Revenue Minister Stuart Nash asks IRD to investigate allowing investment tax refunds

Wednesday, 12 June 2019

Revenue Minister Stuart Nash has kicked off work on a possible law change.

People who pay too much tax on KiwiSaver and other PIE investments may in future be able to claim that tax back.

Revenue Minister Stuart Nash has asked Inland Revenue to look into the implications of changing the law to allow people to claim back tax if they had self-selected a prescribed investor rate (PIR) on KiwiSaver and other portfolio investor entity (PIE) investments that was higher than they needed to pay.

But he said that would not be retrospective and acknowledged that would not help people who had overpaid tax on their PIE investments to date.

The move came after Inland Revenue found 450,000 people had been paying the wrong rate of tax on KiwiSaver and other PIE investments.

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Inland Revenue commissioner Naomi Ferguson says the department doesn't have information on how much tax might have underpaid historically by people who were found to have declared too low a rate of tax on their investments last year, and has decided to 'draw a line in the sand'.

* KiwiSaver tax dodgers may have got away with $200m-plus reward

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* 450,000 people have been paying wrong rate of tax on KiwiSaver and other investments, IRD discovers**

The bulk of those people are likely to have underpaid tax according to industry sources, and many are receiving tax bills of hundreds of dollars as a result.

But an unknown number of people on incomes of less than $48,000 a year are believed to have overpaid tens of millions of dollars and can't get a refund as the law now stands.

New processes being implemented as a result of Inland Revenue's $1.6 billion Business Transformation project should mean most people are more accurately taxed on most types of income in future, with the tax department able to take more steps to ensure rates are correct.

But Nash said it would still be difficult for Inland Revenue to know whether people who had not selected a KiwiSaver provider and were on default schemes were overpaying.

No decision had been made on changing the law to allow for PIE tax refunds at this point, but the existing law preventing PIE tax refunds dated back to 2006, he said.

'We are keen to see how the system can work moving forward, and because of the level of information we can now gather, we can ensure this doesn't happen again,' he said, after appearing in front of Parliament's Finance and Expenditure select committee.

Inland Revenue commissioner Naomi Ferguson said the existing rule dated back many years to a time when Inland Revenue had a 'very different system'.

National Party revenue spokesman Andrew Bayly said it was 'patently inequitable' that people who had overpaid tax on their investments could not reclaim that.

Ferguson reiterated that Inland Revenue would not go back through its records to see whether people who instead underpaid tax on their investments last year by selecting too low a PIR had also been doing so in previous years, saying the department had decided to 'draw a line in the sand'.

Inland Revenue said last week that had been a 'business decision', but Ferguson told MPs it did not have the information to allow it to quantify how much underpaid tax it would be forgoing as a result.

Bayly said industry sources suggested about $200m of unpaid tax could have been recoverable if Inland Revenue had made a different decision. That would tally with a 'back of the envelope' calculation by Stuff that suggested the figure could be between $200m and $500m.

Nash told MPs that Inland Revenue's Business Transformation project had been 'really, really well run'.

Chartered Accountants Australia and New Zealand (Caanz) tax leader John Cuthbertson said on Thursday that a series of minor issues with the department's latest, huge upgrade were adding up to a bigger issue for its members and they had 'not been that appreciative' of Inland Revenue saying what a good system it was.

Jeff Owens, a former tax director of Caanz who now runs his own accounting firm, said Inland Revenue had been trying to 'gloss over issues and pretends they are one offs as opposed to widespread'.

'I accept there will be teething problems in such a new system but consider many could have been avoided and strongly disagree with the way IRD is handling them now.

'Agents and other intermediaries desperately need one central independent forum where they can log issues and get truthful updates that acknowledge issues and demonstrate progress in resolving them,' he said.

Bayly said Inland Revenue had bypassed tax agents and sent communications direct to their clients in some situations, which had been a source of confusion for them and extra work for agents.

Ferguson said there had been 'a couple of instances' where it had sent 'the first batch of a big volume of letters' that should have been addressed to tax agents to their clients.

'When we have found, that we redirected them. Tax accountants have raised that with us and we have fixed that going forward,' she said.