Inland Revenue steps up the gas on tax debt recovery; tips on managing your debt.

Inland Revenue is on the war path with tax debt offenders. It has secured more funding for tax compliance and looks set to be more aggressive in its pursuit of tax debt. This means it’s time for all small and medium-sized enterprises (SMEs) to ensure their houses are in order with careful tax planning and advice.

In its May Budget, the government announced new funding of $35 million a year for Inland Revenue to carry out tax compliance and collection activities. That’s on top of the funding of the $27 million provided in its 2022 Budget.

The Commissioner of Inland Revenue, Peter Mersi, says this increased funding means the great majority of New Zealand taxpayers who meet their obligations can continue to be confident Inland Revenue will find those who aren’t.

Revenue Minister Simon Watts says New Zealand’s tax debt rose to $8.5 billion by the end of 2024. Inland Revenue collected almost $3 billion of overdue debt in the year to March 2025 and is on track to collect more than $4 billion by 30 June.

Watts adds that Inland Revenue’s return on investment from compliance activities is rising. “The Budget’s compliance investment has an expected return of four dollars for every dollar spent in 2025/26, rising to eight dollars per dollar spent in 2026/27 and beyond,” he says.

That follows strong growth in auditing activity in the first half of the 2024/25 financial year, when Inland Revenue opened 3,600 audits – 50% more than the same period the previous year. Through these audits, Inland Revenue found $600 million of additional tax that should have been declared.

In addition, Inland Revenue’s debt collection activities continue to result in increased cash collection, with $2,985 million collected in the year to date compared to $2,688 million for the same period last year.

Inland Revenue’s focus this year

Inland Revenue’s Segment Lead for Significant Enterprises, Tony Morris, says Inland Revenue has been in touch with 200 business owners and told them it knows they have multiple properties – some in a company name, some in trusts, some personally.

“We believe they should be able to refinance to pay their debts to us and told them so. If they choose not to, we’ve been clear that our approach to their debt will escalate,” he says.

Inland Revenue is also following up on 800 people who may be trying to avoid the top 39% tax rate by wrongly keeping income in companies or trusts.

Morris adds that Inland Revenue has started using data gathered from payment service providers to investigate businesses. “That might be because the payments data shows they are selling goods or services, but we’re not receiving GST returns. Or because the number of sales indicates they should be GST registered, and they are not. Or because we can see big value sales, but they simply aren’t on our records at all,” he says.

“We have issued 160 warning letters advising customers to declare their income from crypto transactions, which we estimate to be worth $2.7 million.”

Because the hidden economy covers a range of undeclared and inaccurately reported transactions, Inland Revenue also has an ongoing programme to target sectors where cash jobs and under-reporting of income are more prevalent.

“We have opened audit cases in the construction sector with a current value of $2.3 million of discrepancies in tax assessed. A new selection of cases is now focusing on plasterers and painters,” says Morris.

“We also made 320 unannounced visits to independent liquor stores and around 450 vape stores.”

Top tips on managing and reducing tax debt

Morris encourages people who have a tax debt to talk to Inland Revenue early to avoid harsher outcomes. It also promotes voluntary disclosures if you’ve made a mistake or can’t pay your debt. “A voluntary disclosure is a lot less costly for taxpayers than if they wait for us to come to them,” says Morris.

Inland Revenue has a range of options to help taxpayers get back on track. One route is to set up an instalment arrangement to pay off your debt over time in manageable amounts, reducing the likelihood of incurring late payment fees.

Serious financial hardship relief may also be available for sole traders if paying the tax debt will render them unable to meet daily minimum living expenses, medical expenses or their children’s education costs.

Other steps you could take to manage your tax and reduce your tax debt include:

Other steps you could take to manage your tax and reduce your tax debt include:

• Leveraging tax pooling. Use intermediaries to smooth provisional tax fluctuations. This spreads liabilities and often reduces interest costs.
• Improving your tax governance. Inland Revenue has issued April 2025 guidance urging enterprises to adopt structured tax control frameworks to mitigate shortfall penalties. It takes a “principal-based approach” to help taxpayers understand what it is looking for when considering whether their tax governance is up to scratch.
• Better cash flow management. Understanding your cash flow so you know when money will come in or go out, and can better budget for tax payments. Automate invoicing, follow-up and payment. Review your cycle times and terms. Consider invoice finance or business loans to bridge tax cash-flow gaps.
• Smarter tax planning. For example, use the research and development (R&D) tax incentive which provides a15% credit on eligible expenditure. Utilise asset depreciation and bad-debt deductions. Don’t overlook minor deductions like home‑office or partial entertainment claims.
• Maintaining good records. Keep receipts, documentation and workpapers for every claim.
• Using digital tools and software to automate and streamline your business operations and provide you with calculations of your live tax position.
• Separating your required tax payments, GST and PAYE (pay as you earn) from your cash flow (perhaps in a separate bank account) so the funds are available when needed.
• Getting help from a tax professional or accountant.

Conclusion

With Inland Revenue stepping up its compliance efforts and audit activity, tax debt is no longer something that can be pushed down the priority list. For SMEs, now is the time to take a proactive approach – get professional advice, review your tax position, and put the right systems in place to stay ahead. Acting early could be the difference between managing through or facing costly consequences.