Tax evasion prison sentence a warning for hospitality sector

04 OCTOBER 2019

Recent successful court action against the owners of more than 20 Thai takeaway restaurants should serve as a warning that Inland Revenue will track down and prosecute businesses deliberately hiding cash sales – no matter how long it takes.

Five members of one family were sentenced this week after a multi-year tax evasion investigation. One was sent to prison for two years and 8 months and three will serve home detention sentences. The five were also ordered to pay a total of more than $2.2 million in reparations.

Inland Revenue has today launched a fresh hidden economy campaign targeting the hospitality sector which includes restaurants, cafés, bakeries, takeaway shops and liquor outlets.

IR spokesperson Richard Philp says hiding cash sales creates an uneven playing field and gives some a leg up at the expense of others.

“What happened in the Thai House case was despicable. Cash sales were deliberately suppressed to pay less tax. An aggravating feature was that the declared income of two of the defendants was low enough to qualify for a Working for Families Tax Credit in some years.

“There was an extensive investigation into the family group with searches of private properties turning up business records, luxury goods and cash in some instances. At one point in the trial the cash deposited in personal bank accounts was said to be more than $9 million.

“As these siblings found out, undeclared income leaves a trail which can be easily uncovered. Cash sales don’t fly under the IR radar and people who accept cash and don’t put it through the till should expect contact from IR.”

Investigation work into the hidden economy uncovered $108.8 million worth of unpaid tax in 2018/19.

“The hospitality sector has high risks when it comes to hidden economy activity and undeclared income because of the high number of cash transactions and the more short-term nature of employees,” Richard Philp says.

“We see things like staff being paid under the table and inconsistencies between supplies bought and goods sold. Cash leaves a clear trail for IR to follow. And we do follow through no matter how long it takes.

“If you’d rather sleep easy at night, keep good records and put cash sales through the till. Our best advice is to record everything, declare every dollar and make sure you’re charging GST if required.”

Richard Philp says most hospitality businesses are paying the right amount of tax and have good bookkeeping practices.

“But there are those that don’t. That’s a shame because knowing the books are all in good order takes a huge weight off a business owner’s shoulders. It not only helps with tax obligations but also provides a more accurate view of cash flow, allows greater access to finance and ensures a business is correctly valued.

“There are software packages on the market to help businesses of any size to log income and expenses – and the purchase of them is tax deductible. Even a simple spreadsheet is better than no records and can work just as well.

“All taxpayers play an important role in helping us protect the integrity of the tax system by making sure everyone pays their fair share. Afterall, tax pays for the essential things that make New Zealand a great place to live,” Richard Philp says.

If you think someone’s not being honest about their tax you can anonymously report tax evasion https://www.classic.ird.govt.nz/tax-crime/report/report-tax-evasion.html

You can contact Inland Revenue if you think hospitality businesses are not declaring their full earnings hospitality@ird.govt.nz.

Or, as a business owner, you can also tell IR voluntarily about your own tax situation especially if you think there’s something wrong with your tax returns because you’ve left out some cash sales https://www.ird.govt.nz/tasks/make-a-voluntary-disclosure

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