Inland Revenue’s ramped-up compliance push has revealed more than half a billion dollars in undeclared tax uncovered in just six months. Backed by a $29 million government injection from Budget 2024, the tax department is taking a markedly tougher stance on enforcement, shifting from a passive model of voluntary compliance to one of active pursuit.
Between July and December 2024, Inland Revenue opened 3,600 audits—an increase of 50% compared to the same period the previous year. The heightened activity netted $600 million in additional tax that should have been declared, according to IR’s segment lead for significant enterprises, Tony Morris.
“We’ve had a strong focus on the largest businesses in New Zealand and it’s worth noting that half of that additional tax came from less than 10 audits,” Morris said.
These efforts are part of a broader strategy that includes the screening of more than three million tax returns using upgraded systems. That screening triggered 30,000 further reviews. Combined with voluntary disclosures prompted by Inland Revenue’s communications, the total revenue uplift has reached $859 million.
The compliance crackdown is not limited to detection. Inland Revenue is actively pressuring taxpayers to settle debts, such as the 200 business owners—many with complex property holdings—who were told to refinance or face enforcement. Within a month, over $10 million of the $14 million owed by these individuals was either paid or placed under arrangement.
Consequences have been swift and severe for those who fail to engage. From September to December 2024, IR initiated 164 corporate liquidations, marking an 84% increase compared to the same quarter in 2023. The department wrote off $83.9 million tied to completed liquidations. During the same period, 26 individuals were declared bankrupt and seven tax evasion prosecutions were completed.
Inland Revenue is also scrutinising sophisticated tax avoidance methods, including the retention of income in trusts and companies to avoid the 39% top personal tax rate. Morris confirmed that 800 individuals have been flagged for potentially using this tactic. “These people and their accountants are being followed up,” he said.
Technology and inter-agency data sharing are helping Inland Revenue spot anomalies that traditional audits might miss. By combining tax records with payment service provider data, IR has identified businesses whose transaction volumes suggest they should be registered for GST but are not. In other cases, businesses are showing sales activity but are failing to file returns altogether.
A major focus is on the “hidden economy,” particularly in cash-heavy sectors like construction, hospitality, and liquor retail. Inland Revenue has already opened audit cases in the construction sector, uncovering $2.3 million in discrepancies. A new wave of investigations is targeting plasterers and painters, and hundreds of unannounced visits are being carried out across independent liquor and vape stores.
Another pressing concern is the use of electronic sales suppression tools (ESSTs), which allow businesses to manipulate sales data and under-report income. Inland Revenue currently has around 50 active investigations into the use of these tools, which it describes as “an aggressive form of tax evasion or money laundering.” Where evidence of ESST use is found, IR will demand repayment with 150% shortfall penalties and may pursue bankruptcy, liquidation, or even criminal prosecution.
The digital frontier has also drawn IR’s attention. Between July and December 2024, the agency issued 160 warning letters to cryptocurrency traders, urging them to declare an estimated $2.7 million in previously unreported income.
Beyond core tax collection, Inland Revenue’s expanded efforts are extending into other areas of financial obligation. The department reported that child support debt has fallen below $1 billion for the first time in two decades—a change attributed to better enforcement through the PAYE system. Over three-quarters of child support assessments are now being paid on time, up 5% from the previous year.
On the student loan front, IR is tracking the travel patterns of high-debt borrowers and contacting them upon re-entry into New Zealand. This tactic helped recover $111.6 million in repayments in the latter half of 2024, with December marking a record month for collections from overseas-based borrowers.
Looking ahead, Inland Revenue’s momentum is set to continue. In Budget 2024, the government earmarked an additional $116 million for the 2024/2025 fiscal year to support IR’s compliance efforts. This new funding will target the hidden economy, electronic sales suppression, GST integrity, and student loan recovery, as well as enabling a further uptick in audit activity.
The department is also equipping itself with a broader arsenal of enforcement tools, including AI-driven analysis, real-time data sharing across government agencies, and unannounced business visits.