IRD crackdown on unpaid tax debt plunges more businesses into liquidation

Thursday, 12 February 2026

Tax debt is the biggest issue facing Inland Revenue, and the department is acting on it ‒ but that’s contributing to high liquidation numbers, tax specialists say.

A total of 2934 companies went into liquidation in 2025, the highest number since 2010, according to credit reporting company Centrix’s latest figures.

And since the start of the year the NZ Government Gazette has published a steady stream of applications to put companies into liquidation.

The lingering recession is one reason, but Inland Revenue’s multi-year programme to crack down on unpaid taxes is being cited as another contributor.

Read more:

• NZ company liquidations 2025: Highest number of failures since 2010

• Auckland glut, IRD crackdown push more builders into liquidation

• Liquidations hit decade-high in worst period since global financial crisis

Now, a new survey from Chartered Accountants Australia and New Zealand and Tax Management New Zealand shows that 82% of tax agents’ have clients with unpaid tax debt.

There had been a clear rise in Inland Revenue’s audit and review activity, and increased attention across GST, PAYE and land transactions, it reported.

About 40% of the 549 respondents said they have had clients reviewed or audited, and while tax debt levels were high 75% were confident their clients would meet repayment arrangements.

Tax Management New Zealand strategic advisor Chris Cunniffe said tax debt was Inland Revenue’s biggest problem, but it had received extra funding to attack the problem ‒ and it was doing so.

About $9.3 billion of tax was overdue to Inland Revenue in June last year, and the debt, which included about $3b in penalties and interest, was forecast to get bigger, he said.

“During Covid the Government flushed money out the door to assist business, and a light touch, hands-off model was employed to help businesses through and out the other side.

“But Inland Revenue also reduced staff numbers following the introduction of a new IT system, and a lot of experienced workers had left.

“So there was a perfect storm of Covid pressures, tough economic times, growing tax debt and under-resourcing.”

Inland Revenue was getting good returns from the increased funding and the audits, and was making a dent in the tax debt backlog, but the challenge was the magnitude of it, he said.

“In hindsight, the softly, softly approach was left in place for too long. There are companies whose tax debt should have been addressed several years ago but wasn’t, and they were allowed to keep struggling along.

“Inland Revenue is now taking the initiative to pick up the liquidation process and wrap companies up. That’s why we are seeing the liquidation numbers grow, and why Inland Revenue is at the forefront of it.”

The survey showed most tax agents were supportive of Inland Revenue taking action, and Cunniffe said winding up such companies was the right thing to do.

“There is a moral hazard in allowing companies that should not be operating to continue to trade, and potentially take down other businesses with them, and it needs to be avoided.”

While he understood 65% of the tax debt was owed by micro businesses and SMEs, the survey’s 82% figure showed just how widespread the issue was, he added.

Most of the work that licensed insolvency practitioner Larissa Logan, from Fixity Limited, does these days is with SMEs.

She said the number one cause of business failure in New Zealand was that many businesses did not have good oversight of their cash and tax position.

Only 15% of businesses had cash flow forecasts, for example, and in many small businesses limited financial experience meant they did not have appropriate reporting mechanisms in place, she said.

“So they don’t understand their cash position, and they miss obligations, and that leads to their tax debt not being paid and spiralling. And Inland Revenue is cracking down on debt.”

Logan said that across the construction industry - from roofers to civil works companies - there was a particularly high number of insolvencies.

But in her view a large part of that was caused by a structural problem to do with pricing, whereby people priced jobs at rates that did not cover their costs.

It was to win jobs to cover wages, but the practice eroded already narrow margins, she said.

“Cash flow is impacted, and all it takes for things to go awry is one bad job. If it comes down to it most people will choose to pay wages before Inland Revenue and the tax debts build.”

The tax department had tightened up on repayment plans, and it was now harder to get them across the line, Logan said

“You don’t want a business trading if it is going to burn its creditors or rip people off, so if it is not viable for a business to be rehabilitated I’ll say so.

“But if it’s a business that’s just had an extremely tough time and there’s an ability to turn it round, get jobs and then creditors paid ‒ why wouldn’t you try?”

A lot of her clients had been on payment plans and missed payments, so a key part of returning them to solvency was rebuilding trust, she said.

*CORRECTION: The paragraph that refers to the survey’s finding on tax debt has been amended to say “82% of tax agents have clients with unpaid tax debt”, not “82% of tax agents' clients have unpaid tax debt”. (Amended Thursday February 12 2026, 12.16pm)

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