The Top IRD Audit Triggers (and how to stay off the list!)
Whether you run a small business or just want your personal tax affairs tidy, the thought of an audit can be enough to unsettle anyone. The good news is, most audits aren’t random. Inland Revenue (IRD) looks for certain patterns and red flags; knowing what these are helps you stay off their list.
When IRD reviews a return, it’s not simply checking numbers. It’s looking at the story they tell: how consistent they are, and whether they make sense together. Audits can cover income tax, GST, or employer obligations, usually over the past four years unless there’s evidence of fraud. While some reviews happen by chance, most start because something doesn’t quite add up.
What Triggers an IRD Audit?
IRD’s data-matching systems have become sharp. They compare tax returns with details from banks, property transactions, and even overseas databases. When something doesn’t line up, that’s when attention turns your way. Common triggers include:
Income not matching cash flow - If your declared income doesn’t reflect what’s going through your bank account, IRD takes notice. Large unexplained deposits are especially risky.
Ongoing business losses - Continuous losses over several years, without changes in how the business runs, might point to under-reported income.
Unusual or excessive deductions - Claiming high deductions compared to revenue can draw questions, particularly when vehicle or home office use seems overstated.
Late or inconsistent filings - Missed deadlines, constant amendments, or patchy records suggest weak bookkeeping.
High-risk industries - Businesses handling a lot of cash, like cafés, construction, or hospitality, tend to face more scrutiny.
Related-party transactions - Shifting profits through loans, fees, or dividends within linked companies can raise flags.
Whistleblower reports - Verified tips or shared documents can trigger checks even when your numbers look fine.
Why Compliance History Matters
Once you’ve been audited, IRD tends to keep a closer eye. A track record of late filings or questionable deductions increases your risk of being checked again. Industry norms and your general compliance history shape how IRD profiles you. Businesses that show consistency and accuracy often face less scrutiny.
How to Reduce Your Audit Risk
Avoiding IRD attention isn’t about hiding anything. It’s about being organised, transparent, and careful with your records. When your paperwork is clear, small mistakes are less likely to look suspicious. Here are some good habits to keep:
Keep personal and business spending completely separate.
Use logbooks to back up vehicle and travel claims.
File GST, PAYE, and income tax on time and accurately.
Match your bank deposits with reported income each month.
Make voluntary disclosures if you uncover past errors.
If something in your return looks out of the ordinary, add a brief note explaining it. A little context can show honesty and prevent confusion later. Many accounting professionals now suggest setting up a simple tax governance framework, a structure that keeps your systems accountable and your records consistent.
Staying Off the Radar
You can’t guarantee you’ll never face an audit, but you can make yourself a low-risk taxpayer. Reliable systems, clear records, and steady compliance speak louder than promises. When IRD sees consistency and openness, you’re far less likely to end up under review.
Need help keeping your books audit-ready?
Affinity Accounting works with New Zealand businesses to stay compliant, confident, and in control. Reach out to our team to talk about how we can support your tax and accounting needs before IRD ever comes calling.
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