Here's what you need to know about this year's tax refunds

Friday, 5 May 2023

You could be receiving a tax refund in June.

EXPLAINER: The end of the financial year has come and gone and Inland Revenue’s systems are now calculating how many New Zealanders have correctly paid their taxes.

So what goes in to deciding who gets a refund, and when can you expect one?

What is a tax refund?

In New Zealand, most employed people pay tax via the pay-as-you-earn (PAYE) model, meaning tax is deducted from their pay before it even goes into their bank accounts.

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At the end of the financial year, IR looks at those people’s tax payments to see if they have paid the right amount, if they have tax to pay, or if they're due a refund for over-paying tax.

Since 2019, Inland Revenue has been automatically calculating tax returns for people earning wages, salary, interest and dividends, and issuing refunds or sending bills.

Once all sources of income are taken into account, the wealthiest Kiwis are taxed at a rate of 8.9%, according to a separate report from Inland Revenue released earlier this year. (Video first published April 26, 2023)

Who gets a refund and why?

It all depends on your how you get your income.

A person who is employed with a regular salary and no secondary income should receive their tax assessment by the end of June. This will show if they have paid the right amount of tax, owe more, or are due a refund. Refunds are expected to be paid out by July.

Generally, you only see a refund as a PAYE worker when there has been variation in your income during the year – a change in job, more hours worked, or maybe some time in between jobs that meant you didn’t earn for a period.

A person who is employed with a regular salary but also has a secondary income will be contacted by IR at the end of June for more information about their income to complete a tax assessment. Secondary income is usually taxed at a rate of 30% – the tax assessment is then used to check whether that rate was appropriate.

People who are self-employed would usually work with their accountants to file a return.

Refunds are paid as IR processes income tax assessments, so not everyone will get theirs at the same time.

How do you get the refund?

The tax refund system is now all automated, so refunds are automatically be deposited into the bank account registered with IR.

You can check it has the right account information before your refund is due by visiting the myIR website.

When the first instalment of the Cost of Living Payment was divvied out on August 1 last year, IR said that it still didn’t have bank accounts details for 168,000 people who could receive the payment.

What about a bill?

Instead of getting a refund, some people might owe IR money.

This could be for a range of reasons including because their income changed during the year, they were not using the right tax code, or their prescribed investor rate (PIR) was too low for their investments.

People who have a tax bill need to pay the owing money by February 7, 2024.

Can people get out of paying?

If you end up with tax to pay you may be able to get it automatically written off.

This occurs when the tax you have to pay is $50 or less or if people have no more than $200 of other income, did not use a tailored tax code during the year, and did not have a Working for Families entitlement at any point during the year.

People can also have it automatically written off if their income is from an income-tested benefit, such as the emergency benefit, jobseeker support, sole parent support, supported living payment, young parent payment, youth payment, education grant, New Zealand Superannuation or a veteran’s pension.