Back to Making Tax Simpler
Introduction

Are these suggestions the right ones to deliver change?

Would the potential changes summarised here be broad enough to deliver significant improvments to New Zealand's tax administration system?

Improving tax administration for employers and businesses

Improving tax administration for individuals

Improving tax administration for social policy customers

Comments

Sarah P
No more NOVOPAY systems that don't work, please

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1 year ago
carl
Just take a look at the stupid way the "education" segment had set up their pay systems. A hundred different rates and entitlements, not just check box material either, many were conditional. No wonder they never got it right.

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1 year ago
Stu Colson
The biggest change required in the current tax regime is the charging of GST on all imported goods from foreign websites. Why successive governments in NZ have continues to give overseas a 15% competitive advantage is insulting to NZ business owners and continues to cost jobs in the retail sector. Any overhaul is window dressing on our biggest problem and successive tax and customs ministers are simply highlighting their own ineptitude by ignoring this $500 million annual cost to our economy.

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1 year ago
carl
Not just in GST. Large corporations "charge" internal "consulting" or "franchise" fees to their NZ businesses. These show up as "expenses" on the NZ business, so the NZ business has no tax to pay; but it's all profit to the overseas owners.

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1 year ago
Paul Smith
Does the tax system (GST on Imported items) distinguish between retail and private purchases ? I agree there is a need protect NZ's retail sector and the NZ taxation system should reflect that. There are free trade agreements in place, do they deal with issue ? if not how does NZ create a fair system. Just trying to develop a better understanding of the issue subject etc, it is important that the NZ taxation system protects and encourages NZ business.

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1 year ago
Lisabeth N
NZ should follow Australia's example. Working there for 15 years I had my tax refund within a week after end of financial year. EVERY YEAR. Why does it take IRD to mid May before I can even start the refund process? Ridiculous.

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1 year ago
shelley
I agree. I guess it's that there are hardly any staff. There certainly aren't any physical offices anymore and means I can't make a visa pmt at a window and collect air points...I don't make much money so those little gems are priceless ..Faster refunds and a physical office please. Online with a visa is available but you end up paying high fees for it, cancelling out any air points benefits.

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1 year ago
Glenys
Visa Fees when paying online - good point and why are Visa transaction fees so high, I am sure IRD has negotiated a better rate than the cost charged to us. We are a smallish retail store and we don't pay a rate that high - it appears that IRD is making a profit on our credit card payments - IRD - can this not please be renegotiated and reduced???

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1 year ago
Joy
Totally agree. The time taken for my accountant to even get the information required from IRD to complete my end of year accounts is getting later and later each year. Last year it was almost June before IRD would provide the information they needed. This is unacceptable.

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1 year ago
Robert Urquhart
This process provides a great opportunity to step back and re-examine not only /what/ is taxed but /where/ it is taxed in the 21st century. I believe that the significant majority of modern taxes incurred probably have an electronic transaction record already associated with them, although in some cases after the fact. Salary / wages / dividend income / social welfare entitlements - paid into the recipient's bank account electronically GST and other sales taxes - paid into the seller's bank account either electronically or as part of an "end-of-day" cash deposit. This suggests an option which I submit for discussion - simplifying the basic system to tax incoming transactions, assessed and immediately set aside at the point where this information is already collected: the financial institutions. This would (ref. p9 of the green paper (reproduced at the top of this forum) for a handy summary of desired outcomes to read alongside) - move a large amount of compliance away from employers and businesses (and certain government departments responsible for delivering social policy eg Work and Income) entirely and onto the financial institutions who already have strong systems in place for calculating and applying a variety of fees and rates to different accounts. -- Thus if desired personal accounts could be simply taxed at a different rate to business accounts to accounts set up by verified charities/non-profits. Progressive tax bands could still be applied (see next point). - drastically reduce the need to interact electronically with individual businesses and the vagaries of individual accounting system / IT setups. Banks etc already manage secure transmission of financial data, collect IRD numbers for the purposes of correctly calculating withholding tax and would at minimum only need to -- retrieve the correct tax rate for a given number from IRD and -- periodically supply an aggregate transaction total for calculation of entitlements and inclusion in the entities end-of-year reconciliation (in addition to transferring the correct amounts of course). - if an entity had an outstanding balance owing at the end of a period (income through multiple institutions perhaps) the amount could be recovered automatically over time by simply lifting the rate across all their accounts (ala tax code change)(also applies to eg student loans). Similarly refunds could be made automatically. - further broaden the tax base, catching a greater portion of income derived from undeclared cash sales and those pesky capital gains. Hopefully this could result in a lowering of the base rates to ... compensate. -- Particular types of transactions, declared, could no doubt be given "tax exempt" or "tax-released/refunded" status. Eg "family home" sales; payments from IRD could be automatically recognised so tax is not incurred on a tax-refund. - be transparent to current PAYE earners, save that their bank statement could now show tax incurred and paid (added value for some). - Obviously rules about declaring cash income (more properly "unbanked" income under this system), fringe benefits and other significant "non-monetary transfers of value" would still need to exist in some form, but these would probably require little modification to those currently in force. ~~~ I have more thoughts on implementation and potential pitfalls but that is sufficient to explain the premise.

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1 year ago
Paul Smith
Would individuals set up over seas bank accounts increasing the risk of tax avoidance ? Or can that risk be moderated ?

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1 year ago
Simon Darby
The difficulty with collecting GST or any tax from online sales outside New Zealand is obvious to anyone, but legislating on it is a bit like holding back the tide with your hands. You may get a few offshore companies agreeing to collect GST for New Zealand, but if the majority do not then it becomes a very uneven playing field, and it's hard to see that line being held. It's also an ineffective protection tool for New Zealand retailers, many of them selling imported goods. If the GST were used to protect their import franchises then it seems to be less about tax, and more about protectionism which is kind of odd given the push to remove such barriers. Perhaps the problem with GST is it is an ineffective tax tool in an online world without boarders, at least for consumer products and services. Rather than get excited about $500m or whatever in GST that may not get collected, consider what kind of things could be done for New Zealand retailers to compete globally. Essentially, reverse the thinking that IRD are missing anything, and ask what can IRD do to encourage export earnings. Could there be tax incentives (lower rates) for online retailers exporting out of New Zealand? Could those retailers gain more export revenue for New Zealand than any GST grab might try to get? The New Zealand consumer buying something online is really small potatoes tax, and missing the point and opportunity for revenue growth for New Zealand companies.

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1 year ago
Andrew Clark
The easy way to deal with the overseas transaction issue is to make banking systems liable to pay a tax on any transaction outside the country. This would mean importers would have prepaid their GST when importing anything. we would have to prove we had been travelling overseas to get it back when we come back on things we don't bring back. We would then already have paid the GST on purchases we bring back into the country. All foreign companies trying to repatriate funds when creating an artificial local loss would still be paying 15% on anything they take out of the country. Just a thought.

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1 year ago
carl
IRD need to set up themselves a "cook tank" to trial this on. Get three IRD employees, tell them they are now doing their jobs as "small business contractors" - no-one from expert area or with prior knowledge, see how long it takes them to set up the business. "Deduct" all expenses from computers, desks, power, lighting, lunches from their wages (aka "sales") and only give them the portion of their wages as "sales"on a pro rata for the actual job work they complete (ie what the customer is normally paying on invoice for) so if it takes them 1 hr a day to get the information in the computer correctly updated for an "invoice" for a "job" and to get the "tax" updated on a daily basis then only pay them pro rata their 7.5 hours minus that 1 hour (then the aforementioned "expenses" get deducted). this IS how life works in the small business world. Doing more daily chores is a BAD thing. What we need is for it to be easy to do once a month.... how much of YOUR wages or evening are YOU personally willing to give up? ask those three "cook tank" people at teh end of three months :)

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1 year ago
shelley
I totally agree. In a world of a 2 day weekend ( in my opinion is a waste of life but has been set up as necessary to survive by the people that run the planet and don't care ) taking more "time" ! away from us as individuals to feed the business worlds financial appetite is just unacceptable..I don't want to spend my life after a working day doing more work to make life easier for billionaires and wealthy businessmen. Sorry but I'm over this consumeristic world where money means more than time. Grrrr. Coffee time I think :)

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1 year ago
Penny Baker
Yes, I like the way the government is thinking. Simplfying the tax system and making it quicker, easier would be great. Simpler PAYE would be helpful. I resent that when we take on new staff and are paying existing staff, we have to also pay their court fines seperately to different court houses around the country, we have to sort out their kiwi-saver, student loan deductions, child support payments etc. I resent spending a lot of my time, especially when the employee provides incorrect information, on sorting out all of the employees obligations and then not getting paid for being the governments tax collector. The list of deductions is getting longer over time. I like the idea of paying tax as a business along the way (PAYE for businesses). So often, provisional and terminal tax is hard to work out, and then is payable in the 'off-season', which really hurts our cashflow. If we can pay employees taxes every month, can't we do the same with our own? Another bug-bare is often when we pay various taxes online and stipulate what the tax is for, IRD staff will regularly transfer it to another account, making us behind in the specified tax. It takes so long to get the end of year accounts finished, that the information is not particularly useful. So, we have worked as tax collectors for no charge, jumped through all the hoops required and then the information is not even able to be applied to the business in a timely manner. Need to remember about our rural tax collectors. With very little of rural customers having a reliable internet service or no service at all, backup systems are needed still for paper based accounts. Even for those with rural connections, they are often unreliable and a back-up plan is needed for when payments are due, but the latest storm has taken out the satellite connections or the power has gone down. Another idea is for the greater payment of the business/employer for collecting the tax on behalf of the IRD, a proportion of the accountants bill? Personally, I would rather pay my money in tax to help all of NZ, then pay as much as we do to accountants. I like what the IRD is thinking about and am interested to see how it goes.

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1 year ago
SteveG
Suggestion to those who find it difficult to find the money when tax bills are due: Set up another bank account (Tax Savings Account - with interest payable by the bank) and deposit into this account sufficient funds each month to cover; 1. Net GST collected that month, 2. Income tax on the profit you made that month, 3. PAYE deducted from your employees wages/salaries that month 4. etc, etc. When the time comes to pay the appropriate tax type then dip into that "Tax Savings Account" and voila, the funds are available. And as the account should always be "In Funds" the bank will pay you interest as compensation for your time to follow this easy and effective process. All online of coarse!!

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1 year ago
Glenn
Most of these broad intentions I support, though more information is required with respect to recovery of overdue tax. IRD already deducts amounts from taxpayer bank accounts without warning, and I suggest such a draconian action should occur only within very strict parameters - stricter than currently applied. Other suggestions: 1. eliminate differences in the top marginal tax rates of individuals, companies, trusts to reduce the incentive for manipulation of income allocations (unproductive work from a national perspective) 2. put aside the concept of annual income and annual returns. This is an historic artifice that is no longer relevant. Move to a monthly calculation of income tax obligations. On an accruals basis with perhaps 30 days to calculate + 20 days to pay (aligns tax payments with cash-flow assuming a 50 day average collection cycle), or 30 day calculation & payment for cash basis. For individuals this will align tax obligations more closely with actual income as it is earned (eliminates large inaccuracies in the current annual calculation when income fluctuates through the year). 3. eliminate FBT for closely held companies (or non-XRB regulated entities). 4. consider a simple cash in/cash out calculation for income tax for small businesses (eliminate the income/capital distinction, exclude personal transactions from the calculation). Eliminates depreciation. Investment in productive assets reduces tax liability (currently it does not, so income tax liability may be high when available cash is low due to investment in plant - a disincentive to invest that adversely impacts NZ productivity). 5. eliminate interest calculations on overdrawn shareholder current accounts. Accept that all loopholes cannot be filled, and that adding regulation to close more gaps creates others. Simplicity should be a key objective. Keep it simple, keep it focused, keep it relevant, and consider broader implications for the NZ economy.

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1 year ago
Anneliese
At present if I have a moderate earning year, then my last quarter is very profitable, provisional tax spreads my income evenly over the year. This means I have to pay interest on "short-paid tax payments" from the beginning of the year even though the income was not earned until the end of the year !

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1 year ago
Rick Drayson
Just wanted to say that i love the proposed changes -GST -PAYE Nice and easy to collect the tax for, please use as templates for future changes. -Provisional tax, hate it, horrible. more importantly; STRESSFUL.

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1 year ago
Chris Clark
The entire taxation system is way too complicated and too many large organisations are sliding out of paying tax, while the average kiwi and small companies are locked in. Solution: Everyone (individuals, trusts, companies, multi-nationals) should pay 10% income tax on sales or income with no opportunity to claim anything against tax, avoid tax, or send profits offshore. This would be easy to administer (halve the IRD, tax consultants, accountants, etc) and everyone would always know what their tax payment will be. It would encourage efficiency as companies with high material & labour input would need to work and price their products accordingly. Do the sums - I think the tax take will be greater, and it will certainly be fair on everyone, and it will be simple to administer.

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1 year ago
Glenys
Don't see how this would work ie INCOME does not mean PROFIT - income could be totally offset by genuine expenses, ie we retail so have a lot of stock where the profit margin isn't high, but the turnover is reasonably high - other people may "retail" their labour, where there income is high but their costs in time is high also - how would you work that???

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1 year ago
Jeanette Bremner / Big Box Productions Ltd
Please help us minimise our admin costs and time for micro to small business. Sorting out the provisional would be a great help! I like what has been suggested.

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1 year ago
Don
Simplifying provisional tax would be great, so that we don't have to "best guess" what our company income will be 12 months ahead and hope we get it right so that we are not penalised. We find GST works OK as it is, as we pay two monthly. Maybe something similar for provisional tax, with any corrections (either way) made at the end of the financial year.

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1 year ago
Peter W
With good accounting software compliance is reasonably easy these days. What I am concerned about is Individual's with multiple sources of income (other thank PAYE wages) being forced to calculate their income by monthly to manage a PAYE system rather than squaring up tax at year end. Provision tax for individuals is sometimes onerous but if refunded (as often) it is a great benefit. I am for the status Quo on this matter. Should the IRD want to tackle a decent subject let them tackle Double taxation on dividends and income from overseas sources to help the thousands of Kiwis who work or have interests in Australia (and around the world). We are getting hammered with huge losses due to an unfair system which benefits both the IRD and ATO (Australian Tax Office) This issue has been unresolved for many many years. Sort it out. Leave Capital Gains alone. The average working family can get ahead if they have the courage to take on a rental property and it is likely the only substantial retirement plan available as a good long term strategy (Kiwi saver is not for the low wage earner). If a person is trading they do get taxed, so we already have a good fair capital gain system for the professional trader in realty or other asset types. Hands off this one I say.

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1 year ago
James Wallis Martin
I would be all for eliminating income tax all together and just increasing both the GST and introduce an Asset Holdings Tax to not only make up the difference but generate additional tax revenue to reinvest in global growth industries like IT and Green Energy (similar to how Norway is currently doing it). The IRD could be effectively halved in size, produce further savings, and even increase revenue from offshore entities through the Asset Holdings Tax. Those that spend the most would be taxed the most. This would be a much more equitable tax system and the Asset Holdings would encourage companies and wealthy individuals from considering holding too many assets.

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1 year ago
Gavin Goldsworthy
I have issues with the need to be registered for PAYE in order to pay it. I am have full time employment but do occasional jobs through my company. Would be great if I could just pay PAYE on this individual job at the time. It is a mayor effort to enroll for PAYE for the occasional job and a bigger effort to un-enroll.

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1 year ago
John McCarthy
Having a system where self-employed people and those earning income from rents can pay their tax each week or month on the same basis as IR56 taxpayers such as domestic home help workers will make things much easier, and not have to worry about a huge annual tax bill. This will also result in more due tax being collected.

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1 year ago
Ronise Paul
Simplifying Provisional Tax would be great. Although the current method of installments in the tax year ahead of being filed means you're not potentially stuck with a large bill, it doesn't work so well the other way round if you overpay. So a pay as you earn system would be alot more accurate

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1 year ago
joan
Please make provisional tax work like PAYE tax. The last time I earned self-employed income was in June 2013 but now in April 2015 I still have to pay over $1,545 provisional tax. The total in provisional tax I paid for the 2015 tax year was over $3,000 yet the last time I earned self-employed income was almost two years ago. I know that I did not pay income tax at the end of my first year I was self employed and I appreciate the IRD wants start up businesses to have as much cash as possible to get their businesses going but perhaps when we pay tax can be an option. For people like me who work in an office and have few expenses, I am happy to start paying tax right away. But for people whose businesses have expenses, the delayed provisional tax is probably welcomed.

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1 year ago
Rich Saunders
Simpler returns are desirable so long as they remain entirely transparent. Returns should only be submitted automatically though once the client has had a good long period to submit the claim manually - we need to know what to expect and we need to be able to review and approve/enquire about it just the same as the IRD does. The optimal tax regime would be consumption based however ie far lower/nonexistent income taxes and higher GST.

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1 year ago
James Nimmo
Either get rid of GST and raise income taxes, or find a way to apply GST to all purchases including when purchasing digital or physical goods from overseas. International companies like Google and Apple must pay their share of tax and not make a loss as they usually do when trading in New Zealand, just because they are clever about how they structure the business. Remove GST and customs fees on imports, and add an automatic GST charge to all international credit card transactions from New Zealand credit cards. Big retailers like Amazon would be able to charge in NZD and include GST in their sale price for a better customer experience.

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1 year ago
jt
you cant populate a form with income details for an IR3 return!

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1 year ago
Sarah
For a small bussiness owner improving provisional tax would greatly help small company's stay a float. It's crazy to think currently small business pay a huge estimated cost of provisinal tax so far in advance and then if it ends up being over paid the bussiness owner does not get this money refunded it just gets held by the ird for the next provisional tax payment. This isn't a fair process for bussiness's,either the provisional tax needs to be more carefully worked out or if over estimated the bussiness should get that refund back.

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1 year ago
Self employed
I think that We/New Zealand should move toward a total electronic money system. As the government should be able to do a better job (hopefully) and is in better position at protecting our personal money and in some ways currently does than any other business/any of the banks which can go bankrupt at anytime and we can lose it all and currently all banking profit is going off shore also not good for NZ. - Get rid of all foreign banks within New Zealand, the government takes this over, call it IRD whatever you want.. and controls it, the banking fees/new taxes stay in and is income for the NZ government. - All overseas companies/persons wanting to trade within NZ or own land in NZ must be done so through a NZ bank account. - Interest from business and personal loans become profit for the government bank which can be used to provide loans to its citizens. - Introduce a land value tax to be collected by local councils with the rates and passed to the government, to control land value so everyone can afford a house to live in. - Do away with cash, there is no need for it anymore in this day and age, no need to print money less cost to government /us the tax payer, no one gets to hide behind cash jobs. - Do away with the current over complicated and time consuming tax system altogether, which is time that businesses currently give to the government for free to collect their money. - A tax can then be collected for all spending that is done within NZ including any online purchase and taxes added similar as a foreign currency fee as the banks do currently and the government can also collect a gains tax from any profit coming into New Zealand from overseas. - Employees get wages without tax removed, no need for PAYE anymore. This tax is collected when the money is spent. Government can offset lower wage earners with a credit to keep it fair, and can be setup automatically in the banking system on wages received. With a main tax being taken from a business account to a personal account, perhaps little to no tax on personal to personal accounts to allow for second hand trading where tax has already been taken, and where a gift has been given it would need to be declared to avoid a tax. - Probably a lot of thought needs to be put into all of it to get it right But I think the fairest user pays system for all…similar to what we have but easier to enforce as this takes care of itself. No need for the current collection of gst and all the other taxes by businesses, no one gets to hide behind cash jobs, or any tax loopholes avoiding having to pay tax, businesses can get on with their work.. what they do best and businesses simply add this one tax to their goods or service as they currently do as with gst but the main point is the government receives their tax when the transaction happens within their own banking system. No more anyone wasting their time. Simple. But I know it will never happen as some will not be able to take advantage of the system as they do now. And thinking about it I know nothing about big finance I am merely just a self employed person with no employees trying to stay afloat hoping there is something left for me after paying the basic monthly bills.

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1 year ago
Des
It seems that we have a large and complex system dedicated to calculating and gathering tax on income, plus another similarly large and complex system dedicated to gathering tax on expenditure (I'm treating GST calculation as trivial!). If we're really interested in better performance overall, why not think about retiring one of these two systems? Some have suggested a flat rate on income. My suspicion is that it would be easier to abandon income tax entirely in favour of pervasive GST. (Tho' I confess it 's strange to try to contemplate a life without income tax!)

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1 year ago
Wendy Morton
I am one of those "pensioners" that have an overseas income as well as an UK State Pension, and I work full time here in NZ. I am an NZ citizen, born here in Christchurch, and lived overseas for many years. You mention Provisional Tax relating to Business, but not relating to Individuals. I cannot understand why Provisional Tax has to be paid in advance and then as part of the completion of the Tax Return calculations are made to see if the "estimated" provisional tax was correct. Why cant it be paid at the end of the Tax Year based on the actual income received?

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1 year ago
Sheila Clinch
I think Provisional Tax is very confusing. I recently had a change of circumstances where I stopped being a PAYE tax payer. This resulted in a lot of confusion and frustration over how provisional tax was calculated and what I would need to pay in this financial year. I would support a change to a more PAYE type system for people like me.

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1 year ago
Duncan Andrews
At the moment I use an estimated Prov. tax and then setup a payment through my bank to pay tax on my overseas income monthly, a day after I receive it. Basically I am already using my own system to PAYE like the UK. I just have to ignore all the silly letters from IRD about a couple of late payments as they require stupid quarterly. Go for it I say.

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1 year ago
Graeme M
I find it ironic that the Government proposes greater use of technology to improve and simplify interaction with the IRD when that department refuses to accept email communication. I am a 90% deaf business proprietor (self employed, no staff). After an interminable wait on my old Digitel phone (the only device with amplification in the tonal range matching my hearing loss) the helpful respondent at the IRD call centre and I put ourselves through the 3rd degree because her voice is that of a young female or speaks with an unfamiliar accent. (There are equally as many male tonal variations I cannot decipher.) I accept the IRD as much as I accept my deafness. But I have done all I can to mitigate the effects of the latter. Over to you...

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1 year ago
JC
Cash based accounts pleased. Small businesses with a/c rec on money they haven't received. Also foreign accounts need looking out. If we receive 10000 at the end of one month from a client for sub contracted work and pay the same amount the next day we can have a "profit" of NZ$ that doesn't exist. Getting rid of nz$ monthly reconciliation would be great.

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1 year ago
Brent
I run a small business, and at the moment it is good that I only have to worry about GST and Provisional Tax a couple of times a year. Have to worry about it week to week and month to month would be a pain. It would greatly increase my administration overhead, not reduce it.

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1 year ago
Vicki
As a CA I have serious concerns regarding the privacy of client's data even though I generally agree that a greater use of technology would be a more efficient way of handling some forms, etc. Dealing with phone calls and secure mail queries should be improved. I believe the IRD are under staffed in these areas. I have concerns that the IRD are suggesting that small business use Tax Compliant software to feed information direct to the IRD. The IRD will then generate a “statement “ on a regular basis , and the “customer “ will pay tax on a regular basis – “business PAYE.” That might work for sole traders. How can it work for companies, where prov tax is paid by the shareholders, not by the company.? Further, how accurate will the information compiled by the “customer “ be without the intervention of a CA or tax agent? IRD seem to minimise the role played by the agent in the compilation process. I do not like the IRD of advising clients what they should be receiving or paying without recourse to the client's accountant or tax agent. If the IRD audited gst returns completed by “customers” they would find the returns full of mistakes. I expect the classification and compilation of data in the suggested tax compliant software will also be full of errors. IRD do not appreciate the role that CA's and tax agents play in the tax collection process. These proposals I think are driven by the government trying to score points with small business, by reducing compliance costs, ie by eliminating the tax agents. The unfortunate thing is that many clients do not know what they do not know. Which poses problems for those CA's and tax agents who do a good job but after hearing the IRD's adverts regarding "making it simpler" their clients will not want to pay for professional, effective accounting advice. Whilst the call from the Institute of Chartered Accountants to members is to "re-position" themselves in the market as "business advisors" rather than "number crunchers" the reality is that clients generally only walk in the door because they need their tax returns prepared. Some form of number crunching is always going to be necessary. It is simplistic to say otherwise.

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1 year ago
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