With Mike Atkinson, Director, Bellingham Wallace
With the tax year at an end, The Inland Revenue Department (IRD) will be looking at ensuring that all tax returns and necessary information have been declared and correctly reported.
IRD is responsible for collecting and administering taxes in New Zealand. The Commissioner of Inland Revenue has various powers and responsibilities to ensure that taxpayers comply with their tax obligations. One of the Commissioner's powers is to request and obtain any/all tax information from any taxpayer in New Zealand through various intermediaries such as banks, immigration and the land office to name a few. Another power is the ability to impose various penalties on taxpayers who breach the tax rules. In this article, we will provide a brief overview of some proactive reviews and steps that the Commissioner can initiate.
Risk reviews
The IRD conducts risk reviews to identify and address potential tax risks and issues. Risk reviews are not audits, but they may lead to an audit if the IRD find evidence of non-compliance or discrepancies. Risk reviews can be initiated by the IRD based on various factors, such as:
The IRD may contact taxpayers or their representatives to request information or documents, or to arrange a meeting or a visit. Taxpayers are expected to cooperate with the IRD and provide accurate and complete information within the specified timeframe. If taxpayers do not cooperate, the IRD may escalate the matter to an audit or use other powers available by statute to seek taxpayer compliance.
Basic compliance package (BCP)
A new strategy was implemented by Inland Revenue in 2012 to enhance the compliance of significant enterprises generally based on a turnover threshold or personal wealth of a taxpayer in some instances.
As part of this strategy, all significant enterprises are required to submit a basic compliance package (BCP) every year, which consists of information on group structure, financial statements and tax reconciliations. These documents are then scrutinised by Inland Revenue. The level of compliance intervention is determined by the risk rating from the BCP review, past history and other intelligence. The intervention can vary from no action to further review or a full audit if needed.
Audit
The IRD conducts audits to verify the accuracy and completeness of taxpayers' tax returns and records. Audits can be triggered by risk reviews, information from third parties or other sources, or random selection. Audits can vary in scope and duration, depending on the complexity and nature of the tax issue.
The IRD will notify taxpayers or their representatives of the audit process and expectations. The IRD will also assign an auditor who will be the main point of contact for the audit. The auditor will request information or documents from taxpayers or their representatives, and may also conduct interviews, site visits or inspections. The auditor will analyse the information and documents provided and seek internal and external support as necessary.
The auditor will then issue a draft audit report, which will outline the findings and conclusions of the audit, as well as any proposed adjustments or penalties. Taxpayers or their representatives will have an opportunity to review the draft audit report and provide feedback or comments. The auditor will consider the feedback or comments and issue a final audit report, which will confirm the outcome of the audit and any actions required by taxpayers. Where there is disagreement between the parties, there is a formal dispute resolution process that sets out taxpayer rights to challenge the IRD position. This process is largely legalistic. We recommend that where taxpayers are concerned with a tax position taken or want to correct an error, they explore the route of a voluntary disclosure.
Please feel free to reach out to us if you have any enquiries regarding Inland Revenue reviews. Our tax team at Bellingham Wallace has the expertise and experience to assist you with any tax related matters.
