TAX AUDITS

 

 

Prior to an Inland Revenue Department auditor arriving at your premises you will receive a letter advising of the pending audit as well as a telephone call to arrange a time for an interview.   If you are represented by a tax agent the letter normally is sent to the agent.

  

Legally the auditor is allowed access to all business documents except those which are subject to legal privilege.   Find our what the auditor wants-   the advantage of being proactive in this way is that when the auditor arrives everything  required can be provided with ease, and this implies that you are organised in your business dealings, and hence you are less likely to make mistakes, both in business, and more important from the IRDís viewpoint, in tax matters

  

Typically the auditor will start with the last statutory returns filed, for example with the latest Income Tax, GST and FBT Returns.

  

When a taxpayer is obstructive (not willing to provide documents, not honouring meetings that are pre-arranged and so forth) the auditor is likely to assume (correctly or incorrectly) that the taxpayer is hiding something.   Additionally, under the new penalties regime, any penalty imposed by the IRD may be increased by 25% for obstruction.

  

In many cases, an imminent tax investigation can be a good opportunity to get your tax affairs in order and set up proper filing systems- the systems your business should always have had.

  

At the completion of an audit the auditor is required to write a report (known as the audit report).   Part of this audit report is to assess the future risk that your business represents in paying taxes to the IRD.   As a general rule it would appear that the fewer discrepancies that the auditor finds, the lower the perceived tax risk and hence the less chance that your business will be audited again in the future.

 

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