Inland Revenue has increased its compliance and audit activity in New Zealand, and the property sector is firmly in its sights.
For property developers, this makes it increasingly important to understand not only your tax obligations, but also what Inland Revenue may look at if your business is selected for review or audit.
In its 2024/25 Annual Report, Inland Revenue reported opening approximately 7,600 audits during the year, compared with around 5,100 the previous year. It also reported more than $228 million in undeclared income tax and GST identified within the property sector.
One area specifically highlighted by Inland Revenue involves property developers claiming GST refunds while developments are underway, but subsequently failing to correctly file or pay GST when properties are sold.
So, what should property developers be thinking about?
We asked Tim Chaw, Partner at Rodgers & Co Accountants and Business Advisors, who has seen increased Inland Revenue activity involving the property sector, for his perspective.
You’ve mentioned that you’re seeing increased IRD audit activity, particularly involving property developers. What are you seeing in practice?
We’re definitely seeing increased Inland Revenue activity across the property development sector. A lot of the work appears to be data-driven, with IRD using information from LINZ, local authorities, building consents, GST returns and income tax filings to identify developments and transactions that warrant further review.
Rather than full audits straight away, we’re seeing more information requests, questionnaires and risk reviews that can quickly escalate if issues are identified.
What types of issues appear to be attracting IRD’s attention within the property development sector?
Some of the common areas include:
- GST treatment of land acquisitions and sales.
- Timing of GST claims and adjustments.
- Bright-line and revenue account property issues.
- Subdivision and development projects that may have been incorrectly treated as capital rather than taxable revenue.
- Shareholder drawings and funding arrangements.
- Mixed-use developments involving both residential and commercial elements.
- Related-party transactions.
- Interest limitation and financing structures.
Property development is an area where significant tax is often at stake, so it’s not surprising IRD is paying close attention.
What are some of the most common tax mistakes or areas of concern you see with property developers?
The biggest issue is that many developers focus on the commercial aspects of a project but don’t obtain tax advice until much later.
Common mistakes include:
- Incorrect assumptions about GST.
- Not documenting the original intention of the project.
- Using structures that don’t align with the desired tax outcome.
- Failing to consider the tax consequences before entering into contracts.
- Overlooking apportionment and land use issues.
- Assuming that because a project is profitable, the tax outcome will be straightforward.
Often the biggest tax costs arise from decisions made at the start of a project rather than at the end.
At what stage of a property development would you ideally like a client to involve Rodgers & Co?
Ideally before land is purchased.
The earlier we’re involved, the more options are available. We can help with structuring, GST planning, funding arrangements, documentation and identifying risks before commitments are made.
It’s much easier and usually much cheaper to get things right from the beginning than to try and fix problems later.
Are there any situations where developers seek specialist tax advice too late?
Absolutely.
We regularly see situations where contracts have already been signed, developments are well underway, or properties have already been sold before specialist advice is sought.
At that point there may be limited opportunities to improve the tax position because the critical decisions have already been made and documented.
Good tax outcomes often depend on planning before transactions occur.
What should property developers be doing now if they’re concerned about increased IRD scrutiny?
Firstly, make sure records are complete and well organised.
Developers should understand why they have chosen a particular tax treatment, ensure GST positions are supportable, and review any areas where assumptions have been made.
If there are concerns, it’s better to obtain advice proactively rather than waiting until IRD contacts them.
Already received correspondence from Inland Revenue?
If there was one thing you wished every property developer understood about tax before beginning a development, what would it be?
Tax should be considered as part of the project from day one, not after the project is finished.
The structure chosen, the intention behind the project, how it is funded and how transactions are documented can all significantly affect the tax outcome.
Small decisions at the start can create very large tax consequences later.
Before your next property development, consider:
- Has the intended tax treatment been considered before signing?
- Is the purpose/intention of the acquisition documented?
- Has the GST treatment been confirmed?
- Does the ownership structure support the intended outcome?
- Have financing and related-party arrangements been reviewed?
- Are you confident the eventual sale will receive the tax treatment you expect?
Planning a property development?
If you’re acquiring land, structuring a development or concerned about the tax treatment of an existing project, talk to Rodgers & Co before making further commitments. Early specialist tax advice can help identify issues while there are still options available.
