New Zealand: NZ Government allocates additional funding for audit and enforcement activities

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New Zealand: NZ Government allocates additional funding for audit and enforcement activities

stewart.jpg

mackenzie.jpg

Tim Stewart


Alex Mackenzie

The New Zealand Treasury has recently released several documents recording decisions made by the Government in the run-up to New Zealand's 2015 Budget. The documents included a cabinet paper entitled 'Extending investment in Inland Revenue's investigation and collection activities' tabled by the Minister of Revenue. The paper provides useful background as to the areas of Inland Revenue's current audit and enforcement focus. For that reason, the paper is relevant to taxpayers and their advisers in determining how best to manage tax risks.

The paper describes the background to the allocation of an additional NZ$74 million ($49 million) in funding over five years for Inland Revenue audit and enforcement activities. Inland Revenue plans to use the additional funding to investigate aggressive tax planning, compliance with the property tax rules and the hidden economy. Some specific aspects of each of these three main focus areas are detailed below.

Aggressive tax planning

The additional funding allocated to investigating aggressive tax planning will be used to investigate:

  • international tax issues, especially transfer pricing;

  • issues requiring specialist expertise, such as the valuation of financial instruments;

  • 'significant enterprises' (which Inland Revenue defines as businesses with a turnover exceeding $30 million);

  • improving the analytical capability to undertake risk assessments; and

  • high income individuals, especially new immigrants.

Property compliance

The paper notes that compliance with property tax rules as a risk area "continues to grow", particularly given the buoyant residential property market in Auckland and Christchurch. Extra funding allocated to compliance with property tax rules is intended to allow:

  • more resources for work in establishing whether property has been acquired with an intention of resale (in which case any gain on disposal will be taxable, rather than a non-taxable capital gain);

  • expansion of analytical capability; and

  • further "customer education".

Hidden economy

The 'hidden economy' refers to people and businesses operating outside the tax and social policy systems. To date, work in this area has focused on the construction and hospitality industries, but Inland Revenue hopes to expand its focus to other areas. Additional funding will be used to address:

  • fraudulent activity, especially organised attacks on the tax administration and its systems; and

  • activity in a range of 'at-risk' industries within the hidden economy.

Tracking effectiveness

The paper states that the expected return on investment is a return of $8 in additional tax revenue for every $1 spent. If this ratio is not achieved, officials are to report back to the Minister of Revenue to seek direction on whether the funding should continue.

Explicitly linking the continuation of additional government funding to additional revenue raised from investigative activity is perhaps understandable given the government's fiscal constraints, and hence the need for a strong business case for any additional funding. It will, however, be interesting to observe how the revenue raised targets influence Inland Revenue's approach to case selection and interpretation of uncertain aspects of the tax legislation, particularly where large sums are concerned.

Tax managers and advisers should consider how best to manage the tax risk where large sums are involved, especially if the issue is one that falls within the areas of focus Inland Revenue has identified. In such cases, a taxpayer may wish to seek an Inland Revenue ruling or advance pricing agreement to manage the risk of a later audit.

Tim Stewart (tim.stewart@russellmcveagh.com) and Alex Mackenzie (alex.mackenzie@russellmcveagh.com)

Russell McVeagh

Tel: +64 4 819 7527 and +64 9 367 8863

Website: www.russellmcveagh.com

more across site & shared bottom lb ros

More from across our site

Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Gift this article