Tax Audit Activity on the Rise: What It Means for Accountants and Clients
The accounting sector is experiencing a significant surge in inland revenue audit activity, according to a recent survey by Chartered Accountants Australia and New Zealand (CA ANZ) and Tax Management New Zealand. This trend is reflected in the 362 responses from chartered accountants in public practice, which indicate a 7% increase in tax debt arrangements made on behalf of clients compared to the previous year.
Increased Scrutiny and Compliance Costs
A staggering 79% of accountants have entered or modified tax debt arrangements, while one in three accountants has observed an uptick in audits compared to last year. The main areas of audit activity reported include GST, land issues, and foreign income and tax credits. This increased scrutiny is accompanied by rising compliance costs, with 85% of accountants directly facing the public reporting higher tax compliance expenses.
Challenges in Dealing with Inland Revenue
Tax Management New Zealand strategic advisor Chris Cunniffe notes that accountants reported inconsistency in their experience dealing with Inland Revenue on debt matters. While some report very positive engagement with Inland Revenue on managing client debt, many were frustrated by the lack of experience of the Inland Revenue officers and the lack of timeliness from IR on managing clients’ debt positions.
Reforms to Reduce Compliance Burdens
Survey participants identified several reforms that could potentially reduce compliance burdens. Trust disclosure requirements were pinpointed as a factor in rising costs, with nearly half of the respondents advocating for a reduction in the scope of these disclosures. Additionally, 27% of accountants believe that simplifying Fringe Benefit Tax (FBT) rules could lead to cost savings and better compliance.
Digital Enhancements and Simplification
Enhancements to inland revenue’s digital systems were also suggested to streamline compliance processes. Suggestions included modernising the Tax Administration Act 1994 to better align with digital practices and improving data collection to minimise redundant data entry. A third of respondents also supported simplifying the process for reporting overseas income and claiming foreign tax credits, which is expected to alleviate time and cost pressures for taxpayers with international income sources.
Industry Concerns and Joint Submissions
Earlier this year, CA ANZ, alongside CPA Australia and the Institute of Public Accountants, expressed concerns regarding the potential inclusion of non-bank lenders (NBLs) in the Consumer Data Right expansion. In a joint submission to the Treasury, they cautioned that this could unfairly benefit large NBLs at the expense of consumers during the expansion process.
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