A large percentage of audit targets used to be selected randomly. Time has certainly moved on and Inland Revenue (IR) now has much more sophisticated methods of targeting non compliers, through methods such as ‘data mining’. For example the Land Information New Zealand (LINZ) database could be searched for entities that transferred more than a certain number of properties. This information could then be used as a starting point for targeting entities/individuals who may not have complied with the land sale provisions. IR has several specialist units set up solely for reviewing land transactions.
Another example where IR is likely to use a focused technique of audit selection is in relation to recent changes relating to foreign superannuation repatriated to NZ. There are a number of databases IR can search that will provide a telltale of who withdrew what when, which will then be data matched with tax returns.
The following list includes the main issues that IR has been reviewing recently:
- Continuing review of land transactions. Typically the purchase is with the intention of resale, subdivisions or for dealers and developers.
- Individuals who have overseas interests. This is particularly relevant for those with overseas credit cards and bank accounts.
- Overseas pensions and superannuation schemes, with an emphasis on those who have withdrawn lump sums.
- Entities with losses carried forward. The question is asked as to how the losses eventuate and how are they being utilised.
- Exchange gains or losses on loans and mortgages denominated in foreign currency. IR is matching information on Non-Resident Withholding Tax (NRWT) which is essentially interest and approved issuer levy payments with tax returns.
IR has always received ‘anonymous information’ regarding false tax positions. Often from disgruntled ex partners or ex employees. They do follow up on this information. So while the IR selection process is certainly more targeted based on risk, there will always be a certain element of serendipity. Even though your door may not have been ‘knocked on’ for a number of years, you cannot rule out it happening tomorrow.
To ensure you are protected in the event of a random audit, enquiry, investigation or review instigated by Inland Revenue, talk to us about Audit Shield.
The information in this article has been provided by Audit Shield