A tax audit is an examination of your financial affairs to check you have paid the correct amount of tax and you are complying with the tax laws. It could be a small check of GST or a full audit check on your business. IRD may choose random business to start the audit and in the audit, there are some certain rights of a taxpayer.
• In the audit, you are expected to be courteous and honest and to give reasonable assistance for the investigator to do his job. The investigator has the right and ability to get access to your financial information and other documents needed for the audit. Thus, you have to give the investigator access to your business premises and supply information and relevant documents.
• Tax audit shall be conducted in accordance to Tax Administration Act 1994, it is vital to know the Act has only vested the powers in the hands on Commissioner of Inland Revenue. However, the Commissioner can delegate his/her powers as per Section 7(1) to the tax officers. Therefore, all officers of IRD have only such powers, functions and duties as are delegated to them by the Commissioner.
• If you cannot deal with the investigator yourself, you are allowed to have someone to assist you in the audit. They could be your tax agent, accountant, solicitor or maybe just a friend. However, you will need to provide documented authority (such as a signed letter) before an investigator can discuss your tax affairs with another person present.
• IRD officer have to maintain confidentiality. Section 81 of the Tax Administration Act 1994 IRD officers are obliged to maintain secrecy in all matters relating to the audit, if obtaining information from third party cannot disclose audit operations or say that audit is being conducted.
• Privacy- IRD must disclose the information held by them on your behalf under the Privacy Act 1993 (individuals) and the Official Information Act 1982 (non-individuals)
• Accessing premise- per section 16 IRD officer can enter taxpayers premise. However, entry to private dwellings is not permitted unless consent of the occupier is obtained, or a judicial warrant has been obtained which is necessary or relevant for tax audit purposes.
• Section 20 of the Tax Administration Act 1994 is a very important section for taxpayers in the audit. The section is about: privilege for confidential communications between legal practitioners and their clients. It means that there are some communications between you and your solicitor that you do not have to give to the investigator. However, the purpose of this privileged communications must be for taxpayer to seek for advice or assistance and must not relate to an illegal or wrongful act.
• Section 20B is another important section. This section is about: No requirement to disclose tax advice document. It means that in the audit, the taxpayer does not need to disclose any tax advice document to the investigator. However, this right only applies to certain documents prepared by tax advisors bound by their code of conduct and disciplinary practices of an approved advisor group (The New Zealand Institute of Chartered Accountants is the only registered approved advisor group for this right). Moreover, taxpayer also does not have to disclosure certain documents with the purpose of seeking tax advice from tax advisors.
• When a taxpayer does not satisfy with any decisions made by the Commissioner or the Investigator, he/she can follow the dispute resolution procedure under section 89 of the Tax Administration Act 1994 to challenge those decisions. The disputes resolution procedures are designed to settle arguments over the correctness of an assessment or amended assessment before it is issued. There are 6 phases in the disputes resolution process: Issue of a Notice of proposed adjustment (NOPA), conference, disclosure, adjudication and review, assessment or amended assessment and litigation.
For most of us, a tax audit is a painful experience. Taxpayer needs to know more about their right and consult with professional advisor to get through this hard time. Our advice for those in a tax audit is that never try to deal with the investigator from the IRD alone, go and seek for professional advice. With their experience and knowledge, they can help you get through it in your favourable position
About the author:
Saurav Wadhwa is an Auckland based chartered accountant and a director of IBBZ Accounting Limited. He is very passionate about helping small business owners. His easy going personality and a friendly nature makes him easily approachable. For all your accounting and tax problems including overdue tax returns, and IRD audits & disputes you can contact him at
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Information above is provided by IBBZ Accounting Limited for general use only, if you are intending to rely on any of the information above please consult with us or seek a professional advice. If information provided above result in any kind of loss to you we can not be held responsible.