Inland Revenue's power to search taxpayers' homes came into question in a recent Court of Appeal case where three homes and a boatshed were searched for documents.
Two Auckland businessmen complained their properties were damaged in an intrusive search of their homes by Inland Revenue, which extended to building cavities and a teenage girl's underwear drawer. The businessmen appealed the legality of Inland Revenue's raid on their homes after the High Court ruled in favour of the Commissioner of Inland Revenue.
The businessmen argued the warrants issued to search their properties should not have been granted as the information put before the district court judge to obtain the warrants contained errors or omitted information, rendering the warrants invalid.
When deciding whether to grant a search warrant, the court will consider the likelihood that there are relevant books or documents in the home.
In this case Inland Revenue had made a number of requests for information that it felt had not been complied with, and was of the view that it was necessary to exercise its powers of search and seizure at the homes.
The court ruled that while necessity is a requirement of search warrants generally, the powers granted to Inland Revenue under the tax legislation are much broader than the search powers afforded to other government agencies, including the police.
Tax legislation grants Inland Revenue free access to all land, buildings and places where it is considered necessary or relevant for the purpose of collecting unpaid tax. This is a blanket right for business premises.
However, for a taxpayer's private home Inland Revenue must first obtain a search warrant.
Search and seizure can only be considered once Inland Revenue has demonstrated that all other options available to it under the legislation have been exhausted.
It is quite likely that the police will be called to assist Inland Revenue where there is deliberate obstruction.
Where there is obstruction of an Inland Revenue search, the taxpayer may be liable for criminal penalties including a fine of up to $25,000.
With Inland Revenue's crackdown on the cash economy, dawn raids on the homes of tax evaders will become more prevalent. Its target sectors have been well publicised and include hospitality, scrap metal, fishing, aquaculture, horticulture and tourism.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.