IR sets out what taxpayers can expect next for their $1.8 billion investment

Friday, 7 February 2020

Inland Revenue is preparing for another wave of change (first published February 2020).

Recent graduates and people newly claiming Working for Families payments should see changes for the better when Inland Revenue completes the fourth stage of its massive Business Transformation project in April, the department says.

The transformation project, which is currently tracking a little under its $1.8 billion total budget, has so far seen major changes to the way GST and income tax are managed.

Next up will be an overhaul of the administration of student loans, Working for Families and KiwiSaver as they are also moved off the department's aging mainframes and First software system to a new technology platform called Start.

From April, people who newly register for Working for Families payments will receive the tax deductions in their pay-packets from the time they qualify for the benefit, rather than having to wait until the end of the tax year for money to first show through, deputy commissioner Greg James said.

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KiwiSavers should start receiving their employers' contributions at least a week earlier from April.

'That is quite an improvement for people coming into the Working for Families scheme,' he said.

People with student loans will also be able to view up-to-date balances online, along with information on what, if any, interest may be accruing.

'At the moment you can go online and see your transactions but you'd probably need a programmable calculator to work out where you were,' James said.

Borrowers who have moved overseas will be able to pay down their debts using a new fee-free facility Inland Revenue has arranged with Citibank that will provide a locked-in exchange rate.

James expected that would encourage more former students who were living overseas to make payments and not get into default.

Student loan borrowers will get new options to pay off their loans if they are overseas and may get text messages if they move into default.

'If you are sitting in the UK and $500 behind on your loan, pre-release 4 you would pay that on your credit card or you'd make a bank transfer,' he said.

'In that situation you'd have to worry about exchange rates and the banks will take a fee, so you can't be sure how much is going against your loan.'

But after April 'if they pay off $500, it will be $500 against the loan', he said.

The new system will allow Inland Revenue to send text messages to borrowers to tell them, for example, if they were about to start incurring interest charges or were falling behind on payments 'whereas that is currently not an option in the First environment'.

Inland Revenue aims to cut the time it takes to release employers' KiwiSaver contributions to investors' accounts from about 17 to 20 days, to under 10 days, from April, he said.

'The benefit is the quicker we get the money to KiwiSaver providers, the quicker the individual starts accruing the investment returns.'

Another significant change is that Inland Revenue will begin receiving monthly statements from organisations that pay dividends to taxpayers, instead of only receiving dividend information at the end of the tax year.

That should mean smaller end-of-year tax bills or refunds for people with investment income, James said.

The Business Transformation project had uncovered big skeletons in Inland Revenue's closet, he agreed.

Changes to the income tax system last year revealed that 1.5 million taxpayers had been paying the wrong rate of tax on their KiwiSaver or other investments, resulting in a total of about $90m in underpayments and overpayments in the 2019 tax year alone.

In many cases, people's tax payments could have been out of whack for several years.

But James said that issue had been uncovered rather than caused by the Business Transformation programme, which had gone well.

Inland Revenue had spent $861m on the programme at the end of its last financial year, which was $71m under budget, and it was currently also under-budget on its forecast $220m spend this year, he said.

It has paid more than $132m to consultancy Accenture over the past three years to last April, though not all of that was for transformation-related work, spokeswoman Gay Cavill said.

The department warned in a briefing to ministers in December that risks remained with 'release five' of the Start software system which will overhaul child support and paid parental leave in April next year, and with its plan to switch off its old First technology system the following June.

'We need to make sure we have secured all of the data and got it across into the new world.'

Inland Revenue has agreed a back-up plan with its legacy-systems supplier Unisys that would enable it to keep its old technology running for an extra year 'as a last resort' if it struck problems during decommissioning.