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The Inland Revenue Department (IRD) has ramped up enforcement, honing in on undeclared cryptocurrency holdings and overdue student loans. With an increased budget and advanced data analytics tools, the IRD aims to address non-compliance in these areas, targeting individuals who have avoided their tax obligations.
Cryptocurrency has seen a surge in popularity, with 227,000 New Zealanders engaging in approximately 7 million transactions valued at $7.8 billion. As cryptocurrency becomes more mainstream, so too has its regulation, and the IRD is now taking action to ensure tax compliance among crypto traders.
Cryptocurrencies are considered property for tax purposes. Any income from selling, trading, or exchanging these assets must be declared in tax returns. However, many crypto users have not been transparent about their earnings, and the IRD is moving to close this gap. In 2020, the department updated its guidance on the tax treatment of cryptoassets and began issuing warnings to high-risk individuals. By mid-2024, it had ramped up its efforts, sending letters to more users who had not complied with tax regulations.
IRD spokesperson Trevor Jeffries emphasised that anonymity on the blockchain is a misconception. “Despite popular thinking – people are not invisible on blockchain, and we have the tools and the analytics capabilities to identify and expose cryptoasset activities,” he said, adding that IRD receives data from domestic and international exchanges through the Crypto-Asset Reporting Framework (CARF), an OECD initiative designed to facilitate global tax information sharing. This framework will allow tax authorities worldwide to exchange data on users and transactions, making it increasingly difficult for individuals to evade taxation on their crypto earnings.
As part of this push, the IRD has flagged taxpayers who are suspected of failing to report significant income from crypto activities. One recent case involved a taxpayer who had not declared half a million dollars in crypto-related income. After IRD confronted the individual’s tax agent with transaction data, the taxpayer quickly filed voluntary disclosures. While no penalties were applied, the taxpayer is liable for use-of-money interest.
With the IRD’s computer systems already tracking hundreds of thousands of transactions, the department has made it clear that it will continue to engage crypto traders who fail to declare their earnings. The additional $25 million allocated in Budget 2024 for tax compliance activities underscores the government’s commitment to tightening crypto regulation.
Alongside its cryptocurrency compliance push, the IRD is also intensifying efforts to recover overdue student loans, particularly from borrowers living overseas. The number of overdue student loans is a key concern, and many of these debts are held by individuals working abroad in high-paying professions.
The IRD estimates that 78,000 student loan borrowers have overdue payments, down 7% from the previous year. However, the department is not satisfied with this reduction, particularly when it comes to borrowers who own property or have significant wealth. Andrew Stott, head of the IRD’s compliance engagement programme, highlighted cases where overseas-based borrowers, some with high incomes, have been evading their loan repayments for years.
To combat this, the IRD has allocated $4 million from its budget to track down these borrowers. A dedicated team of 20 staff members, soon to be doubled to 40, will focus on pursuing these debts. This effort will include using property ownership data and cross-referencing it with cryptoasset holdings to ensure borrowers cannot hide their wealth. “We’re feeding into that their ownership of New Zealand properties,” Stott said, pointing to new strategies aimed at identifying and collecting from delinquent borrowers.
The IRD is also prepared to take more severe actions, such as issuing arrest warrants for defaulters who attempt to return to New Zealand without addressing their debts. Borrowers who have been out of the country for more than six months face 3.3% interest on their loans and must make repayments twice a year.
As part of its tax enforcement strategy, the IRD is taking a hard stance against individuals who deliberately avoid their obligations. The IRD’s statements suggest that it will continue to be flexible for those struggling financially, but the department is making it clear that deliberate non-compliance will no longer be tolerated.
Peter Mersi, Commissioner of Inland Revenue, stressed that while 90% of taxpayers meet their obligations, the remaining 10% who do not will be subject to increased scrutiny. The department is prioritising debt collection, particularly for sectors like retail, trusts, and the hidden economy, which are prone to non-compliance. In addition, it is increasing audits on multinational corporations and addressing risks related to corporate restructures.
For taxpayers facing difficulty, Mersi encouraged early engagement with the IRD to avoid harsher penalties. The department offers instalment plans and voluntary disclosure options to help individuals resolve their debts before enforcement escalates. “We have a range of options to support customers to get back on track and meet their obligations,” Mersi said.
With the IRD’s new funding and enhanced data capabilities, it is clear that tax compliance is now a top priority for the department. Both cryptocurrency traders and student loan borrowers are urged to come forward and settle their obligations before facing the consequences of non-compliance.
