IRD targeting tradies’ cashies in black economy crackdown

The Inland Revenue Department (IRD) is running adverts encouraging trades people and sub-contractors to correctly return income for income tax and goods and services tax (GST).

The IRD is concerned about: Undeclared income and GST earned by sub-contractors.

Cash jobs undertaken by trades people including builders, painters, and ‘‘handymen’’.

This is the first time that the IRD has run a direct public appeal for people to pay their taxes. There is a moral element to the campaign similar to the ‘‘it’s not OK’’ campaigns run by other government agencies in respect to family violence.

Depending on the success of the campaign the initiative may be extended to other parts of the country. My guess is that both Christchurch and the Central Otago – Queenstown Lakes regions would be prime targets.

Various IRD spokespeople have denied that the campaign was prompted by government as a way of gathering more tax. The timing, however, is interesting given that Finance Minister Bill English has said that there will not be a return to surplus this year.

The Organisation for Economic Co-operation and Development (OECD) has expressed its concern at the size of the black economy in New Zealand and urged that government target this. Estimates of the size of the black economy are in the $19-$23 billion range.

In 2011, the international Tax Justice Network concluded that cash trade jobs, online trading and ‘‘under the table wages’’ were costing the Government more than $7b. To put that in context that was equivalent to almost half of New Zealand’s health budget at that time.

The black economy is not limited to trades people. It comprises anyone evading income tax, GST, pay-as-you-earn (PAYE) tax and withholding tax obligations. Examples include:

Failing to declare overseas income Not accounting for all cash sales Paying wages in cash and not deducting PAYE Online trading Undeclared barter transactions and

Illegal activities, such as prostitution and bookmaking.

The result of a successful audit by the IRD typically results in tax, penalties and interest to pay.

In addition, serious offending could result in a criminal prosecution and conviction on tax evasion charges can result in a fine of up to $50,000 for each offence and a jail sentence.

Given that the IRD may be able to collect back taxes, interest and penalties for many years may inhibit some from ‘‘drawing a line in the sand’’ and returning all income in the future.

Perhaps an amnesty would help convince such people to meet their past tax obligations.

Murray McClennan is the director of Tax Central Ltd, a specialist tax consulting firm. Email murray@taxcentral.co.nz for contact