertain and tax law is fairly comprehensive and complex.