The IRD website states “Prosecution is one way the Commissioner of Inland Revenue protects the integrity of the tax and social policy systems she is statutorily responsible for. It is an enforcement activity, usually of last resort,…”
IRD has a compliance model that guides the approach taken. Most taxpayers want to do the right thing but occasional gets it wrong. IRD takes an assistance role in helping these taxpayers comply. Those that don’t want to comply get a tougher deterrent model and those who have decided not to comply at all get the full force of the law. The courts taking the approach that this is “theft from the community”.
Examples of non-compliant behaviours include:
falsifying documents to misrepresent revenue
misuse of revenue held in trust, such as PAYE, employee Kiwisaver, GST, student loan deductions e.g. not paying on behalf of employees
non-filing of returns with intent to evade assessment and payment of liabilities, including child support and
laundering the proceeds of offences against the revenue.
All that cash that doesn’t get declared is covered too.
The Commissioner may also prosecute third parties for aiding, abetting or conspiring in such conduct. Are you knowingly benefiting from this?
The Commissioner will not however prosecute a taxpayer if they have made a pre-notification voluntary disclosure in respect of their tax position. The disclosure must be a full disclosure that allows the Commissioner to make a correct assessment. The disclosure does not reduce any penalties and if any additional shortfall or offending is found prosecution is still a possibility, so it’s not a get out of jail free card.
The investigation team has lots of metrics that they use in order to assess the likelihood of someone who is, for example, not declaring all the cash they should be. They get information from a variety of sources that shows what percentage of cash a particular business category e.g. café or dairy is likely to be taking in. They can compare similar businesses in the same geographic or demographic areas to narrow the percentage further and then compare this with cash banked by that particular business. If the percentage shows that 55% of the income is likely to be cash, but only 20% of the business income going into the bank is cash there may be a reason to investigate further.
Evidence is also fundamental to being prosecuted. The investigation team has many powers to search premises, homes and records. They could stakeout the business and owners and monitor actions and lifestyle. Do you live a higher standard than your declared income suggests? Proof could be in the bags of cash stored under the spare bed!
IRD don’t hide the fact that they can and do prosecute, just check out their website for their guidelines, cases and rulings http://www.ird.govt.nz/taxagents/compliance/ . For most people they will never need to know any of this, but for those few who are thieving from the community, for whatever mistaken beliefs they may hold, IRD are on the look out.