A GST audit by the Inland Revenue Department (IRD) is the process of looking at business records and finances to see if a business or entity has fulfilled all tax requirements and compliance set by the government. GST audit reports enlist all transactions and payments in a GST return filed by a business entity. 

GST Audit Checklist

Filing a GST Return and GST Audit Report in New Zealand

GST Return is the process whereby a GST-registered business declares how much GST they have charged and GST paid during a tax period. This GST return is submitted in the form of a GST report. A GST return report includes the total number of sales plus GST, GST charged on the sales, and expenses including GST paid on any taxable activity. This also includes the amount of GST a business is claiming for goods and purchases during that period.

Most businesses registered for GST must file GST returns on a one-monthly, two-monthly, or six-monthly basis and the deadline for GST returns in NZ is 28 of each month. The only exceptions are: 31 March GST returns are due on 7 May and 30 November GST return is due on 15 January. As a business, you select the filling frequency i.e., how often you want to file GST at IRD. If the business yields a profit that exceeds $24 million in the last 12 months, you must file GST every month. For a turnover in a 12-month period that is less than $24 million, then a two-monthly basis filing is suitable. For a business with an annual turnover of $500,000 a six-monthly GST return is preferable. 

It is expected that the business will file GST with proper due diligence and follow compliance guidelines set by the Inland Revenue. Even if there are mistakes or gaps in

there is an option to ask IRD for GST adjustments (read more about it here) and any mistakes can be fixed by contacting IRD.

Now a GST Audit is a report that checks business records like invoices, payments, and contracts to make sure the correct amount of goods and services tax is paid. After a GST audit, you may need to pay any tax due or claim back the extra GST you might have paid and use the online tool calculate gst in nz to calculate the GST in new clicks.

Inland Revenue Audit and Tax Records

As per the IRD, a GST audit examines the business and financial activity of a registered business by sometimes checking the GST registration status or full record of taxable activities.  These audits are a way to ensure there are no GST-related issues in filling GST and that businesses are fulfilling their tax obligations.  These are some basic aspects of taxation-related audits that the New Zealand Tax authorities carry an during an audit and financial review:

  • There are two types of Audits that the Inland Revenue Department conducts i.e., small and medium enterprises audits and large enterprises.
  • Risk review: Prior to an actual Audit, IRD conducts a risk review to evaluate if there is a risk of non-compliance. A risk review is not an audit, it is just a way to see if further exploration is necessary and then an actual audit is conducted.
  • IRD sometimes informs about an Audit in advance or sometimes can conduct an audit without announcing it.
  • You and your tax agent will be informed simultaneously about the audit and the first meeting may take place at the IRD office nearest to you or at your tax accountant’s office. 
  • The Audit officer will inquire about your business and may check sales and purchase records and review the GST returns. 
  • If there are discrepancies in the GST information you shared, you can share the information with IRD officials in Voluntary disclosure. This will benefit you and any penalties for tax differences may be dropped. Sometimes 100 percent of the charges are dropped if you are willing and voluntarily share the information.
  • During an audit you can make a voluntary disclosure and penalties will be reduced up to 40%.

New Zealand GST Audit Process

  • A GST audit is either carried out by visiting the office or regularly visiting or contacting a business enterprise.
  • Sometimes Computer-assisted auditing techniques are used to perform some tasks of an Audit. These computer-based programs are used to perform general ledger/data downloads, conduct system risk reviews, and analyse financial transactions.
  • For audits, it is advised that a business keep its transaction records and other relevant documents for up to seven years.
  • During an audit IRD officer will check ledgers, invoices, payments, and business and personal bank accounts. The officer may take these records with them and you will be provided with a receipt. Once the audit is done, you will get your records back.
  • Inland revenue department may contact third parties like your suppliers, and employees for further information or to check a few things.
  • The officer will also examine if you have properly applied the tax and complied with the goods and services regulations.

GST Audit and Tax Shortfalls

 In case the audit report finds tax shortfalls, then penalties are applicable. The penalties are categorised as follows: 

  • Not taking reasonable care:  As per the rules, you must take reasonable care while performing tax duties. otherwise, a 20% liability may be incurred for tax shortfalls.
  • Unacceptable tax position: legally this is defined as ‘ fails to meet the standard of being about as likely as not correct.’ This also results in a 20% penalty. 
  • Gross carelessness: If the record shows gross carelessness in filing GST, then a 40 % penalty is incurred for the shortfall. 
  • Abusive tax position: Any agreement and activity that is undertaken to avoid tax is a grave violation and may result in a 100% penalty. 
  • Evasion: Tax evasion is a serious crime and may include evading taxes, claiming GST that you are not entitled to, and withholding tax. This results in a penalty of 150 in tax shortfalls. Tax evasion can also lead to imprisonment and a fine of up to $50,000.
GST audit

 Audits are a way to keep checks and balances in taxation and this financial reporting by authorities is in place to ensure businesses pay the right taxes in a fair manner. Goods and services tax is a value-added tax that is collected directly or indirectly and is essential for financial regulations. As a responsible and GST-registered business, it is advisable to comply with GST rules and cooperate with authorities to conduct GTS adults.  

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