There are a few things to keep in mind if you are a New Zealand taxpayer preparing for an IRD residential property tax audit:
- Understand the different types of property tax audits the IRD has jurisdiction over;
- Know what documents you must provide to the auditor; and
- Follow your accountant’s advice on dealing with questions that could arise from the audit.
What Triggers an Audit?
Any evidence of inconsistencies in tax and financial affairs may trigger an IRD audit, hence the reason to work with a tax advisor from the outset of the investigation.
Having worked with clients and the IRD for several years, I’ve seen many investors invite an audit (and investigation) by simply being ignorant about the process and the triggers officials look out for in tax returns.
While the chances of an audit are slim, there are several ways for your return to be flagged, triggering an IRD risk review. Red flags can include things like
- Excessive write-offs compared with income;
- Round numbers for claims or income;
- High repairs and maintenance claims;
- Variable or low rentals;
- Distributions to minors and low-income earners;
- Distributions to beneficiaries of a trust;
- Frequent buying and selling of property; and
- Increased interest claims and more.
While there is typically a statute of limitations for an IRD audit, there’s no time limit on how long the agency can pursue fraud or non-filers. There is usually a legitimate reason for the investigation, even if it is not disclosed.
What is the Audit Process?
An audit of IRD residential property tax will involve several activities, including but not limited to
- Checking whether there are any inconsistencies with legislation
- Checking for irregularities in bookkeeping and accounting
- Checking for compliance with...
