Inland Revenue Audit Activity and Compliance Focus for 2024

 After a period of relative calm during the Covid pandemic, Inland Revenue (IR) audit activity has seen a notable uptick in recent years. Here’s a snapshot of the latest developments: 

• 2021: IR focused on the real estate sector, addressing concerns over excessive expense claims by real estate agents. This initiative led to a notable decline in private expenditure claims.
• 2023: The ‘Tax Toolbox’ campaign targeted the construction industry, offering resources such as a comprehensive web page, online seminars, and one-on-one business advisory visits. As part of the 2024 budget announcement, IR plans to increase enforcement in this sector with unannounced site visits starting July 2024.

 The 2024 Budget allocated $29 million to IR for enhanced compliance efforts. Key areas of focus include:

 The hidden economy

• Organised crime
• Retail sector
• Trust compliance
• Cryptocurrency
• Corporate restructures
• Electronic sales suppression tools

 Additionally, $4 million of this funding will be directed towards addressing overdue student loan debt, particularly targeting individuals overseas who own New Zealand property and have defaulted on their repayments.

In June 2024, Inland Revenue (IR) shared insights from its recent investigation into small liquor stores. The investigation, which involved 220 unannounced visits nationwide, targeted issues like income suppression, unreported sales, and non-registered staff. Findings revealed that over 100 employees had PAYE deducted but not paid to IR. As a result, nine liquor stores have been escalated to the audit phase.

Additionally, IR's ongoing Tax Governance campaign focuses on large New Zealand enterprises (those with annual turnovers exceeding $30 million). This campaign aims to improve tax strategy documentation, tax controls frameworks, board reporting on key tax matters, and independent testing of controls.

As IR intensifies its reviews and investigations, it’s crucial for both accountants and IR staff to refine their skills to handle the increased scrutiny effectively, especially after the lower activity levels during the Covid pandemic.