Mother and Daughter Sentenced for Tax Evasion: Key Lessons for Businesses

A recent case involving a mother and daughter sentenced for nearly $2 million in tax evasion serves as a strong reminder of how seriously tax non-compliance is treated in New Zealand. The case highlights the risks of ignoring tax obligations — particularly GST and PAYE, which are closely monitored by the Inland Revenue.

Overview of the Case

The two individuals were involved in operating labour-hire businesses supplying workers for crop picking. Over several years, they failed to meet their tax obligations across two companies.

The first company accumulated substantial unpaid GST and PAYE liabilities. Rather than addressing these obligations, the business was closed and a new company was established shortly after, continuing the same operations. This move was seen as an attempt to avoid existing tax debts.

The second company was found to be non-compliant from the outset, with ongoing failures to account for and pay GST and PAYE.

The Scale of the Offending

The amounts involved were significant:

• The mother evaded approximately $997,000 in GST and PAYE

• The daughter evaded approximately $878,000 across both companies

These figures represent tax that should have been declared and paid over multiple years, including employee deductions (PAYE) and consumption tax (GST).

Court Outcome

The Court described the offending as serious and deliberate. Starting points for sentencing were set at over three years of imprisonment for each individual. However, after considering factors such as:

• Guilty pleas

• Health issues

• Family responsibilities

• Lack of evidence of a lavish lifestyle

The judge applied a more lenient approach.

Both individuals were sentenced to:

• 12 months home detention

• 40 to 50 hours of community work

Importantly, the Court noted that a prison sentence would have been likely if not for these mitigating circumstances.

Key Issues Highlighted

This case brings forward several important compliance lessons:

1. PAYE Is “Trust Money”

PAYE is deducted from employees’ wages and held on their behalf. Failing to pass it on is treated as a serious breach and can lead to personal liability for directors.

2. Closing a Company Does Not Remove Liability

Setting up a new company to continue business activities does not eliminate previous tax obligations. Inland Revenue actively monitors such behaviour and may view it as deliberate evasion.

3. Ongoing Non-Compliance Escalates Risk

Repeated failure to meet tax obligations, especially after receiving warnings or notices, significantly increases the likelihood of enforcement action.

4. Personal Circumstances May Not Prevent Conviction

While personal factors may influence sentencing, they do not excuse non-compliance or prevent convictions for serious tax offences.

Final Thoughts

This case reinforces a clear message: tax obligations must be taken seriously and managed proactively. GST and PAYE are not optional — they are core compliance requirements for any business.

If a business is facing cashflow challenges, there are options available, including repayment arrangements and early engagement with Inland Revenue. Ignoring the problem or attempting to avoid it can lead to far more serious consequences.

For business owners and directors, the key takeaway is simple — act early, stay compliant, and seek advice when needed.