A total of 92 construction companies went into liquidation in the year ending May 23, according to the Department for Business, Innovation and Jobs.
Inland Revenue is increasingly taking action against construction and real estate investment companies for unpaid taxes, said Deloitte’s head of restructuring.
David Webb, who is Deloitte’s national head of restructuring, said his staff were dealing with more requests from companies in the property sector, which often asked for help.
Webb was not surprised by the numbers to come, with many companies being supported by wage subsidy programs and discounted loans from banks during the pandemic.
“There was a level of stress in our economy at the end of 2019 which under normal circumstances would have seen people leave or close their businesses,” he said.
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Inland Revenue (IR) spokesman on unpaid tax debt, Richard Philp, confirmed that the department was increasing its debt collection activities.
“Until recently, IR has focused more on supporting businesses that have been impacted by Covid and qualified for various government Covid support payments.”
The companies contacted were based on the amount of unpaid tax and the nature of the tax, Philp said.
“For example, we give high priority to any company that has not paid employer contributions when due,” he said.
“We collect unpaid taxes and determine the viability of a business to ensure a level playing field for all and therefore this supports the integrity of the tax system.”
Philp said eligibility for government Covid support payments did not take into account whether a company had a tax debt.
The problems in construction have been acknowledged by the chief executives of Master Builders and the New Zealand Building Industry Federation, who both believe the sector is entering a cycle of recession.
There have also been a number of IR demands to put leading real estate investment firms into liquidation, including three headed by “property queen” Nikki Connors.
It wasn’t businesses carrying small tax debts that were under the microscope, Webb said, but those with large amounts of unpaid GST or PAYE tax bills.
More difficult to negotiate real estate transactions
Webb said real estate investors find themselves trying to broker deals in an environment where real estate prices are falling as the cost of production rises.
“On the demand side, house prices are falling, driven by rising interest rates and cost of living pressure,” Webb said.
“On the supply side, you have access to materials, escalating costs and labor shortages, so that’s what’s problematic for development, and that’s the construction industry. construction.
Webb said it’s valid to ask whether some real estate investment firms’ models still work in the current environment.
Rahul Srivastav’s house was nearing completion when the construction company building it went into liquidation. (Video first posted May 18, 2022)
He said if current business models were to work, investment firms would need to find backers willing to endure the pain of falling house prices and rising costs until the one of the two pressures releases.
“You have to find financiers who are willing to provide some leeway,” Webb said.
Donors are tightening their purse strings
Webb said the purse strings are tightening whether the funder is the government, banks or wealthy individuals and shareholders.
“They’re actually saying we’re not going to provide funding anymore, and they’re handing it over to business owners to fund their way now.”
Webb said the high-risk, high-reward nature of the construction industry meant it was a sector that tended to struggle before others.
Philp’s advised any business that had not paid its taxes to contact IR as soon as possible.
“Usually the longer you wait, the worse the problem becomes,” he said.
Having an accurate cash flow forecast was key to building a sustainable payment arrangement with IR.
“Placing a payment agreement in place as soon as possible will also stop unnecessary debt growth due to late payment penalties. And in appropriate circumstances, the IR can even limit the scope of the use of monetary interest charges.