Pensioners claim bad tax advice to blame for bills

Wednesday, 16 June 2021

A growing number of pensioners who have been hit with tax bills say they were on the wrong tax code because of the advice of government departments.

Almost a dozen people contacted Stuff on Wednesday with more or less the same story. They were pensioners who consulted Inland Revenue or Ministry of Social Development before starting a job, or claiming superannuation, to clarify which tax code they should use.

It was in response to a story about the experiences of Anne Marie Dowdeswell and Trish Turney, both of whom were told to use tax code M for their jobs, while also receiving superannuation.

If someone’s main income is superannuation, they should generally use tax code M for that. But if they earn more from another source, such as a full-time job, the superannuation becomes a secondary income source.

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That would then either need a tax code of S, if their total income was up to $48,000, SH if they earned between $48,001 and $70,000 or ST if their total income was more than $70,000.

The Ministry of Social Development notes that people can also apply for a special tax code if necessary.

A spokeswoman for the tax department said there were many reasons why some people were on the wrong tax codes, and it might be that some had been on incorrect codes for a number of years.

She did not initially reply to specific questions regarding the allegedly incorrect advice given via the call centre but said the department would continue to look into the issue.

“What has changed this year is that the improved abilities of our new systems have identified the incorrect codes and people are receiving unexpected bills or refunds,” she said.

“Previously neither our customers nor Inland Revenue would have known.”

Tax expert Terry Baucher said it was particularly concerning to hear that people were receiving incorrect advice when they phoned the tax department’s call centres.

Baucher said he believed part of the problem was the tax agency’s reliance on temporary contractors.

Tax consultant and lawyer Terry Baucher says Inland Revenue’s reliance on temporary contractors could mean people are receiving the wrong information when they contact the call centre.

“If a contractor has not been properly trained, they may be giving out incorrect advice.”

In 2018, almost a quarter of Inland Revenue’s staff nationwide were temporary contactors hired through recruitment agency Madison.

The majority of the temporary contractors were call centre staff, Baucher said.

That said, the tax department’s new automated system, introduced in 2019, should have picked up quickly that these pensioners were working and sent a message telling them that they were on the wrong code, he said.

“I think there are issues going on at Inland Revenue around its business transformation system and its use of temporary contractors.”

Part of the problem, however, went beyond recent changes at the tax department, Baucher said.

The pay as you earn framework was more than 60 years old and hadn’t been sufficiently updated to accommodate different approaches to employment.

Introduced in 1958, the system was built around the assumption of one job, per person, per year.

In that context, it worked perfectly, he said.

But once you have multiple sources of income, issues emerge.

He said people who were using a secondary tax rate might be overtaxed but there would be a year-end wash-up in their favour.

Another man affected, Kevin Norquay, said he was given poor advice by the Ministry for Social Development.

Norquay became eligible for superannuation in January.

When he filled in his forms he put in the code he believed was correct, but the Ministry of Social Development contacted him to say he got it wrong, and they would enter the right code before processing the paperwork.

Less than six months later, Norquay has been told he owes $800 in tax.

“I have no problem paying the right tax but how is this fair?” he said.

“I put my faith in the experts and lo and behold [they got it wrong].”