IR confirms faulty online calculator was overestimating tax for 15 months

Wednesday, 7 July 2021

Inland Revenue says a fix for its faulty online calculator should have been put in place when Deloitte contacted it in September “but wasn’t”.

Inland Revenue has confirmed that some people may have paid more tax than they should have last year because of a longstanding fault with one of the online calculators it provides on its website.

The fault, which existed for 15 months before IR took the calculator offline on Monday, may also have led investors who filed tax returns for the latest tax year to also overestimate their taxable income.

The department admitted on Wednesday that it was told by Deloitte in September that the online calculator was giving incorrect results but failed to fix it.

An Inland Revenue spokeswoman said it took down the calculator after Deloitte first advised it of the fault.

* Inland Revenue urgently fixing tax calculator that gave 'incorrect results'

“But it was put back up because we couldn’t find a problem with it at that stage,” she said.

Inland Revenue commissioner Naomi Ferguson.

“We acknowledge we should have gone back and checked the detail of the fault with Deloitte, but we didn’t,” she said.

Inland Revenue took down the calculator again on Monday after Stuff advised it that a Nelson accountant had found it could overestimate people’s taxable income.

On Tuesday, an IR spokeswoman apologised for the fault and said taxpayers who were unable to file their tax returns by Wednesday’s deadline because the calculator was offline would not be disadvantaged.

Deloitte tax partner Robyn Walker had feared the calculator could have been overestimating people’s taxable income since April last year and already led to some investors paying too much tax.

IR’s spokeswoman confirmed that was the case.

The fault had been in the calculator since April last year, she said.

“Inland Revenue believes any effects are limited to the tax years ending 31 March 2020 and 2021.”

Inland Revenue could not say how many taxpayers might have been affected but “believes it is a relatively small number”, she said.

People could only have overpaid tax as a result of the calculator fault if they owned at least $50,000 of foreign shares and suffered a loss on any of their foreign shares they traded.

The calculator is designed to help people who have invested more than $50,000 in foreign shares to work out their taxable profits under IR Fair Dividend Rate (FIF) tax regime.

It was over-reporting investors’ taxable income in situations where they were taxed under the FIF scheme and experienced a loss on shares they held for only a part of the tax year.

Inland Revenue’s spokeswoman said it was asking people who believed they were affected to contact the department so it could “correct any error”.

It would also talk to Chartered Accountants Australia and New Zealand and contact tax agents about the issue “to let them know what has happened so they can help their clients”, she said.

Walker believed IR might not be able to easily work out exactly who might have been impacted, as it would not necessarily know whether investors owned individual foreign shares that fell in value.

IR might need to send a letter to everyone covered by the FIF regime to ask them to check if they could have been affected, she said.

“Definitely something has fallen down here.”

As well as notifying IR of the issue in September, Deloitte described it in a tax alert it published in November.

Walker said the issue raised “broader concerns” about the complexity of the tax system.