Budget 2026 increased Inland Revenue’s funding for tax compliance and collection activity by a further $15 million per annum. Additional enforcement funding has a predictable effect, and the areas it goes to are not mysterious.
Where non-compliance concentrates
For small and medium businesses, audit attention tends to land in the same places:
GST claims without supporting documentation. The most common finding on review is not fraud — it is a claimed expense with nothing behind it. Records must be held for seven years, and the requirement is supply information establishing what was supplied, by whom, when, and the GST charged.
Private use of business assets. Vehicles, phones, home office and travel used partly privately give an apportioned claim, not a full one. Vehicles are the perennial issue.
Fringe benefit tax on vehicles. The work-related vehicle exemption requires all three conditions — permanent and prominent signwriting, written notification to the employee that private use is prohibited, and at least quarterly checks that the restriction is observed, recorded. The third is the one most often failed, because businesses do the first two and never do the third.
Contractor classification. The test is the real nature of the relationship, not the label. A finding of employment produces retrospective PAYE, holiday pay, KiwiSaver and potentially personal grievance exposure across the whole relationship.
Shareholder current accounts. Overdrawn accounts, deemed interest, and the treatment of drawings. This is getting more attention, with new rules taxing outstanding shareholder loans six months after a company is removed from the register.
Cash businesses, where declared income can be compared against industry benchmarks and lifestyle.
What actually triggers an enquiry
Common triggers include figures out of line with industry benchmarks, consistent losses over several years, large or unusual one-off claims, inconsistencies between returns, information from third parties, and the results of data matching across government agencies.
Property transactions attract particular attention given the land taxing provisions, and the bright-line test is only one of them — the intention test applies regardless of how long a property was held.
The defensive position is documentation
Nothing about additional enforcement funding should worry a business with tidy records. The practical work:
- Keep the supplier documentation for everything you claim.
- Keep a logbook where vehicles are used partly privately, and do the FBT quarterly checks with a one-line record that they were done.
- Apportion honestly and be able to explain the basis.
- Review contractor arrangements against what actually happens rather than what the agreement says.
- Reconcile regularly rather than annually, so errors are found while the cause is traceable.
- Use accounting software that files directly, which removes most arithmetic risk.
If an enquiry starts
Engage rather than avoid. Provide what is requested, on time, and involve your accountant early — they deal with this regularly and know what is normal.
Voluntary disclosure before Inland Revenue identifies an error generally produces a materially better outcome than waiting. Shortfall penalties are reduced significantly for disclosure made before an audit begins, and the distinction between a disclosed error and a discovered one is substantial.
If you know something is wrong, that is an argument for raising it rather than hoping.
The discretion that softens the edges
Budget 2026 also gave the Commissioner discretion to accept late filings and amend errors, reducing compliance risk around technical deadlines.
That does not make deadlines optional — the discretion is the Commissioner’s — but it reduces the cliff-edge quality of some obligations where a genuine administrative slip previously produced a disproportionate result.
Tax debt
If the issue is inability to pay rather than accuracy, engage early. Instalment arrangements are available and are considerably easier to agree before a due date than after, and interest and penalties compound quickly.
Filing and paying are separate obligations. File everything even if you cannot pay — non-filing removes goodwill entirely.
Inland Revenue publishes guidance on record keeping, voluntary disclosure, instalment arrangements and FBT free at ird.govt.nz.
General information only, not tax advice.
