Inland Revenue has been advising tax agents this month that undeclared cash jobs in the construction sector remains a high priority for its investigation teams.
This is not a new focus for Inland Revenue as the Department has been running advertising campaigns and contacting industry participants for more than a year regarding this issue. However, Inland Revenue remains concerned that cash jobs and other undeclared transactions are still prevalent in the construction industry. Its concern is not only with cash jobs which are not put through the books, but also barter arrangements or contra deals whereby goods or services are provided in exchange for the goods or services another person has provided. The value of goods and services received in exchange for goods and services is income that tax should be paid on.
Inland Revenue is having increasing success at detecting transactions in the hidden economy – cash jobs and barter arrangements which are not disclosed for tax purposes. Detection could result from something as simple as someone “dobbing in” the offender (a link on Inland Revenue’s website provides a confidential means of doing this), one party to the transaction disclosing the transaction to Inland Revenue, or an audit of one party suggesting the other party’s tax affairs should be audited. Inland Revenue is also using computer-based benchmarking tools to compare the performance of a business with industry norms for evidence a taxpayer is not disclosing income. These tools are becoming increasing sophisticated.
Undertaking cash jobs, barter arrangements or contra deals and not disclosing the resulting income is tax evasion. If detected, not only will the person have to pay the tax evaded but also a penalty of 150% of that tax. For the worst offenders, there could be a criminal conviction with a fine of up to $50,000 and/or a term of imprisonment not exceeding five years.
A person with concerns about the tax liabilities that may arise from transactions they have hidden from Inland Revenue has the option of making a voluntary disclosure. By making a voluntary disclosure before Inland Revenue identifies an issue, a person can obtain a reduction in the penalties they face of between 100% and 40% depending on the penalty imposed and the timing of the disclosure. If the disclosure is only made after Inland Revenue notifies an audit of the taxpayer, a 40% reduction in penalties may apply. However, a disclosure before an audit is notified could remove exposure to penalties altogether (100% reduction) or result in a 75% reduction.
In Inland Revenue’s notice to tax agents it advises that a new initiative focusing on compliance and cash jobs in the construction industry will be commencing shortly. Inland Revenue has indicated it will be proactively contacting tax agents and their construction industry based clients to ensure all income is being declared.
If you are concerned how this may affect you, please contact your Crowe Horwath tax adviser.