15 Common Reasons Why the IRD May Audit You in New Zealand
In New Zealand, the Inland Revenue Department (IRD) regularly reviews the financial records of businesses and individuals to ensure tax compliance. Being audited doesn’t necessarily mean something is wrong, but certain behaviors or anomalies may raise red flags with the IRD. By understanding these triggers, you can better manage your taxes and minimize the risk of being audited. Below, we summarize 15 common reasons why the IRD might audit you.
1. Prolonged Zero Returns or Persistent Losses
If your business reports zero income or consistent losses over a long period but continues operating, the IRD may find this suspicious.
2. Late Tax Returns
Late filing of GST, Income Tax, or Payroll returns can attract penalties and interest—and also the IRD’s scrutiny. Additionally, discrepancies between GST and income tax figures are often flagged for review.
3. Data Mismatches
Government and financial institutions report data to the IRD, such as property sales, interest income, or online transactions (e.g., Uber, Airbnb). If your tax filings don’t match these records, you’re likely to be audited.
4. Unusual Income Fluctuations
Large income or profit swings, unusually high expenses, or figures that deviate significantly from industry benchmarks can raise concerns.
5. Excessive Home Office Deductions
Claiming disproportionately large home office expenses might catch the IRD’s attention.
6. Business Vehicles Claimed as 100% Commercial
If vehicles registered under your name are claimed for 100% business use without a proper logbook, the IRD may investigate. Even commuting between home and work is considered private use.
7. Investment Property Losses
Reporting rental income as consistently negative or failing to declare it altogether may seem unreasonable to the IRD.
8. Rapidly Growing Revenue in New Businesses
New companies with a sudden spike in invoicing or long-standing accounts receivable/payable might be suspected of inflating income or costs.
9. Cash Transactions or Personal Accounts
Frequent cash transactions or using personal accounts for business purposes can prompt an audit. Large transfers between personal and company accounts, especially for investment purposes, require thorough documentation.
10. Frequent International Transactions
Significant overseas fund transfers or frequent international transactions are closely monitored by New Zealand authorities and may lead to inquiries.
11. Discrepancies in Operational Scale vs. Revenue
Mismatched business operations—such as having many employees, a large facility, or high utility bills, yet reporting low income—can signal under-reporting.
12. High Inventory or Unearned Revenue
Excessive inventory or unearned revenue on your books might indicate unreported income.
13. Whistleblower Reports
Reports from disgruntled individuals or links to others under investigation can lead to an audit.
14. Lifestyle vs. Income Disparities
If your declared income is low but your lifestyle suggests wealth—such as luxury spending or substantial assets—the IRD may investigate.
15. Random Selection
Sometimes, audits are simply the result of a random check by the IRD.
Industries Under Increased Scrutiny
In recent years, the IRD has been paying special attention to the following industries:
- Construction
- Real Estate Sales
- Import/Export
- Hospitality
- High-Income Professionals
- Retail
What to Do if You’re Audited
If you find yourself under an IRD audit, there’s no need to panic. Contact a professional tax advisor for assistance. We can evaluate your situation and develop a tailored plan to resolve the issue with confidence.
Tax compliance can be complex, but staying proactive and informed is the best way to avoid unnecessary audits. If you have any questions or need assistance, don’t hesitate to get in touch with us! Our contact details can be found on the Contact Us page.
