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The Tax Man Is Coming For You
Alexia Russell, Producer of The Detail | From The Detail
The tax department is warning businesses to get their houses in order - it's cracking down with the power of the millions it got in the budget.
The tax department got $29 million in the budget this year - $116m over four years - to collect tax from people who should be paying it, but aren't.
IRD has just released its list of targets and it's a broad one, spanning everyone from students, criminals, shop owners with electronic ways to cheat the system, sole traders whose books are a mess, cleaners, gardeners, landlords, and people who try to avoid banking systems by using cryptocurrency.
But top of its list is the construction industry, a sector long associated with the proliferation of the "cashie".
Today on The Detail we look at how Inland Revenue plans to pull in an estimated extra $702m using its new resources; and why the construction industry feels a bit hard done by when it comes to assumptions about how builders do business.
RNZ money correspondent Susan Edmunds says IRD gets nearly 7000 anonymous tip-offs a year about cash jobs, and the construction industry is the most often reported.
"There's been a focus for several years there and [IRD is] just amping that up a bit," she says.
Construction "has had a big downturn just lately, so probably from some businesses' perspective this isn't a great time for a crackdown. But they have been signalling for some time that it's coming".
The industry has been struggling with economic hard times, an increase in insolvencies, unavailability of materials and hugely increased costs, and Edmunds says IRD acknowledges that.
"But they say that some are just actively avoiding their obligations, and those are the ones that they're going for.
"IRD says it will use the [budget] money on tools and people to get its audits done, and accountants and tax experts say they expect to see a real step-up in activity, and everyone should be working to get their paperwork in order," she says. "They say they took a 'softly-softly' approach during the pandemic but that's now changed."
Auditors have started to do site visits looking for the missing millions, which Edmunds says might be alarming for some people.
But 40,000 construction companies have outstanding debt, overdue tax returns or both. IRD will text 2500 of them asking if they want support to get their outstanding tax sorted. That includes the portion of people who owe GST to the government - GST debt has risen from $1.9 billion to $2.6 billion in a year.
"You might have to think that's probably businesses using that money to keep themselves afloat rather than paying their GST as they should," Edmunds says.
New Zealand Certified Builders Association chief executive Malcolm Fleming says there's irritation amongst professional builders that tradies always come up in conversations about those who don't pay their tax.
"Hundreds of thousands of people are employed in the construction industry in New Zealand and the majority of them are good commercial operators, running projects through their books and paying their share of tax to New Zealand Inc," he says.
Legally all building work with a value of more than $30,000 must come with a contract, and that leaves a paper trail. It's work under that amount where the "hidden economy" is often found.
In 2018 the Tax Working Group did a report on the hidden economy and concluded that the most common activity was the underreporting of taxable income - through activities including cash jobs, not declaring rental income, or skimming transactions.
Fleming says as the construction industry constricts thanks to economic restraints, bigger building firms are turning to smaller jobs, and are discovering this for themselves.
He says some education is needed - "There really needs to be a bit of a plea to the general public, or homeowners, to ensure that they go to a professional builder. Homeowners aren't going to their accountant, or their dentist, and asking for cash jobs, but they seem to think it's a way to go with tradies.
"For those professional builders, who are the majority, it's really annoying if they miss out on a job due to somebody who is providing a cash option.
"I think there needs to be a shift in the mindsets of the general public in their approach to asking tradies, or anyone else for that matter, 'what is the cash equivalent?'"
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