New $1.6 billion IRD system got tax calculation wrong, says accountant

Tuesday, 21 May 2019

Changes designed to simplify the tax system resulted in an extra workload for the department last year. (First published January 2020)

A couple in their 70s were incorrectly told they owed more than $10,000 in tax, penalties and fines by Inland Revenue, according to their daughter, a chartered accountant, who helped them fill out their IR3 tax returns using the tax department's new computer system.

Auckland accountant Melanie Gabriel said her parents had overpaid provisional tax so were due a refund, but Inland Revenue's new income tax system did not take the provisional tax they had paid into account.

'The system had processed the return, but the calculation was flawed and did not deduct the provisional tax paid. The error was consistent on both accounts.'

Gabriel said she helped her parents draft an online letter asking for a correction to be made.

Inland Revenue has claimed the key stage of its Business Transformation project has been a success, but there have been scattered complaints.

* Another 'wrinkle' surfaces after minister labels huge IRD upgrade a success

* Inland Revenue admits sending tax notices to 'unknown number' of babies'**

'A vague response came back about the return not being processed – followed by a demand notice that the money be paid immediately, along with fines and penalties.

'I cannot stress enough how immensely stressful this was for a couple of pensioners who are meticulous about their tax affairs.'

Gabriel said a complaint she made was then badly handled and her parents' online access to myIR was cancelled by Inland Revenue on the assumption they had disclosed their passwords to their daughter.

Inland Revenue spokesman Baden Campbell said it was 'investigating this matter, looking at how the complaint was handled and whether or not there are other instances of this kind'.

However, its ability to comment might be limited because legislation prevented it from discussing individuals' tax affairs, he said.

Issues appear to be continuing to come out of the woodwork after Inland Revenue completed a key step in its $1.6 billion overhaul of the tax system last month, which Revenue Minister Stuart Nash said in April involved the transition of almost 20 million taxpayer accounts from one computer system to another.

Campbell confirmed an issue was impacting some businesspeople who paid provisional tax using a technique called the 'ratio method', which is designed to match tax payments with profits among businesses that experience significant seasonal variations through the year in their income.

An architect told Stuff that they were unable to submit an IR3 tax return as there was no option on an online form for them to continue to pay provisional tax or GST using the ratio method.

She had been advised by Inland Revenue that the issue was unlikely to be fixed before the deadline for submitting IR3s, she said.

'I could just submit it with the 'standard option' ticked and then spend the rest of the year arguing with them how I am going to pay my provisional tax and GST. This is not good enough – they spent billions on this upgrade and couldn't even copy straightforward details off the existing forms.'

Campbell said Inland Revenue was investigating the matter, which appeared to affect a 'small section of provisional tax customers' who paid provisional tax using the ratio method and who filed tax returns directly.

So far fewer than 20 people had contacted Inland Revenue about the issue which did not appear to affect customers who used tax agents to file, he said.

Inland Revenue took on an 325 extra call centre staff on a temporary basis to cope with an expected flood of calls from the 2.5 million people who will received automated tax assessments over the coming weeks.

But another taxpayer said they had been unable to get through to the department throughout Monday morning.