Inland Revenue Activity
- Business Studio
- Apr 11
- 4 min read
Inland Revenue (IR) periodically releases media statements about its activity, which is part of its mandated social responsibility. Our role as accountants is to consider it, assess it, and, if necessary, socialise it with you, our client, often at a personal level. This year feels a little different.
On the 7th April, IR publicly announced that their activity in the last six months of last year was up 50% from the same time for the year previous. Their public announcement has confirmed that the increased activity has been a direct result of an increase in funding from the Government's 2024 Budget.
Budget 2025 also includes an allocation of $35 million a year for Inland Revenue to carry out tax compliance and collection activities, and a continuation of funding of $26.5 million a year provided in Budget 2022, which was due to cease in June 2025.
In addition to their audit activity, we are aware that media outlets have been running articles with respect to IR activities, most notably with respect to chasing outstanding debt, including the Covid-19 Small Business Loans.
Missed those articles?
What was IR's activity?
Inland Revenue’s Segment Lead for Significant Enterprises, Tony Morris, clarified in the IR article of 7 April the depth of their activity. For the first half of the financial year, from July to December 2024, this included:
opened 3,600 audits – 50 per cent more than the same time last year.
found $600m of additional tax that should have been declared.
screened more than three million returns, leading to reviews of 30,000 of those returns. The audits, screening and voluntary disclosures added $859m to tax revenue.
Got in touch with 200 business owners and told them IR knew they had multiple properties, including those in other entity names, and recovered $14 million of debt between them, noting that within a month of contact, more than $10 million had been paid or put under arrangement.
Prosecutions & Liquidations
From September to December last year, 164 companies were liquidated by the courts on application by Inland Revenue – an increase of 84% over the same period in 2023. Inland Revenue wrote off $83.9m related to completed liquidations.
During that time, 26 people were declared bankrupt.
There were seven completed prosecutions for tax evasion in the quarter.
Top tax rate avoidance
800 people who may be trying to avoid the top 39% tax rate by wrongly keeping income in companies or Trusts were identified and investigations are ongoing.
Payment Service Providers (EFTPOS)
IR has started using data gathered from payment service providers to investigate businesses, as the transactions going through the payment data aren't corresponding with the GST returns being filed.
Crypto Currency
Issued 160 warning letters advising customers to declare their income from crypto transactions, which IR estimates to be $2.7m.
Hidden Economy
The hidden economy covers a range of undeclared and inaccurately reported transactions. IR has an ongoing programme to target sectors where cash jobs and under-reporting of income are more prevalent. Current audit cases in the construction sector have a current value of $2.3m of tax discrepancies assessed.
IR made 320 unannounced visits to independent liquor stores and around 450 vape stores.
What are Inland Revenue's Focus Areas?
Industries of interest to IR have traditionally been:
Building & Construction including
Residential building services;
Electrical;
Plumbing;
Plasterers (New target)
Painters (New target)
Hospitality including:
Restaurants;
Cafes and Bakeries;
Takeaways; and
Liquor outlets.
Hidden Economy
Retail Sector
Property
Crypto Currency
Electronic Sale Suppression Software
Restructures
Overseas Student Loan Borrowers
Multinationals
Inland Revenue Audits are Computer Assisted
Inland Revenue upgraded its software over a five-year period and finally turned off its old technology in November 2021. They've now had a few years of ironing out issues and building their capability. Now, when IR undertakes audits, they are computer-based audits. Additionally, their team has access to AI software. What does that mean?
Systems Audits
a detailed analysis and evaluation of a complete accounts computer system - from data entry through to posting in the financial accounts;
talking with your staff who have a day-to-day understanding of your computer programs and their operations;
talking with your accounts people;
they may request data to test some of the findings; and
they may come to your business for up to a week for an average of three hours a day
Data Download
IR may analyse your electronically stored accounting data using commercially available software;
data analysis varies with every audit, but common procedures are:
getting a data profile, ie, working out the size, number and distribution of transactions in a file
sorting, extracting and listing records based on certain criteria; and
sampling.
Voluntary Compliance
Sometimes things just don't go as you intended, and you've made a genuine error, or your interpretation of the law doesn't align with how IR has publicly represented how they interpret it. As indicated above, IR now has a greater ability to search through your computer-based business records, and in doing so, differentiate between genuine errors and deliberate non-compliance.
We recommend you talk to us if you are concerned about any particular transaction so that we can provide you with information regarding your options for addressing your situation.
While IR may impose penalties, by voluntarily advising them of the correction, they may reduce those penalties by 100%. Penalties can range from 20% to 150% of the tax shortfall (excluding use of money interest).
Source: IR Media Release 7 April 2025
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