More than $150 million in undeclared income tax and GST has been uncovered by Inland Revenue (IR) from the property sector.
Funded by last year’s Budget, which allowed it to increase its compliance work, IR said it has been taking a closer look at the tax affairs of developers, people with rental properties, and those covered by the bright-line test.
The discrepancy found in undeclared tax adds up to $153.5 million from 1283 closed cases – an average of $119,643 per case.
The figures cover the first nine months of the current financial year, but comes close to the $156.8 million amount found during the whole 2023-2024 financial year.
‘Seeing a pattern’
IR said it has been focusing on defaulting property developers to “make sure they meet their obligations for GST and income tax”.
“While some of the errors will be accidental, we’re also seeing a pattern of property developers claiming significant refunds as they incur costs up-front but then failing to file and pay once properties sell.
“Where we expect a GST payment from a property sale and we don’t see the sale in the return, we contact the developer to make enquiries.”
It said if there is no response or return filed, it will then take quick enforcement action.
The numbers
In the current financial year to date, IR found $72,937,921 in discrepancies from property developers, which it said is a 48% increase on the same time last year.
On GST, IR said it has seen a growing number of issues involving companies or individuals making multiple land transactions where GST needs to be correctly accounted for.
“Sometimes they are changing the intended use of the land or frequently transferring ownership between entities with or without GST registrations. These actions appear to be attempts to circumvent their GST obligations.
“We see non-compliance or errors early, using our automated tools and analytics. Our work in this area so far, this financial year has found $59,959,470.00 in discrepancies – a 39% increase for the same time last financial year.”
IR said it also started a campaign in March to help people understand their bright-line obligations.
The bright-line rule applies to any person who sells a residential property that’s not their main/ family home within two years of being brought, with income tax payable on any profits.
So far this year, it said it helped more than 550 customers with bright-line issues and processed $3.68 million in voluntary discloses.
The discrepancy found in the bright-line area was $14,152,162 – a 9% increase since last year.
