MEDIA RELEASE (NZ)

Accountants have reported more clients are facing tax debt, and that Inland Revenue has ramped up audit scrutiny, according to a survey by Chartered Accountants Australia and New Zealand and Tax Management New Zealand.

Of 362 responses from chartered accountants in public practice, 79% reported having entered or modified a tax debt arrangement on behalf of a client, a 7% increase on the previous year.

At the same time, one-third of accountants reported an increase in Inland Revenue audit activity, compared to last year.

“The survey highlights that businesses were crushed from all angles in 2024. Between ballooning interest rates, plummeting consumer confidence, and a recessionary business environment, Chartered Accountants are reporting more businesses are taking up tax debt arrangements,” said CA ANZ Tax Leader John Cuthbertson FCA.

“Accountants are reporting that in most cases it is easy to enter into instalment arrangements with Inland Revenue, and that once it’s set up, 72% say they’re confident clients will clear their debt.”

“If you’ve got tax debt, don’t ignore it – talk to your accountant, figure out a plan, and become one of those who are on track to meeting repayments,” concluded Mr Cuthbertson.

Tax Management New Zealand Strategic Advisor Chris Cunniffe FCA said that while Inland Revenue’s debt processes are working, there is room for improvement.

“Overall accountants reported inconsistency in their experience dealing with Inland Revenue on debt matters. While some report very positive engagement with Inland Revenue on managing client debt, many were frustrated by the lack of experience of the Inland Revenue officers, and the lack of timeliness from IR on managing clients’ debt positions. But once arrangements are in place, accountants report that they are easy to comply with, and they are confident that clients will clear their debt positions.”

Overall, 41% of chartered accountants in public practice reported engaging with Inland Revenue on audit activities this year, with GST, land issues and foreign income and tax credits being the main areas in which respondents reported audit activity.

“IR themselves have said they are ramping up audit, particularly across the construction sector, some retail segments and land transactions, and that’s backed up by our findings of those on the ground. No one should be surprised,” said Mr Cunniffe.

Compliance costs were also called out, particularly accountants who are directly facing the public, with 85% responding that the cost of tax compliance has increased.

Survey participants highlighted several key reforms that could help mitigate compliance costs:

1. Simplification of trust disclosures: The trust disclosure requirements were highlighted as the primary contributor to increased compliance costs. Nearly half (47%) of respondents supported streamlining or reducing the scope of trust disclosures to mitigate these costs.
2. Reform of fringe benefit tax (FBT): A reimagining of the FBT regime received strong support, with 27% indicating that simplifying FBT rules could help cut costs and improve compliance.
3. Leveraging digital innovations: Respondents also supported enhancing IR’s digital systems to streamline compliance processes. Recommendations included updating the Tax Administration Act 1994 to reflect a digital first approach and improving IR’s data collection processes to reduce unnecessary re-entry and duplication of taxpayer data.
4. Simplified overseas income rules: Simplifying the process for returning overseas income and claiming foreign tax credits was favoured by 33% of respondents, who felt that a more straightforward approach would reduce time and cost pressures for taxpayers with international income sources.

“The domestic trust disclosure rules were far and away the biggest bugbear for accountants and their clients. The survey results reinforce CA ANZ’s call for urgent action to reduce compliance costs, particularly for smaller trusts, small to medium-sized businesses and individual taxpayers,” concluded Mr Cuthbertson.

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