Tax Audits & Investigations



What is a Tax Audit?
A Tax Audit is a topic most people would rather avoid discussing. The possibility of their tax return being questioned by the IRD causes panic with most people. Knowing what to expect and how to prepare for an audit can go a long way to relieving much of your anxiety. It may also save you money.

An Inland Revenue tax audit is an examination of your financial affairs to check that you have paid the correct amount of tax in that you have been complying with the tax laws. An audit might simply be a check of a GST registration or it could be a simple look over a tax return and in extreme cases, can become a full examination of your business records and affairs.


Purpose of Tax Audits
The methods used for examination of a taxpayer’s returns are known as tax audits.

The main objective is for the examination of the tax return, as well as business documentation in depth within a 5-year cycle, thus placing a lower emphasis on the annual checking of any returns. Tax audits give rise to their own queries in a percentage of the cases examined.

Hopefully these queries are resolved by get-togethers between taxpayers and the IRD, but sometimes they are not. Every year, over 20% of all returns are subjected to some form of audit.


Why Me? – I’m not a Criminal
No one said you were. Most taxpayers are honest and pay their dues. Tax returns that are audited are chosen in a number of ways and it has nothing to do with suspicion by the IRD that a taxpayer has been less than honest. It is difficult not to feel that one is guilty or a criminal, and this is quite normal.

However, if you have been evading tax in any way, guilt may be justified and you will only have yourself to blame.


Types of Audit
The Inland Revenue Department investigation staff are divided into 3 areas. Each area deals with a different type of taxpayer group:

  1. Non-business investigations: These carry out audits and checks on people who are not in business.

  2. Business investigations: This area covers audits and checks of businesses with a turnover of up to $100million.

  3. Corporate: This covers investigations, reviews and checks of the tax affairs of corporate customers with a turnover of $100million or more and includes specific industries such as banking, insurance, etc.

Audit staff in all these areas conduct all types of audits, ranging from single tax types such as payroll or income tax audits through to full investigations that cover every tax type.