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John Heaslip

Cash Payments - IRD crackdown


Since 2009, the Inland Revenue Department has been cracking down on industries known to pay workers under the table (i.e. undeclared cash payments). 

According to an article in the NZ Herald in April 2018, New Zealand is missing out on about $800 million in its annual tax take due to under-reported income, so it's understandable that the IRD are focusing on this.

Construction industry was the first target

The IRD stated that they had identified the building and construction industry as high risk because its workers did not always declare their full income for tax purposes. This was based on a 2015 survey of tradies, which found that a quarter of building and construction work in Auckland was done under the table.

During 2017, the IRD launched an advertising campaign warning tradespeople that their cash jobs can be traced by the taxman. The main message was “every undeclared cash job leaves a trail”. Further, the IRD went on to say, “Typically, with cash you have to spend it some time. So whether it goes on travel, living expenses, a new skill saw, gambling, the mortgage or anything else – we can find it.”

Andrew Stott from the IRD, said, "When we focus on this area (cash payments) and go after it we get tens of millions to hundreds of millions of additional income." The IRD reported that they recovered between $60 and $150 million in lost tax that year.

In a February 2018 article published on Stuff.co.nz, it was reported that two tradesmen had been jailed for each evading nearly $1 million in tax. A Hamilton plasterer was sentenced to two years and one month prison, and an Auckland builder received a sentence of two years and seven months.

It was reported that the Hamilton plasterer was sentenced for evading $996,107 in tax between 2009 and 2017 when he did not file any income tax or GST returns. According to the IRD, he charged his clients GST but never passed that on to Inland Revenue. He also deducted PAYE from his employees but never passed that on either. Further he didn't file an income tax return for nearly a decade.

The IRD said the Auckland builder had "existed largely outside the tax system for 17 years" and was jailed for three representative charges of filing false GST and income tax returns, and failing to file returns. The Department said a wider investigation into the builder’s affairs showed he had evaded a total of $879,340 in tax, which included failing to pass on $630,682 in GST he'd charged clients.

IRD now focusing on the hospitality industry

The IRD has extended its crackdown on cash payments to the hospitality industry, and is targeting cafes, restaurants, bars and bakeries, to name a few. The tax department have recently carried out unannounced visits to hospitality businesses in Queenstown. Using court issued search warrants, the IRD searched three hospitality businesses in Queenstown and made surprise visits to six others. The IRD found that the businesses were paying staff without PAYE being deducted and that cash was being banked into private bank accounts without being returned for GST and income tax.

The crackdown on hospitality industries is not just targeting Queenstown; it is extending throughout the country. In October 2019, Stuff.co.nz, published an article about five members of a Thai restaurant family that had been sentenced to prison or home detention after a $2.3 million tax evasion case. This was by no means a trivial tax evasion case – they found $5.2 million had been banked into private accounts.

Summary
If you are in business and you have been under-reporting income or not reporting it at all, you need to do something about it. The good news is that GRA will be able to help you. We are not enforcers, nor do we judge – we are tax advisers. For a confidential appointment with one of our consultants, please contact us on 09 522 7955, [email protected] or via our website


John Heaslip
Business Advisory Director
© Gilligan Rowe & Associates LP

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