The IRD has intensified its compliance activities and now targets businesses with high cash transactions more than ever before. Your business needs heightened vigilance to stay IRD compliance in 2024. The government has allocated additional funds to the IRD for audit activities that focus on the “hidden economy.” Small businesses and sole traders face increased scrutiny, and many have received notification letters about stricter compliance checks.
The IRD’s capabilities have expanded significantly. They now have access to extensive third-party data, including merchant transactions, bank records, property dealings, and information from online marketplaces like Airbnb. A new regulation takes effect starting April 1, 2024, requiring online marketplaces to collect 15% GST on short-stay accommodation sales. These platforms must pass 8.5% to hosts who aren’t GST registered.
This detailed guide will help you handle your tax obligations effectively, whether you’re worried about an IRD audit, managing an IRD non-active company, or ensuring your trust meets compliance requirements. Let’s take a closer look at the essential information you need to keep your business compliant with tax authorities.
Understanding IRD Compliance for Businesses
“The landscape of tax compliance in New Zealand is undergoing a significant transformation.” — BusinessLike, New Zealand accounting firm specializing in tax compliance
A positive relationship with Inland Revenue plays a key role in every New Zealand business’s success. Tax compliance shouldn’t feel like a burden – you should call it a core part of your business operations.
What IRD compliance means
IRD compliance means you need to meet your tax obligations correctly and on time. The Inland Revenue Department wants businesses to “get it right from the start, rather than correct them when they get it wrong”. Compliance boils down to paying the right taxes and claiming only legitimate entitlements.
Good tax governance creates the foundations of effective compliance. Businesses with reliable tax governance systems experience “potentially lower compliance costs and seamless interactions” with the IRD. Clear-cut systems around record keeping help remove room for error and miscalculation.
Inland Revenue puts strong emphasis on proper financial records that include:
- Invoices and receipts
- Stock and inventory tracking
- Vehicle log books
- Asset records
- Payroll and employment documentation
New Zealand law requires businesses to keep detailed records for at least seven years. These records serve as crucial evidence during IRD audits and help you track your business’s financial health.
Who needs to comply and why it matters
Every individual, business, and organization that earns income in New Zealand must follow tax regulations. Your business needs to register for GST once your turnover reaches NZD 102,336.62 annually. Compliance goes beyond filing returns – it includes proper systems and processes to ensure accuracy.
The department uses a tiered penalty system for businesses that fail to stay IRD compliant:
- 20% penalty for not taking reasonable care
- 40% penalty for gross carelessness
- 100% penalty for abusive tax positions
- 150% penalty for tax evasion
Serious cases might lead to prosecution instead of penalties, which could result in imprisonment for up to five years.
Good compliance brings real benefits to your business. Companies with solid record-keeping systems face less IRD scrutiny. The IRD puts it simply: “better books, better business”. Your business becomes more valuable when selling because potential buyers can easily verify your procedures.
Smart tax planning and proper compliance let you minimize tax liabilities legally while staying in excellent standing with Inland Revenue.
Income Tax Obligations for Business Owners
“The IRD employs various tools to track tax compliance and identify discrepancies in tax returns.” — Kiwi Tax, New Zealand tax advisory firm
Tax reporting is the foundation of every successful New Zealand business. You can avoid getting pricey penalties and take advantage of legitimate deductions by understanding your income tax obligations.
Declaring all income correctly
Your tax return should include every dollar your business earns. This includes revenue from primary business activities, rental income, overseas earnings, and even income from online platforms. Business owners pay income tax on their profit—income minus allowable expenses.
The provisional tax system kicks in after your first year of business. You’ll pay in installments throughout the year instead of a lump sum. Your business structure determines the tax rate—companies pay 28% on profits, while sole traders pay at their individual income tax rate.
The IRD quickly flags discrepancies because it receives data from multiple sources. Penalties apply when you fail to declare income.
Claiming deductions and using the actual cost method
You can deduct legitimate business expenses from your gross income with the actual cost method. The costs directly related to generating income are deductible. These include:
- Office supplies and software
- Accounting fees
- Business insurance
- Legitimate business travel
- Advertising costs
Your home’s expenses can be partially claimed based on the percentage used for business. The 2023-2024 rate equals $90.57 per square meter of dedicated business space.
Vehicle expenses need proper documentation. Track usage through a logbook or claim 25% of running costs if your vehicle serves both personal and business purposes.
Flat-rate credit scheme for online platforms
Online marketplaces will collect 15% GST on listed services, including short-stay accommodation from April 1, 2024. The marketplace gives non-GST registered sellers 8.5% as a flat-rate credit and pays 6.5% to IRD.
Flat-rate credits give you two options—include them as assessable income or treat them as excluded income. The first option lets you claim expenses on a GST-inclusive basis, which simplifies record-keeping for multiple channel sellers. Notwithstanding that, choosing to treat credits as excluded income means you must track expenses separately and claim marketplace-related costs on a GST-exclusive basis.
Your IRD number and GST status must be provided to online marketplaces to correctly administer your credits.
GST Rules and Marketplace Responsibilities
New Zealand’s GST rules have changed a lot over the last several years, especially for online marketplace operations. Business owners need to understand these rules to comply with IRD requirements and avoid penalties.
When to register for GST
Any business that conducts taxable activities must register for GST when its annual turnover reaches or exceeds NZ$102,336.62 in any 12-month period. This threshold applies to any consecutive 12 months, not just the financial year. Businesses earning less than this amount can still register voluntarily.
Voluntary registration makes sense if:
- You want to claim GST on big business asset purchases
- Your sales are mostly to overseas entities
Sole traders use their IRD number as their GST number. Companies need a separate GST number.
How online marketplaces handle GST
From April 1, 2024, online marketplace operators like Airbnb and Booking.com must collect and pay 15% GST on services that happen in New Zealand through their platforms. This rule applies regardless of the supplier’s GST registration status.
GST-registered sellers treat marketplace-collected 15% GST as zero-rated supplies on their GST returns. Non-GST-registered sellers get a flat-rate credit scheme that works like this:
- Marketplaces collect 15% GST
- Inland Revenue receives 6.5%
- Service providers get 8.5%
Marketplace operators must gather enough information about their sellers to know their GST status.
Opting out of marketplace GST rules
Large commercial providers can skip marketplace GST rules under certain conditions. You can sign an opt-out agreement if:
- Your annual supplies exceed NZ$852,805.13 in a 12-month period
- You list more than 2,000 nights of accommodation through one marketplace in a 12-month period
Both parties must document in writing that the seller remains responsible for their GST obligations. Some accommodation providers like motels and hostels might qualify for opt-out through different criteria in DET 24/02, even if they don’t meet standard thresholds.
Trusts, Non-Active Companies, and Special Cases
Specialized IRD compliance approaches are essential for certain business entities beyond standard structures. These rules help you maintain IRD compliance and reduce administrative work.
IRD compliance for trusts and beneficiaries
Starting from the 2021-2022 tax year, trusts must provide extra information in their annual income tax returns (IR6). The return has sections about:
- Trust’s financial performance and position (assets, liabilities, equity)
- Settlement details (transfers of value to the trust)
- Beneficiary income allocations and distributions
Some trusts don’t need to follow these reporting requirements. The exemptions apply to trusts without assessable income, trusts with non-active declarations, foreign trusts, charities, and several other categories.
Starting from the 2025 tax year, non-cash settlements under NZD 170,561.03 won’t need disclosure. The same threshold applies to non-cash distributions that are exempt from reporting requirements.
What is an IRD non-active company?
A non-active company neither derives gross income, makes deductions, nor disposes of assets. Your company qualifies if it:
- Doesn’t derive any gross income
- Makes no deductions
- Hasn’t disposed of any assets
- Hasn’t entered transactions that create income, fringe benefits, or imputation credit account debits
Companies that meet these criteria can request exemption from filing tax returns through the Non-active company declaration (IR433) form. Once IRD approves your request, you won’t need to file returns until reactivation.
How to maintain compliance for dormant entities
You must end your GST registration and leave any groups before applying for non-active status. Without an exemption, you’ll still need to file returns or face late filing penalties.
Small expenses like bank fees (under NZD 85.28 per tax year) and interest earned within these limits won’t affect your non-active status.
You must tell IRD right away when your status changes during reactivation. You’ll need to provide details about loss balances, ownership changes, and whether continuity provisions affect the use of past losses.
Conclusion
Good IRD compliance needs constant alertness, proper record-keeping, and a clear grasp of your tax duties. This piece covers everything in tax compliance that affects New Zealand business owners. The digital world keeps changing with new rules for online marketplaces and closer monitoring of cash transactions.
You should know that penalties for non-compliance start at 20% for lack of reasonable care and can go up to 150% for tax evasion. Serious cases might lead to prosecution. The stakes are high, but compliance becomes manageable when you have proper systems.
Your business should keep detailed records for at least seven years and declare all income properly. You must also understand specific requirements based on your business structure – whether you’re a sole trader, company, or trust.
Recent GST changes for online marketplaces need your attention, especially when you have sales through platforms like Airbnb. These platforms now collect 15% GST, which has big implications for all sellers, registered or not.
Tax compliance works best as an ongoing process rather than a one-time task. Regular system reviews, on-time filing, and accurate reporting are the foundations of staying in good terms with the IRD. The time you invest in compliance helps avoid pricey penalties and builds your business’s financial strength and credibility.
FAQs
Q1. What are the key steps to ensure IRD compliance for my business?
To stay IRD compliant, maintain accurate financial records for at least seven years, declare all income correctly, understand your GST obligations, and file tax returns on time. Implement robust tax governance systems and stay informed about changes in tax regulations, especially regarding online marketplaces and cash transactions.
Q2. When do I need to register for GST in New Zealand?
You must register for GST when your annual turnover reaches or exceeds NZ$102,336.62 within any 12-month period. However, you can voluntarily register even if your turnover is below this threshold, which may be beneficial if you plan to claim GST on substantial business asset purchases or if most of your sales are to overseas entities.
Q3. How do the new GST rules affect online marketplace sellers?
From April 1, 2024, online marketplaces must collect 15% GST on services performed in New Zealand. For non-GST registered sellers, 8.5% is passed to the service provider as a flat-rate credit, while 6.5% goes to Inland Revenue. GST-registered sellers treat these transactions as zero-rated supplies on their GST returns.
Q4. What are the penalties for non-compliance with IRD regulations?
Penalties for non-compliance range from 20% for not taking reasonable care to 150% for tax evasion. Serious cases may result in prosecution and potential imprisonment for up to five years. It’s crucial to maintain proper records and seek professional advice if you’re unsure about your tax obligations.
Q5. How can I maintain IRD compliance for a non-active company?
To maintain compliance for a non-active company, you must first qualify by not deriving gross income, making deductions, or disposing of assets. Apply for exemption using the Non-active company declaration (IR433) form. Once approved, you’re not required to file returns until reactivation. However, you must promptly notify IRD if your company‘s status changes.
