People who avoid their tax obligations are not paying their contribution towards public services. They may be undercutting honest businesses or getting benefits or tax credits they are not entitled to.
Alongside the work of our community compliance teams, Te Tari Taake Inland Revenue has used our expertise and analytics to identify customers most at risk of getting their tax wrong.
With most COVID-19 related compliance work ending, we’ve ramped up our focus on changing behaviours in the traditional sectors that operate in New Zealand’s ‘hidden economy’ and in emerging online industries.
Hidden economies exist in most countries because a significant number of people transact in cash and businesses operate partly or fully outside the tax system.
Post COVID-19, our monitoring of customer perceptions and attitudes saw a 5% increase in customers who indicated a willingness to accept or offer cash jobs.
Te Tari Taake Inland Revenue has increased efforts in sectors where cash jobs are more common such as residential construction and hospitality.
We’ve worked to ensure the many people and businesses in the property sector understand their obligations across areas such as the bright-line rule, interest limitation and loss-ringfencing for rental properties, property GST and emerging issues. Across our property compliance programme, we assessed additional revenue of $129 million this year.
We have continued to work with industry bodies and associations to help their members get tax right. For example, we’ve teamed up with the real estate agents sector to help educate members about claiming expenses in their tax. This came after monitoring of real estate agents’ returns identified a significant number claiming high expenses relative to their income and non-deductible private expenses. We have seen a 5% reduction in expenses claimed in the 2022 tax year compared to 2021.
Our analytics show around 50,000 customers working in New Zealand’s construction industry have at least 1 outstanding return and/or some form of tax debt. We also know under-declaring income is prevalent, with some customers avoiding tax obligations and others struggling to keep up with their paperwork.
We launched an online ‘toolbox for tradies’ in March 2023 to help customers get their tax affairs in order. It packaged up core tax topics, linked customers to pre-recorded seminars and encouraged them to book a business advisory visit with us or talk to a tax agent.
Authorities including Te Tari Taake Inland Revenue rely on information to ensure people are paying the right amount of tax. The growth and popularity of the sharing economy, and new and emerging technologies such as crypto-assets, present information gaps that pose a global threat to the integrity of revenue systems.
We have worked with partners at the Organisation for Economic Co-operation and Development (OECD) on solutions for these global challenges. This year has seen real momentum from the development of frameworks that countries can use to improve the visibility of income gained online.
Changes made by the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 require operators of digital sharing platforms to report information on the income of sellers who operate here, such as ride-share drivers and accommodation hosts.
This information will be shared globally under an automatic exchange of information where it relates to non-residents. Te Tari Taake Inland Revenue will also receive information about New Zealanders who earn income from activities carried out through foreign digital platforms.
We and our OECD partners have also developed stronger compliance around crypto-assets over the past 2 years.
Crypto-assets are treated as personal property under New Zealand’s tax rules and taxed when sold. Unlike other types of investment income, we do not currently receive regular or standardised information about them.
In October 2022, we consulted with New Zealand-based crypto-asset service providers on implementing another OECD information reporting and exchange framework. This would require crypto-asset exchanges, brokers and dealers to report aggregated data on their customers annually to tax authorities.
New Zealanders transact around 80% of crypto-asset activity through offshore exchanges, so information from other countries will benefit our country especially. We’re working to implement this new framework in New Zealand in 2026.
Te Tari Taake Inland Revenue collects and processes a lot of data that tells us where customers are getting things wrong, accidentally or deliberately. For example, we receive details of financial account information on New Zealand tax residents from nearly 100 other jurisdictions and supply data to them.
We use this information and other data to check people are paying the right tax on overseas investments. We've received more than 600 voluntary disclosures over the last 3 years, resulting in more than $74 million in omitted overseas income being assessed.
As a result of our work to help these customers understand their obligations, we expect to see a continued revenue benefit without the need to undertake further compliance actions.
Beginning in November 2023, Te Tari Taake Inland Revenue will begin to get electronic sales data regularly, initially from a sample of payment service providers. It will help validate the accuracy of GST reported sales, the extent to which electronic and cash transactions may be under-reported, and businesses who may be operating outside of the system.
It will also indicate where we can provide additional support through information, education or investigations.
A team from the OECD’s Global Forum visited in March 2023 to assess how we manage and safeguard confidentiality and data. The forum is the leading body for implementing international standards on tax transparency. We are regularly peer-reviewed on the minimum standards for meeting our international obligations. This helps ensure a level playing field around the globe.
Any major deficiencies identified through the review could impact our ability to receive information and New Zealand’s international reputation generally. Te Tari Taake Inland Revenue received a clear report from the review team, with no recommendations. This means our current approach qualifies us to keep taking part in international exchanges, including new schemes such as the crypto-asset reporting framework.
In a separate visit in May 2023, a Global Forum team reviewed our effectiveness in collecting and exchanging financial account information. This review looked at how we assure accuracy, completeness and timeliness of exchanging information.
Photo above of the Global Forum review team’s visit in March 2023
Back row: David Clarke, John Nash, Stephen Lynch, Jesse Thwaites, Malcolm Breadmore, Jay Harris, Vanessa Johnson and Patrick O’Doherty.
Front row: Anu Anand, Erina Clayton, Mark Ketchell, Dawn Swan, James Cole, Gudrun Jonsdottir, Peter Mersi, Richard Burke and Kevin Mallek.