Companies that fail to hand over GST and PAYE in the spotlight

Sunday, 17 August 2025

Officials are considering whether it is time to update laws which are supposed to alert the public to companies which have persistently failed to hand over GST and PAYE to Inland Revenue.

While an individual who misses a repayment on a loan has that missed repayment recorded on their credit report after just 30 days, companies can fall behind on their taxes by hundreds of thousands of dollars for up to a year without any risk of that being reported on their credit files.

Credit files are compiled by credit reporting companies like Centrix, and are checked by the likes of banks and other lenders when deciding whether to grant loans, or extend other forms of credit, to individuals.

But the credit reporting system is supposed to also be used by companies and members of the public to check the creditworthiness of companies they are considering doing business with.

This could be in instances where a family is about to pay a deposit to a company to build them a home, or when tradies like electrician and plasterers are considering doing work as subcontractors for other companies, and want to assess the risk of not getting paid for that work.

Keith McLaughlin, managing director of the Centrix credit reporting company, said long-overdue tax debt was a leading indicator of whether a company was in financial trouble.

Time after time when a company was put into liquidation, it turned out to owe PAYE and GST debt that its creditors, often smaller supplier companies, did not know about, he said.

“The rest of the market is blind to the tax debt,” McLaughlin said.

“Everybody says you got to be a responsible lender. Obviously you’ve got to know your customer. You’ve got to minimise your risk. You’ve got to do credit checks. You got to do all these things, and you do all that, and there could be a half million dollars owed to the tax department that you’ve got no visibility of whatsoever,” he said.

That made it hard for small businesses to know which companies to do business with, and on what terms ‒ for example, requiring to be paid in advance for work.

He said the risk was that a company in financial trouble which was allowed to continue to trade while owing hundreds of thousands of dollars to the taxman could create a “domino effect”, bringing down other companies with them when they were finally put into liquidation, which often happened at the suit of Inland Revenue.

Inland Revenue has reported mounting company tax debt with businesses owing $1.4 billion of unpaid GST and PAYE from the 2025 tax year.

In its 2024 annual report, Inland Revenue Te Tari Taake said PAYE and GST debt was “an early signal that businesses are experiencing cashflow issues”.

GST and PAYE are not company money that could be used as working capital when a company was struggling, but money collected by companies on behalf of the Government from employees, and when they sell goods and services.

But despite the growing amount of GST and PAYE debt, there are less than a dozen companies which have tax debts reported on their credit files with Centrix.

In 2024, Inland Revenue reported just three companies, an Official Information Act request received by Centrix showed.

Tax affairs are covered by strict tax secrecy laws, but there is an exception for companies that fall woefully behind on their tax obligations.

In 2017 after several high profile liquidations, frustrated revenue minister Judith Collins ordered that companies which failed to hand over large amounts GST or PAYE, or which were significantly behind on their own company taxes, should have the fact added to their credit files.

Collins said this would then put on notice other companies, and members of the public, considering doing business with companies behind on their tax debts.

She set the tax debt level at $150,000, saying: “Usually when a company’s tax debt reaches this level, it’s likely that other options to resolve the debt have been unsuccessful and Inland Revenue may be considering insolvency and enforcement proceedings. At this point the risk to other creditors is greatest.”

“This approach we’re taking to debt is similar to the commercial approach. It means that smaller creditors dealing with a business carrying significant tax debt will be able to make more informed decisions about credit risks,” Collins said.

But the hurdles Inland Revenue must clear to report a tax debt are much higher than in Australia.

The Australian Tax Office can report a debt of A$100,000 (about NZ$110,000) or more, if it is overdue by more than 90 days, and the tax debtor is not engaging with the tax office.

But the rules in New Zealand require the debt to be overdue by 12 months, along with other conditions.

Data released under the Official Information Act showed that a total of just 12 companies’ tax defaults were reported to Centrix between Collins’ rule change in 2017 and the end of 2023.

Data released by Centrix every month shows that contrasted with missed repayments by 478,000 individuals on the likes of credit cards, personal loans, power bills, and home loans.

“Under comprehensive credit reporting, if you’re behind, it’s effectively within a month, you’re shown in as in arrears, and after 90 days it’s listed a serious default,” McLaughlin said.

By contrast, he said: “You've got small businesses out there which enter into a credit contract, or small lenders, which enter into a loan agreement, with a company. They do a credit check through the bureau and then say, ‘OK, look at the clean record. There's no problems whatsoever’. So, they enter into a transaction … and there's no visibility of the fact that they owe $250,000 to the tax department and they're insolvent.”

Increasing tax debt reporting would improve the effectiveness of the credit reporting system, he said.

Kare Johnstone, chair of the Restructuring, Insolvency and Turnaround Association, said: “Often a secured creditor will be completely unaware that there’s unpaid taxes, and sometimes, even when you ask a company if their taxes are current, they will say yes, even if they are under a repayment plan.”

A repayment plan is an arrangement with Inland Revenue to slowly pay overdue tax, but that is explicitly exempted from any credit reporting, despite it being an indicator of a company that had struggled to meet its financial obligations.

Johnstone described New Zealand’s company tax debt reporting as “out of kilter” with Australia’s.

She also felt that tax reporting could help incentivise companies to be more diligent in paying their tax, potentially reducing unpaid tax, and helping Inland Revenue in their recovery efforts.

Former Inland Revenue tax investigator Dave Ananth said: “We need to develop a system where there is more transparency”, especially when it came to GST and PAYE.

“GST is not your money. It’s the Government’s money,” he said.

“There must be some reporting,” he said.

Revenue Minister Watts did not indicate a time frame for officials to report back to him on whether the overdue tax reporting system needed overhauling.

In a statement to The Post, he said: “As a Government we have been clear that we want to create an environment where small businesses can grow and thrive. I have set my expectations with Inland Revenue that their work should be aligned to this vision.”

And on tax reporting, he said: “Officials are currently considering whether these settings need to change.