Data analytics - Inland Revenue loves it, how can you make it work for your business?
Tax Alert - May 2021
By Emma Marr
For the last couple of years Inland Revenue have been sounding a drum – the Business Transformation project has substantially improved the depth and breadth of data Inland Revenue have at their fingertips, and their ability to analyse it. The tax collectors are starting to flex their new muscle (as real estate agents and builders would be aware, which we discuss below), and we can expect to see more proactive activity by Inland Revenue as a result.
On the other hand, firms like Deloitte have had sophisticated data analytics tools at their disposal for some time. We use these tools to review a wide range of information for clients who deal with huge volumes of data. In the tax context, this enables clients to confirm their processes are working as expected, and assist in identifying any areas for improvement.
First: focus on real estate agents
An example of Inland Revenue mining their vast pool of information is a recent focus on expenses claimed by real estate agents. Inland Revenue identified that real estate agents were claiming a high level of expenses compared to income, relative to other businesses, and believed they could be claiming personal expenses against their income, rather than identifying those that were business-related. This would reduce taxable income and the amount of tax real estate agents would pay.
Inland Revenue advised they would be contacting any such real estate agents to request records supporting the expenses claimed. Inland Revenue has provided specific information for such agents and sales people, including a guide to tax for those working in the real estate industry, information on record keeping, making voluntary disclosures for past returns that might be wrong, and a link for people to anonymously report tax evasion or fraud.
Second: builders cash jobs
The next area of interest is the construction industry, with Inland Revenue launching a campaign based on the idea that cashies won't rebuild our country.
Encouraging the construction industry taxpayers to “get it right from the start”, Inland Revenue invoked Big Brother levels of observation, noting:
“We can see when tradies buy supplies, such as paint, carpet or timber without a corresponding declared job. We can also access information held by other Government departments, banks, loyalty cards, casinos and many other organisations to make sure all income is being declared.”
As well as providing guides on record keeping, GST and employing staff, as with the real estate agent campaign, Inland Revenue again encourages making voluntary disclosures for past returns that might be wrong, and provides a link for people to anonymously report tax evasion or fraud.
Third: new 39% rate
Although no official “campaign” has been announced, Inland Revenue will undoubtedly be checking that payroll taxes (including FBT and ESCT) are being correctly aligned with the 39% rate, and that employees receiving salary and wages taxed at 39% are applying the top marginal tax rate to other income they receive. From 1 October RWT will also increase. The information that Inland Revenue receives from payers of income will be matched with the tax paid by the recipients to ensure the right amount of tax is being paid.
What’s next: your business?
This approach will inevitably be rolled out for any other industry or tax that Inland Revenue identifies as being an area of concern. All taxpayers should be thinking about the insight that data analytics will give Inland Revenue into the tax they pay, and their tax compliance processes.
If you’d like to discuss Deloitte’s data analytics tools and capabilities, or how we can help you gain visibility and control over your tax profile and compliance processes, contact your usual Deloitte advisor.
May 2021 Tax Alert contents
- Inland Revenue is watching your residential property transactions
- Research and development tax incentive – New guidance and deadlines, you might be back in the running for a 15% credit
- Loss carry back rules – is it too late to get the benefit?
- Data analytics - Inland Revenue loves it, how can you make it work for your business?
- Time to review your Employer Superannuation Contribution Tax rates
- Taxing Social Media
- Do you know who can sign your corporate tax return?
- Snapshot of recent developments