Inland Revenue - Tax policy Tax Policy

News and information about the Government's tax policy work programme, including:
- proposed changes to the laws that Inland Revenue is responsible for
- updates on the progress of bills through Parliament
- policy announcements

Chapter 5 - At the end of the tax year – other information


Less than five percent of the nine million returns that Inland Revenue receives each year are submitted on paper now.

Interacting with Inland Revenue

As shown in the flowchart on page 29, while only some individuals will have an obligation to provide information to Inland Revenue at the end of the year, all individuals can choose to interact with Inland Revenue. This interaction could simply be viewing their online statement, adding or amending any information if they do not think the statement is accurate, claiming a refund or paying an amount of tax that is less than the specified threshold.

Using intermediaries

Many taxpayers choose to engage a tax professional to help them to comply with their tax obligations and others nominate a friend or relative to act on their behalf. It is expected that tax intermediaries, whether paid or not, will continue to play a vital role in supporting taxpayers with their interactions with Inland Revenue.

A key driver of the proposals in this document is to simplify the rules so that more individuals can understand their obligations and meet those obligations with minimal effort.

Digital interaction

There is already significant use of Inland Revenue’s digital services, including use of myIR and payments being made digitally. Less than five percent of the nine million returns that Inland Revenue receives each year are submitted on paper now.

Online forms allow Inland Revenue to present only the questions that are relevant, with later questions not appearing if an answer to a previous question makes them irrelevant. Prompts tailored to the individual can be presented online based on information from previous years, or other information Inland Revenue holds about an individual. That same level of service cannot be provided through paper channels. While tax returns will still be available through non-digital channels, the experience will not be as simple or as adaptive as through myIR. As is currently the case, income information would still be pre-populated on paper returns for individuals who choose not to interact through myIR.

Inland Revenue's records of an individual's reportable income will be displayed in the individual's myIR account.

The myIR account would also include questions or prompting statements that are tailored to what Inland Revenue knows of the individual’s circumstances.

Using myIR

Inland Revenue’s records of an individual’s reportable income will be displayed in the individual’s myIR account. If they have uploaded copies of donations receipts during the year, these will be shown on their myIR account.

The myIR account would also include questions or prompting statements that are tailored to what Inland Revenue knows of the individual’s circumstances. These could be related to income that the individual had declared in previous years (for example, “You had rental income last year, do you still rent out a property?"). Or they could be based on information Inland Revenue received from the person during the year (for example, “You’ve already filled in some foreign-sourced income details, do you have more to add?”). They may also be based on information Inland Revenue has received from other sources.

If an individual has received non-reportable income (for example, rental income), that income will not be displayed. In these circumstances, the individual will need to provide information about this income to Inland Revenue.

In addition, while the information Inland Revenue presents in an individual’s information statement will generally be accurate, errors may still occur. If their information statement does contain errors, the individual will be responsible for amending these before confirming their information statement.

As well as adding information that is not already shown, individuals will be able to amend the information that Inland Revenue has displayed, or confirm it as correct and complete.

Some individuals with more complex tax affairs will find that the information that Inland Revenue makes available is not useful to them when completing their return filing obligations. For example, an individual on an accruals basis would probably not find interest information useful. They could amend or delete the amounts shown to reflect their circumstances.

Any obligations or entitlements will be clearly stated. If the account shows that the individual has tax to pay, the payment options will be given. There will be a simple “pay-now” functionality. If the individual has a refund, they will be able to request that it be paid.

Due dates for information

No changes are proposed to the due dates for filing annual returns. For the majority of people who are required to provide information, they must do this by 7 July, subject to extension of time arrangements.

Results of interaction

If the individual interacts before 7 July (or other relevant date) and confirms their statement, it will become an assessment on the day they confirm the statement. The effect of the amount calculated crystallising into an assessment is that the customer is liable to pay the amount to Inland Revenue, is entitled to receive the amount as a refund, or is entitled to carry the amount forward as a net loss.

Approximately 80percent of individuals filing an IR526 are also filing a personal tax summary or IR3 form.

In 2014/15, about 85percent of the nearly two million individuals' income tax refunds were made by direct credit. A larger percentage of non-individuals received their income tax refund through cheques in the same income year - about 56% of the nearly 170,000 refunds.

Donations tax credits

Credits for donations can be claimed at the end of a tax year by filling in a Tax Credit claim form (IR526), or during the year through a system called Payroll Giving, where the credits are received immediately. An individual who claims a tax credit for a donation does not also need to file an income tax return (unless they are required to for other reasons).

Donations tax credits can be claimed for a previous tax year (1 April to 31 March) from the following April each year. This can be weeks or months before an individual files a personal tax summary or IR3. If the individual is also required to file an IR3, the credits are not released until the IR3 has been filed.

Approximately 80percent of individuals filing an IR526 are also filing a personal tax summary or IR3 form.

The Government seeks feedback on whether donations tax credits should be partially reincorporated into the income tax process. Individuals who still wanted to fill in a separate IR526 form could do so, while others could input information about the donations they wish to claim on myIR as they file.

Direct crediting refunds

People who are entitled to an income tax refund currently receive it either by direct credit or a posted cheque. Direct crediting is a much faster process with lower compliance costs for the recipient and lower administrative costs for Inland Revenue. The Government seeks feedback on whether income tax refunds should be made only through direct credit into the taxpayer’s nominated bank account, with exemptions being available in limited circumstances.

The majority of Inland Revenue’s customers prefer direct crediting as a safe, secure and convenient way of receiving refunds. In 2014/15, about 85percent of the nearly two million individuals’ income tax refunds were made by direct credit. A larger percentage of non-individuals received their income tax refund through cheques in the same income year – about 56percent of the nearly 170,000 refunds.

The proposal would benefit taxpayers by eliminating time delays associated with the postal system as well as the costs and effort of banking a cheque. Direct crediting also has the benefit of reduced administration costs for Inland Revenue. A direct credit refund is generally available to the taxpayer in two working days.

The proposal would be implemented by Order in Council through an existing legislative framework[20] which provides for the progressive implementation of compulsory direct crediting of refunds for the various types of tax administered by Inland Revenue. In this context the tax type income tax would cover individual, as well as non-individual, income tax and include tax on individual, employment (PAYE), investment and business income, as well as special categories of income tax such as fringe benefit tax. An exemption is available under the framework for customers who would experience undue hardship or for circumstances where it is impracticable to refund through direct credit.

Compulsory direct crediting already applies to donations tax credits for charitable gifts and GST refunds.[21]

Collecting tax to pay

When an income tax assessment shows tax to pay, this amount is due by 7 February of the following year. If the individual has a tax agent, they have until 7 April to pay.

In the future, amounts to pay will be able to be paid directly through myIR, as well the current payment mechanisms, which include:

  • transferring money to Inland Revenue through internet banking; and
  • paying by debit or credit card on Inland Revenue’s website.

Inland Revenue issues reminders in the lead up to the payment dates, as well as communicating with people who have not paid by the due date. Inland Revenue has a range of debt collection powers which can be used as appropriate.

Determining the appropriate action involves balancing the obligation to maximise recovery of tax with Inland Revenue’s resources and the financial position of the customer.[22] Options currently available for debts include:

  • exercising a discretion to write off the tax if it is under the $20 threshold);[23]
  • issuing a “notice to deduct” to a third party payer (such as the customer’s employer or bank) requiring them to deduct the debit amount from payments to the customer;[24]
  • setting up an instalment arrangement for the customer to pay the amount owing;[25] and
  • if the amount cannot be recovered or in cases of serious hardship, writing it off.[26]

QUESTIONS FOR READERS

5.1 Do you support the proposal to allow people to claim donations credits without having to fill in a separate form?

5.2 Do you support the proposal that income tax refunds should be made only by direct credit, with limited exemptions being available?

 

20 Sections 184A and 184B of the Tax Administration Act.

21 Tax Administration (Direct Credit of GST Refunds) Order 2016, date of enactment 5 December 2016.

22 Tax Administration Act, section 176.

23 Tax Administration Act, section 174AA.

24 Tax Administration Act, section 157.

25 Tax Administration Act, section 177B.

26 Tax Administration Act, section 177C.