Taxpayers to reap 'gain from the pain' at Inland Revenue

Wednesday, 1 August 2018

IRD staff aren't feeling their employer's generosity.

Inland Revenue has been going through the mill with staff striking on Wednesday, about 1500 job cuts in the pipeline, and the department failing to even pick up 45 per cent of its calls in June.

But the light at the end of the tunnel for three million Kiwis is that receiving tax refunds from Inland Revenue should get easier from next year.

The personal tax reforms should leave people about $100 million a year better off and will probably be the most noticeable change for consumers stemming from Inland Revenue's wrenching $1.8 billion Business Transformation project.

The three million people who stand to benefit most will be those who get all but up to $200 of their income from wages, interest, New Zealand dividends and distributions from Māori authorities.

Revenue Minister Stuart Nash says people would not be expected to review the information shown on their pre-populated tax statements unless they had 'specific knowledge' that the information that Inland Revenue held about them was wrong.

* More than 45 per cent of calls to Inland Revenue disconnected in June

* Inland Revenue asked to 'check again' by Revenue Minister

* Accountants fume over 'perfect storm' at Inland Revenue**

Gone will be the personal tax summaries they would normally need to request in order to get a tax refund.

Instead, Inland Revenue will provide everyone with access to a 'pre-populated' statement that will set out what taxable income it believes people have received over the year.

IRD staff are among PSA members protesting for better pay.

To keep things simple – and against the advice of law and accounting firms – people won't have to get in touch with Inland Revenue to confirm the information in the statements is correct but, if they do, they should get any tax refund they are due sooner.

Importantly, Revenue Minister Stuart Nash has clarified that people won't even have to look at the statements if they don't have reason to.

That is because there will only be an onus on people to correct the information in them if they do look at them and spot an error, or if they have reason to think the information might be wrong without having looked at them.

That might be because they had received a cash payment or hadn't provided their IRD number to an interest payer.

That may not be the complete end to taxpayers' obligations though.

If Inland Revenue doesn't hear from a taxpayer, it will assume, after some period of time, that the statements are correct and automatically credit a refund to each person's bank account, or send them a tax bill.

Accountants faced problems logging into Inland Revenue's online service in June, adding to the frustrations caused by congestion at its contact centres.

Nash says that once someone's tax calculation is complete, they will be sent a notice advising them of this.

'The notice is still to be designed, but it is expected to show their income sources and their tax calculation based on that income,' he said.

'This might also give people reason to know that the reportable income information was wrong if it was significantly different to the income that they expected to see.'

Inland Revenue estimates about 750,000 people currently miss out on tax refunds worth $150m each year because they don't claim them.

The flipside is people legally avoid paying $50m in tax each year by not requesting personal tax summaries when they have something owing.

My Tax managing director Lester Binns says Inland Revenue will need to quickly educate people about the tax changes.

So issuing refunds and tax bills automatically should therefore leave people $100m a year better off, all other things being equal.

The new policy may not be quite as generous as it sounds because from the start of the next tax year Inland Revenue should be taxing people much more accurately through the year anyway.

That should be made possible by behind-the-scenes changes that hang on the successful completion of the third stage of its new computer system, called Start.

From next year, Inland Revenue will begin asking employers to move people onto different tax rates when their income in the year to date justifies that.

It will also ask the likes of banks to deduct income from people's saving accounts and investments at the right rate, where it spots that isn't happening.

Striking IRD workers did letter box drops for Women's Refuge,

That means large year-end refunds and bills should be a thing of the past for most people – not this year – but from the year after.

Tax refund companies have sometimes been portrayed as parasitic, given they charge a commission on tax refunds that people could claim direct from Inland Revenue.

But they are not directly criticising the reforms, even though they stand to see a chuck of their income disappear.

The Government has prioritised simplicity over double-checking accuracy when it comes to tax.

Woohoo NZ director Cilla Purchas said it managed the tax of nearly a million people and described the changes as a great move.

'The reason we set up the business in the first place is people weren't getting what is rightfully theirs,' she said.

But she questioned whether the annual statements would always have 'all the correct information'.

Woohoo will get access to its customers' tax statements. 'People will still choose to come to us and use our service to make sure what they have got is right,' she said.

'People don't want to receive something and then have to pay it back later on.'

Woohoo employed a core team of 25 staff but that doubled with seasonal staff each year during the tax refund season, which is now just ending, Purchas said.

She expected it would still have a need for seasonal staff in future years, but perhaps not in the same numbers, at least after next year.

Woohoo has responded by offering additional services, such as assisting the likes of Uber drivers and other 'gig economy' converts to manage their tax affairs, she said.

Lester Binns, managing director of tax management company My Tax, put a similarly brave on what the changes would mean for his business.

The company employs 18 full-time staff but has in the past taken on about another 20 to 30 seasonal staff to help with refunds.

It had been clear since Inland Revenue embarked on its Business Transformation programme that there would be some impact on tax refund intermediaries, Binns said.

My Tax had responded by diversifying into helping 'tens of thousands' of landlords and sole traders manage their tax.

'We've known about these changes coming for a long time.'

But he didn't believe people could necessarily count on next year's changes going smoothly.

'Doing something on this scale in one year is I think a big ask for any organisation.

'I personally think IR will need to be educating the market very quickly on some sort of mass basis between now and next year, because a lot of people won't understand what it means for them.'

Nash indicated it was likely that people would need to log into Inland Revenue's myIR system if they wanted to look at their tax statement before it was confirmed as final by Inland Revenue.

'People who Inland Revenue expects to supply additional information, and who do not have active myIR accounts, will have to be supplied with a copy of the information that Inland Revenue holds in another form.

'Inland Revenue advises me that this approach is being worked on,' he said.

Binns said the 'digital push' made sense, given Inland Revenue was trying to become a lean organisation.

But he forecast a rush of people trying to log on to myIR for the first time next year could put a lot of pressure on Inland Revenue's contact centre.

'It will be interesting to see how IR copes.'

OTHER CHANGES

- People who donate money to eligible charities will be able to submit their receipts electronically at any time, rather than fill out a form at the end of the year to claim a tax refund, if they choose.

- Tax refunds will be paid to people's bank accounts, rather than by cheque, with only 'limited exemptions' allowed for customers who would otherwise experience undue hardship or for whom direct credits were impractical.

- People won't have pay tax bills if they amount to less than $20.

* An earlier version of this story stated 3000 Inland Revenue staff went on strike on Wednesday. The Public Service Association issued a statement saying about that number went on strike. Inland Revenue disputes this, and says so far 1800 staff have participated in the strike action.