Dave Ananth points out while Inland Revenue has identified widespread expense claim fraud, a false return does not automatically establish evasion and taxpayers who discover an incorrect return should act promptly

By Dave Ananth*

Nearly 3,000 amended tax returns. Some $4.015 million in bogus expense claims stopped. Five hundred and forty-two amended returns received in a single night. And $151,787 paid out before Inland Revenue introduced a new control. ¹

Those are Inland Revenue’s figures from an investigation launched in August after a specialist team detected unusual returns. Inland Revenue says the scheme appears to have spread through a community or workplace network. What first appeared concentrated in the transport industry has broadened across the country. Some taxpayers reportedly told Inland Revenue staff that people on social media were offering to help them obtain extra money through expense claims. ¹

Inland Revenue describes the coordinated scheme as fraud. At the level of the scheme, that may be entirely justified. But it does not follow that every taxpayer caught within the pattern had the same knowledge or intention. Scale and clustering are powerful evidence of coordination; they are not substitutes for examining each person’s conduct.

Having prosecuted tax cases and now acting for taxpayers in disputes with Inland Revenue, I would put the distinction this way: a false return proves that something is wrong. It does not, by itself, prove who knew what. That second question is often where the difference between correction, a civil penalty and criminal liability lies.

In 2017, Terry Baucher wrote in these pages about the difference between a mistake, tax avoidance and tax evasion.² Nine years later, the technology has changed. Returns can be amended rapidly, advice can spread through social media and hundreds of similar claims can appear almost overnight. The underlying legal question has not changed: was the return merely wrong, or was it knowingly false?

Did the expense actually exist?

When Inland Revenue challenges an expense, two questions may arise.

The first is factual. Did the transaction occur? Was money spent? Was a service genuinely supplied? Do the invoice and records reflect what actually happened?

The second is technical. If the transaction occurred, what is its correct tax treatment?

The second question can be difficult. The first should not be obscured by it.

For income tax, expenditure generally requires a sufficient connection with earning income or carrying on a business. A deduction may nevertheless be denied or limited because the expenditure is private or domestic, capital in nature or caught by another statutory rule. ³

Real life does not divide neatly between business and private use. A vehicle, trip or home may have both. Work on a building may be a repair or a capital improvement. Professional fees may relate to several matters and require allocation.

GST adds further questions, whether the purchaser is registered, whether there was a taxable supply, the connection with the taxable activity, the extent of private or exempt use and whether the purchaser holds the required taxable-supply information. ⁴ Experienced advisers can legitimately disagree about some of those questions.

But there is no difficult deductibility issue where the transaction never happened. If fuel was not purchased, kilometres were not travelled, services were not supplied or an invoice was fabricated simply to support a claim, the problem is not a debatable interpretation of tax law. The underlying fact has been invented.

A wrong return does not automatically establish evasion

The shortfall-penalty regime recognises different levels of culpability. Failure to take reasonable care carries a penalty of 20% of the resulting tax shortfall. Gross carelessness carries 40%. Evasion or a similar act carries 150%. ⁵

That escalation is not merely numerical. Evasion requires a materially different state of mind.

Inland Revenue’s March 2026 interpretation statement says negligence or carelessness is insufficient. Broadly, evasion requires intention and actual knowledge, wilful blindness or subjective recklessness. Knowledge is tested subjectively, although it can be inferred from the surrounding circumstances and the taxpayer’s conduct.⁶

A taxpayer may misunderstand the deductibility of a genuine payment. A business owner may use a poor method to divide an actual vehicle expense between business and private use. Someone may mistakenly claim GST where no input tax deduction is available. Those errors can still produce tax and penalty consequences, but they are not necessarily dishonest.

The position is different where the taxpayer knowingly claims an expense that never existed, fabricates an invoice, knowingly inflates an amount or proceeds despite appreciating the real risk that there is no lawful entitlement to the refund.

Intention is rarely established by a confession. It is usually inferred. Repeated fictitious claims, implausible refunds, documents manufactured after the event and attempts to conceal what occurred may support an inference of knowledge. Calling the claim a mistake after Inland Revenue makes contact does not determine what it was when filed.

There is also an important procedural protection. Unlike the other shortfall penalties, the Commissioner bears the burden of establishing evasion or a similar act, on the balance of probabilities. If criminal charges are brought, the prosecution must prove the offence beyond reasonable doubt.⁶

“Someone else did it”

Inland Revenue says several taxpayers visited its Auckland and Wellington offices seeking to reset their myIR passwords so they could amend their returns. They reportedly referred to people who knew how to obtain extra money and to someone on social media offering help with expense claims. ¹

Some taxpayers may say that they did not know what was entered into their accounts. That explanation cannot simply be accepted or dismissed as a group.

Unauthorised access is materially different from knowingly supplying false figures. An intermediary may also exceed the authority given. The evidence must establish the relevant intention or knowledge against the person.

But handing over myIR access does not provide automatic immunity. What was the intermediary asked to do? What information did the taxpayer supply? Did the taxpayer receive a refund so large that it demanded an obvious question? Did the taxpayer suspect the claim was false but deliberately avoid checking because the answer might interfere with the payment?

Wilful blindness requires more than carelessness. It arises where a person deliberately shuts their eyes to a suspected obligation or risk because they do not want their suspicion confirmed.⁶

The intermediary may face separate consequences. Section 141E extends to a person who knowingly enables, or attempts to enable, another person to obtain a refund or payment to which that person is not lawfully entitled. Depending on the evidence, criminal liability may also arise.⁷

Correcting the position

Advice is valuable where the facts are true and their tax treatment is uncertain. It can resolve a revenue versus capital question, identify where mixed use requires apportionment and help demonstrate that reasonable care was taken.

It cannot convert a fictional transaction into a deductible expense. A taxpayer who invents a transaction, conceals material information or supplies a false document does not acquire reasonable care merely by placing an accountant between themselves and the return.

Taxpayers who discover an incorrect return should act promptly. Section 113 of the Tax Administration Act 1994 permits a taxpayer to ask the Commissioner to amend an assessment, including to correct a genuine error. The discretion is broad, but the Commissioner is not obliged to reassess, and section 113 cannot ordinarily be used to bypass the statutory disputes process. ⁸

Where the issue may involve a false claim, the first steps should be practical: establish exactly what was filed, preserve the records and messages, and obtain independent advice. Do not manufacture missing documents or improvise an explanation.

A full voluntary disclosure may substantially reduce a shortfall penalty. Timing and completeness are critical. A disclosure made before notification of a pending audit or investigation attracts a greater reduction than one made after notification but before the audit or investigation begins. ⁹ Whether a disclosure is strategically and legally appropriate will depend on the particular facts.

The possible consequences are not theoretical. On 2 September, Inland Revenue publicised an unrelated case in which an Auckland builder was sentenced for knowingly evading more than $352,000 in income tax, GST and PAYE. A starting point of 30 months’ imprisonment became 20 months after discounts and was commuted to ten months’ home detention.¹⁰

That prosecution does not predict what will happen to anyone involved in the present investigation. The facts were different. It illustrates the narrower point that persistent, deliberate non-compliance can cease to be merely a tax problem and become a criminal one.

Tax law is complicated, and honest mistakes occur. That is precisely why intention and individual evidence matter. Inland Revenue should not treat every taxpayer within a coordinated pattern as having the same state of mind.

Equally, complexity cannot be used to disguise an invented transaction. If an expense occurred, there may be a legitimate dispute about its tax treatment. If it never occurred, no technical interpretation can make it deductible.

The time to establish whether an expense can be claimed is before filing. If a false claim has already been made, the worst response is to compound it with a false explanation.

This article provides general information only and is not legal or tax advice.

Footnotes

1. ^{Inland Revenue, “Bogus expenses claims are fraud” (media release, 26 August 2026).}
2. ^{Terry Baucher, “Tax evasion, tax avoidance or just a simple mistake?”, Interest.co.nz (10 December 2017).}
3. ^{Income Tax Act 2007, ss DA 1 and DA 2.}
4. ^{Goods and Services Tax Act 1985, ss 3A and 20, together with the taxable-supply information rules in ss 19E–19N.}
5. ^{Tax Administration Act 1994, ss 141A, 141C and 141E; Inland Revenue, IS 26/04: Shortfall penalty for not taking reasonable care, IS 26/06: Shortfall penalty for gross carelessness, and IS 26/08: Shortfall penalty for evasion or a similar act (all issued 27 March 2026).}
6. ^{Inland Revenue, IS 26/08: Shortfall penalty for evasion or a similar act, especially the discussion of actual knowledge, subjective recklessness, wilful blindness, proof and the inference of subjective knowledge from surrounding circumstances and conduct.}
7. ^{Tax Administration Act 1994, s 141E(1)(e)–(f) and (3), and ss 143B and 148.}
8. ^{Tax Administration Act 1994, s 113;} 
9. ^{Tax Administration Act 1994, s 141G; Inland Revenue, “Lowering your shortfall penalty”; and IS 26/09: Shortfall penalties—reductions and other matters (27 March 2026).}
10. ^{Inland Revenue, “Auckland builder sentenced for tax evasion” (media release, 2 September 2026).}

*Dave Ananth is a partner at Meridian Partners and a former Inland Revenue solicitor. His practice focuses on student loans, tax disputes and negotiations with Inland Revenue. His background, profile and contact details are here.