Inland Revenue Are Knocking On More Doors!
Inland Revenue expects a return of more than $1 billion over two years, signalling a strong focus on high-risk areas such as trusts, residential property, and undeclared income in the hidden economy. Its improved data capabilities are enabling broader and more targeted audit programmes.
Inland Revenue is ramping up its compliance activity. The 2025 Budget allocated an additional $35 million per year to Inland Revenue, on top of $29 million already in place. This funding supports an increase in audits, investigations, enforcement, and debt collection. Inland Revenue expects a return of more than $1 billion over two years, signalling a strong focus on high-risk areas such as trusts, residential property, and undeclared income in the hidden economy.
As at 31 March 2025, Inland Revenue assessed $880.8 million in additional tax through audit activity, with IR-initiated liquidations increasing by 67.5% year-on-year. Its improved data capabilities are enabling broader and more targeted audit programmes. As a result, taxpayers are increasingly likely to receive formal information demands under section 17B of the Tax Administration Act 1994 (TAA) or become subject to physical or digital search activity under Inland Revenue’s statutory powers.
We have seen this increased activity with a number of clients being selected for audit on a random basis. It is clear that GST is a big focus for Inland Revenue so therefore if you do your own GST return now is the time to get all your calculations etc in order and ALL supporting paperwork including invoices and bank statements. They will ask for these and if you cannot supply it does not bode well for the audit outcome.
What Is A Section 17B Notice
A section 17B notice is not a courtesy request. It is a formal legal demand issued by Inland Revenue. Under the TAA, Inland Revenue is authorised to compel information from a taxpayer or third party without first requesting it voluntarily.
Such a notice may request, for example:
Issued without warning, these notices are often part of broader investigations. Operational Statement OS 25/05, released in June, confirms Inland Revenue’s intent to take a more assertive approach, particularly in relation to high-value, trust-related, or cross-border matters. Recipients generally have 21 days to respond.
If you are issued with such a letter (or any audit letter) the first call should be to us and then depending upon the situation your lawyer. We would recommend a meeting to discuss the letter received and the actions required.
Handling Inland Revenue's Search Powers
Operational Statement OS 25/04, also issued in June 2025, outlines Inland Revenue’s approach based on the search powers it has under sections 17, 17C, and 17D of the TAA.
Searches of private dwellings require either the consent of the occupier, or a search warrant. A search warrant must be granted by a District Court Judge, a Judge of the High Court, or a person authorised by the Attorney General (e.g. a Justice of the Peace). Inland Revenue must demonstrate that there are reasonable grounds to believe that evidence relevant to a tax investigation is located at the premises. The warrant will specify certain criteria, including the address of the premises to be searched, the period during which the warrant may be executed, and the types of items or information being sought.
Meanwhile, entry to business premises may be authorised without a warrant under certain statutory provisions, such as section 17C. Reasonable force may be used to gain access, and Inland Revenue’s forensic teams may accompany officers to extract data from computers, servers, or other electronic storage systems.
This expands Inland Revenue’s ability to act without prior notice. It is important that professional firms and their clients are prepared for this possibility. Legal representatives may be present during a search, and all staff should be informed of their role in such situations, including who to notify, what access to allow, and how to document the event.
Readiness In Practice
Clear internal protocols help ensure Inland Revenue notices are identified and escalated without delay. Staff awareness and escalation systems are key to managing responses effectively.
Notices need careful review to confirm deadlines and scope. Recipients will need to consider whether legal privilege applies to any information requested. Where it does, documents must be properly recorded without revealing protected content.
Timely, clear communication is important—highlighting obligations, deadlines, and required documentation. Any information exchanged must be securely transmitted via encrypted email, secure file transfer protocol (SFTP), or Inland Revenue’s portal.
Maintaining full records of all submissions, correspondence, and privilege claims supports transparency and consistency. Standard templates and response logs can streamline this process.
An internal plan for unannounced visits also helps minimise disruption. Staff benefit from knowing who to contact, what to allow, and how to document the event.
Following any Inland Revenue engagement, it's good practice to review what went well and refine internal procedures where needed.
Maintaning Readiness
Advanced preparation enables the most effective response when Inland Revenue comes knocking. While escalation protocols and secure handling of notices matter, long-term readiness depends on consistent compliance.
The best defence is adherence to tax rules and the retention of contemporaneous supporting documentation. Periodic reviews of internal procedures and staff training help ensure responses are timely, accurate, and well supported when Inland Revenue initiates contact.
Costs Incurred As Result of Inland Revenue Investigation
Audit Shield provides an insurance solution that covers the professional fees that help you assist your client to respond to an official audit, enquiry, investigation or review of returns lodged with Inland Revenue (IR) or other New Zealand government revenue authorities. Audit Shield must be paid for and in place before any letter is received from a government agency.
Audit Shield provides you with cost effective protection and assistance against the substantial cost that may be incurred should IR or other New Zealand government revenue authorities conduct a random audit, enquiry, investigation or review of lodged returns.
In relation to lodged returns, the following audits, enquiries, investigations or reviews are covered:
If you have not had Audit Shield insurance before or think there may be benefit in light of Inland Revenue activity please get in touch with Cass Harbrow and she will provide you with a quote.
Inland Revenue is ramping up its compliance activity. The 2025 Budget allocated an additional $35 million per year to Inland Revenue, on top of $29 million already in place. This funding supports an increase in audits, investigations, enforcement, and debt collection. Inland Revenue expects a return of more than $1 billion over two years, signalling a strong focus on high-risk areas such as trusts, residential property, and undeclared income in the hidden economy.
As at 31 March 2025, Inland Revenue assessed $880.8 million in additional tax through audit activity, with IR-initiated liquidations increasing by 67.5% year-on-year. Its improved data capabilities are enabling broader and more targeted audit programmes. As a result, taxpayers are increasingly likely to receive formal information demands under section 17B of the Tax Administration Act 1994 (TAA) or become subject to physical or digital search activity under Inland Revenue’s statutory powers.
We have seen this increased activity with a number of clients being selected for audit on a random basis. It is clear that GST is a big focus for Inland Revenue so therefore if you do your own GST return now is the time to get all your calculations etc in order and ALL supporting paperwork including invoices and bank statements. They will ask for these and if you cannot supply it does not bode well for the audit outcome.
What Is A Section 17B Notice
A section 17B notice is not a courtesy request. It is a formal legal demand issued by Inland Revenue. Under the TAA, Inland Revenue is authorised to compel information from a taxpayer or third party without first requesting it voluntarily.
Such a notice may request, for example:
- Bank statements
- Contracts or invoices
- Emails or internal correspondence
- Cloud-based accounting records
Issued without warning, these notices are often part of broader investigations. Operational Statement OS 25/05, released in June, confirms Inland Revenue’s intent to take a more assertive approach, particularly in relation to high-value, trust-related, or cross-border matters. Recipients generally have 21 days to respond.
If you are issued with such a letter (or any audit letter) the first call should be to us and then depending upon the situation your lawyer. We would recommend a meeting to discuss the letter received and the actions required.
Handling Inland Revenue's Search Powers
Operational Statement OS 25/04, also issued in June 2025, outlines Inland Revenue’s approach based on the search powers it has under sections 17, 17C, and 17D of the TAA.
Searches of private dwellings require either the consent of the occupier, or a search warrant. A search warrant must be granted by a District Court Judge, a Judge of the High Court, or a person authorised by the Attorney General (e.g. a Justice of the Peace). Inland Revenue must demonstrate that there are reasonable grounds to believe that evidence relevant to a tax investigation is located at the premises. The warrant will specify certain criteria, including the address of the premises to be searched, the period during which the warrant may be executed, and the types of items or information being sought.
Meanwhile, entry to business premises may be authorised without a warrant under certain statutory provisions, such as section 17C. Reasonable force may be used to gain access, and Inland Revenue’s forensic teams may accompany officers to extract data from computers, servers, or other electronic storage systems.
This expands Inland Revenue’s ability to act without prior notice. It is important that professional firms and their clients are prepared for this possibility. Legal representatives may be present during a search, and all staff should be informed of their role in such situations, including who to notify, what access to allow, and how to document the event.
Readiness In Practice
Clear internal protocols help ensure Inland Revenue notices are identified and escalated without delay. Staff awareness and escalation systems are key to managing responses effectively.
Notices need careful review to confirm deadlines and scope. Recipients will need to consider whether legal privilege applies to any information requested. Where it does, documents must be properly recorded without revealing protected content.
Timely, clear communication is important—highlighting obligations, deadlines, and required documentation. Any information exchanged must be securely transmitted via encrypted email, secure file transfer protocol (SFTP), or Inland Revenue’s portal.
Maintaining full records of all submissions, correspondence, and privilege claims supports transparency and consistency. Standard templates and response logs can streamline this process.
An internal plan for unannounced visits also helps minimise disruption. Staff benefit from knowing who to contact, what to allow, and how to document the event.
Following any Inland Revenue engagement, it's good practice to review what went well and refine internal procedures where needed.
Maintaning Readiness
Advanced preparation enables the most effective response when Inland Revenue comes knocking. While escalation protocols and secure handling of notices matter, long-term readiness depends on consistent compliance.
The best defence is adherence to tax rules and the retention of contemporaneous supporting documentation. Periodic reviews of internal procedures and staff training help ensure responses are timely, accurate, and well supported when Inland Revenue initiates contact.
Costs Incurred As Result of Inland Revenue Investigation
Audit Shield provides an insurance solution that covers the professional fees that help you assist your client to respond to an official audit, enquiry, investigation or review of returns lodged with Inland Revenue (IR) or other New Zealand government revenue authorities. Audit Shield must be paid for and in place before any letter is received from a government agency.
Audit Shield provides you with cost effective protection and assistance against the substantial cost that may be incurred should IR or other New Zealand government revenue authorities conduct a random audit, enquiry, investigation or review of lodged returns.
In relation to lodged returns, the following audits, enquiries, investigations or reviews are covered:
- Dividend Withholding Tax
- Employer Returns
- Fringe Benefits Tax
- GST
- Imputation Credit Account
- Income Tax
- Non-Resident Withholding Tax
- PAYE
- Record Keeping
- Resident Withholding Tax
- Any query of any lodged return where your client is compelled to respond or act*
If you have not had Audit Shield insurance before or think there may be benefit in light of Inland Revenue activity please get in touch with Cass Harbrow and she will provide you with a quote.
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