Inland Revenue increases audits and liquidations as NZ’s tax debt hits $9 billion and continues growing

As a result, the number of audits it did rose by 42% in the year to June, and helped the department collect $4.3b in tax debt over the year – the highest amount since 2018.

Speaking to the Herald, Baker Tilly Staples Rodway accounting firm tax director Andrew Dickeson said Inland Revenue’s focus had shifted from helping businesses access various government supports during the pandemic, to ensuring they meet their tax obligations.

The Government put an additional $35 million into Inland Revenue in Budget 2025 and wanted to see a high return on its investment.

“It’s as simple as that. Times have been tough for government, so the coffers need to be filled,” Dickeson said.

He said a common issue was people not realising they might have to pay tax on the sale of residential investment property, regardless of how long they’ve held it for, if they bought it with the intention of resale.

Another issue was people, such as consultants, paying themselves unusually low salaries to reduce their tax bills. They invoice whoever they did work for in the name of their company, pay tax at the company tax rate of 28%, but then pay themselves only a minimal salary to avoid paying income tax at the 33% or 39%.

Similarly, Dickeson said, it was not uncommon for people such as professional service providers to try to avoid paying tax at higher marginal rates by putting money in trusts and getting it paid out to family members, who are beneficiaries of those trusts and are on lower marginal tax rates.

Tradespeople doing cash jobs to evade tax continued to be an issue.

As for overseas businesses, Dickeson said Inland Revenue was focused on ensuring they paid tax in New Zealand if this was where they made their money.

He explained it was looking at whether the country’s tax base was being eroded by money being funnelled to jurisdictions with lower tax rates.

In Dickeson’s experience, Inland Revenue was increasingly looking at the governance of companies that ran into trouble, requiring those at the most senior levels (including directors) to be across relevant tax issues.

Of the 7641 audits Inland Revenue did in 2024/25, a third related to property, a third to technical issues, and the remainder to big businesses, fraud and the “hidden economy”, including the drug trade.

Dickeson recognised that tax rules related to residential investment property had changed a lot in recent years, with the bright-line test being shifted from two to five to 10 years, for example, before being shifted back to two years, and interest deductibility being phased out and then reinstated.

He said the recent removal of depreciation deductibility was tripping up some commercial and industrial building owners.

Dickeson assured the Herald that Inland Revenue was typically good to deal with if people front-footed the tax issue they had, and those under pressure worked on making a payment plan.

If this wasn’t the case, he believed Inland Revenue was more likely to apply penalties and, in the case of those who didn’t pay their tax debt, have their businesses liquidated.

In its 2025 annual report, Inland Revenue said it referred 650 cases to the court for liquidation in the year to June – a 49% increase from the prior year.

“This has heightened awareness that Inland Revenue will act,” the department said.

“It’s been a driver for some directors to put themselves into liquidation.”

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.