When tax evasion is mentioned, many think its meaning is limited to actions such as an attempt to reduce your tax liability by deceit, subterfuge or concealment. Examples are claiming false deductions, hiding or transferring assets or income, engaging in sham transactions etc. However, the IRD also classes deliberately not paying your taxes – especially if there is the capacity to do so – as tax evasion. There have been a number of New Zealand court cases concerning tax evasion in recent months.

In one instance, an Auckland businessman had neglected to pay $1,860,000 to Inland Revenue for PAYE, student loan and KiwiSaver deductions. A statement from the IRD said: "Instead of paying tax he chose to use the money to fund personal and lifestyle choices and admitted using company funds for significant personal spending.”

About $1,000,000 was transferred to a joint account with a relative, and was used to fund overseas travel and spending, personal shopping, and bonuses, loans and gifts to himself, while more than $25,000 was used to help fund a relative’s music career. In May he was sentenced to two years and three months' prison after pleading guilty to 66 charges. Some reparation has been paid, but his company went into liquidation and he still owes Inland Revenue more than $1.1 million. Earlier this month he argued his sentence at an appeal hearing, but the appeal was dismissed.   

Further south, a Christchurch builder recently appeared in court and pleaded guilty to $300,000 of tax evasion. The charges related to unpaid PAYE, GST and income tax, from 2017 through to 2020. Funds were available to pay the taxes on 25 occasions, but the builder used them for “significant personal expenditure”. 

The IRD took a dim view that instead of paying his taxes, the builder had prioritised personal spending, including overseas drawings and transactions in the USA, Mexico and Australia; paying for Uber and Uber Eats, and making cash withdrawals. Inland Revenue had contacted him on numerous occasions regarding his outstanding GST and PAYE debt and income tax returns, however with no satisfactory responses. He was declared bankrupt in August 2020 with no prospect of debts being paid.

It’s a reminder to all business owners that deliberately not paying taxes and a laissez-faire attitude towards the IRD could lead to a criminal prosecution for tax evasion.

We all know there can be situations or circumstances when businesses struggle to afford a tax payment.  On these occasions it is best to reach out to your local Baker Tilly Staples Rodway advisor and discuss your cashflow, the many options available, and, of course, how to keep yourself on side with Inland Revenue.