Taxman after cash economy

Photo / NZ Herald

If you're a painter here's a tip: don't even bother trying to understate your earnings - the taxman is on to how much paint you're using.

The Inland Revenue Department has revealed more details of its strategy for cracking down on the "hidden economy" - jobs done for cash and similar activities designed to disguise how much income is really being earned.

The department recently released its second annual compliance focus report, and once again it has the hidden economy in its sights. It plans to use around a third of the extra $119 million allocated to it in the Budget for investigation activities on tracking under-the-table earnings. It had already hired more staff, group manager assurance Martin Scott said.

"We make use of a number of different data sources to identify suppressed income."

For example, a painter would buy his raw materials from certain places that offered a trade discount. "Based on how much paint you buy we can determine, broadly speaking, what your income should be."

People also had to do something with suppressed income, and IRD could track it through major purchases such as a boat.

The crackdown on the cash economy would follow a similar pattern to the way IRD focused on internet trading, he said.

First, the department wanted to make people more aware of their responsibilities.

Secondly, it would contact individual taxpayers and ask them to come forward with their correct position. Then it would investigate.

There had been concern from small retailers that people were undercutting them by trading online and avoiding tax.

"We now regularly download about 3 million transactions at a time off the internet. We're then able to compare those to the records that we have."

Traders who were "at the very far end of some significant sales and no return" were investigated straight away.

IRD received a lot of anonymous information and it always followed up on that by contacting the taxpayer concerned directly.

It encouraged people to voluntarily put things right because tax evasion or fraud attracted penalties of 150 per cent. "If you come and disclose to us there are substantial reductions on those penalties."

Scott also urged consumers to always demand a legitimate invoice. Without it they had no comeback if anything went wrong, and in the case of things like house repairs it could have insurance implications.

People did try to massage their income to remain eligible for benefit payments, and IRD kept an eye on that: "If we think it would lower people's perception of the integrity of the tax system then we focus on it."

Trade staff on the take

A South Auckland woman has dobbed her movers in to the Inland Revenue Department after a string of tradespeople offered her their services under the table.

When the woman and her husband moved house recently they were horrified to find that the gardener, the cleaner, the carrier and the lawn mower man all wanted to do the job for cash. "It was one after the other," she says.

The carrier offered them two separate invoices. "He said, 'if you're prepared to give me either folding or a cheque made out to cash, you can pay that one'.

"The cleaner, we had to put it into a relative's account who she owed money to. What are you meant to do, the job's already done."

The mother of three has now informed IRD about the mover's double invoice book.

"When I talk to other people, this happens all the time.

"How much is missing out of the tax take? If the correct amount of GST and tax was paid, how much would that lower our personal tax rates?"