A Gisborne retailer hid more than $1 million in cash sales to avoid paying tax.

He has been sentenced to seven-and-a-half months' home detention.

Liangxing Luo, 46, runs Art Fun Wear shops in Gisborne, Dunedin and Invercargill.

JAN MIKA/STUFF Inland Revenue is warning that people who try to avoid paying tax will be caught.

He claimed he directed cash takings from the business into his own bank account to avoid paying bank fees and then forgot to transfer the money to his business accounts.

READ MORE: IRD fights growing cash economy among builders, tradies

His accountant was not aware of the payments.

Over four years, Luo arranged for sales from each store to go into his bank account or those of his family members. As a result, $421,429 in GST and income tax was not paid to Inland Revenue.

Group manager of investigations Patrick Goggin said the offending was inexcusable and Luo's defence was baseless.

"There is absolutely no possibility Luo didn't know that what he was doing was wrong. Pocketing cash sales and not letting his tax agent know was clearly a deliberate strategy to avoid paying tax," Goggin said.

While Luo evaded his obligations, Inland Revenue was able to recover the unpaid tax and use of money interest through its powers and ability to have funds deducted from bank accounts, he said.

"New Zealanders should know that we will catch tax evaders and hold them to account for not paying their fair share of tax."

Inland revenue earlier signalled it was cracking down on the black economy. It put the value of the "hidden economy" of intentionally not declaring or accurately reporting transactions at $146 million in its 2015 Annual Report.

A spokesman said, in this case, the discovery of hidden cash would have started with a routine risk assessment analysis, which picked up apparent anomalies in business income tax and GST returns – such as significantly lower than expected sales figures for a business of this nature and scale.

"This would have then led to an audit of the accounts, which would have shown returned cash sales or receipts were much lower than expected."

