Power of Voluntary Disclosure

Budget 2025 provides new additional permanent funding of $35 million per year for Inland Revenue to invest more in tax compliance and collection activities. This means Inland Revenue will continue to be active with a range of compliance and debt work in the near future.

As tax professionals, we understand that mistakes can happen. These may include:

• Omitting income

• Incorrectly claiming expenses

• Misunderstanding complex tax rules

• Errors in tax returns

Voluntary disclosure is a common and effective way to resolve these issues. It is a formal process of advising Inland Revenue of an error in a tax return before they identify it through other means, such as an audit.

At our firm, our voluntary disclosure service includes the following scope of work:

1. Preparation and submission of the voluntary disclosure letter, which outlines:
   • Periods containing the error
   • Background
   • Reason for the error and how it was identified
   • Information to enable assessment
2. Preparation of calculations to determine the correct tax positions for the relevant years
3. Preparation of re-assessment calculations for the relevant years
4. Request for remission of penalties and interest
5. Once the voluntary disclosure is accepted by Inland Revenue, we will check the re-assessments

Making a voluntary disclosure is a proactive step that can potentially result in the remission of 100% of penalties and use of money interest.

Based on our experience, we have successfully achieved 100% penalty remissions for our clients. However, use of money interest is typically more difficult to remit unless the underpayment is due to exceptional circumstances.

Inland Revenue is usually willing to accept the last four years of tax reporting as a catch-up period for all outstanding years. Based on our track record, we have achieved 100% success in this area for our clients.

After a voluntary disclosure is submitted, Inland Revenue will review the information and may request further clarification. They will then issue a notice of amended assessment, outlining core tax, any penalties and use of money interest

If a client is unable to pay the full amount by the due date, we can consider instalment arrangement with the Inland Revenue or pay tax through a tax pooling intermediary. For the instalment arrangement, note use of money interest will continue to accrue until the tax debt is fully paid off. However, penalties can be waived. The use of tax pooling intermediaries can reduce use of money interest exposure. We recommend using them if the use of money interest exposure is significant.

If you have omitted any income or made errors in lodged New Zealand income tax returns, we invite you to book a free consultation so we can discuss how we can assist.

Visit our Voluntary Disclosure page for more information. You can also explore related topics on our Blogs page.

For more information, you can also visit Inland Revenue’s Voluntary Disclosure guidance

You can download the voluntary disclosure form here. IRD also publishes their standard practice statement here.

DISCLAIMER No liability is assumed by NZ International Tax & Property Advisors for any losses suffered by any person relying directly or indirectly upon any material within this website. It is recommended that you consult your advisor before acting on this information.