‘Morally wrong’ — IRD slammed
Financial adviser says IRD should’ve paid back taxes
Afinancial adviser has slammed the tax department for incompetence and says it is making a “morally wrong” decision by not paying $42 million to Kiwis who have overpaid tax on their investments including KiwiSaver.
But the Inland Revenue says the system it used before April did not allow it to work out which prescribed investor rate people should be on and current law is stopping it from paying that money out.
Revenue Minister Stuart Nash has said he will look into changing the law to allow overpayments to be refunded but the onus has been on individuals to make sure they are paying the right investment tax rate.
This week the IRD revealed an
estimated 1.5 million Kiwis were on the wrong prescribed investor rate in the year to March 31 resulting in 950,000 people overpaying tax on their investments and 550,000 underpaying.
The 550,000 will have to pay the tax owed estimated to be an average of between $80 to $90 per person adding up to a total of between $45 million to $50m dollars.
The 950,000 who are owed an average of $44 each won’t be refunded the $42m they have overpaid because the current law doesn’t allow for it.
Rachelle Bland, an Auckland financial adviser, said the situation was an appalling indictment of the Inland Revenue Department.
“The problem of overpayment of tax has been around since 2007 and in part was created by the IRD forcing all auto-enrolled [KiwiSaver] members into the highest tax bracket.”
A person automatically enrolled into KiwiSaver through starting a new job is put on the top tax rate of 28 per cent and must tell their provider three months later if they should be on a lower rate.
Bland was one of nine advisers who wrote to Finance Minister Grant Robertson and Commerce Minister Kris Faafoi and regulators last year warning them that many of the lowest income earning KiwiSaver members were paying tax at the highest possible rate of 28 per cent when they should have been taxed at 10.5 per cent or 17.5 per cent.
At the time Robertson’s office acknowledged it had received the letter but said Faafoi would respond.
In a letter dated June 8, 2018, Faafoi said issues about the prescribed investor rate did not fall within his portfolio but he had raised concerns with the tax department.
Bland said the tax problem might have been an oversight when it was set up in 2006 but it was “totally appalling” that it had been left unfixed for 12 years.
“It is morally wrong . . . for the IRD to be collecting on underpaid but not refunding overpaid tax.”
Sharon Thompson, Inland Revenue deputy commissioner, said yesterday its system did not allow it to calculate a person’s prescribed investor rate until it had switched to a new system in April.
She said the new system now allowed it to group together all the income people received including wages, salary and investments which enabled it to see if people were on the right rate relative to their income.
“In the past our old system did not do this automatically and we relied on people and their investment providers to make sure they were on the right rate.”
Thompson said it was a business decision not to go back beyond the last tax year because it would have required significant work not just for Inland Revenue but for individual taxpayers and financial institutions.
Andrew Bayly, National’s spokesman for tax, said it was “patently unfair” that those who under-paid had to pay tax while those who overpaid got nothing back.
Bayly said Nash could have dealt with the issue through a supplementary order paper (SOP) this week.
“The minister put an SOP on the table he could have added another clause that deals with this in the stroke of a pen.”
A spokeswoman for Nash would not answer why he would not change the law to enable tax overpayers to get their $42m back for the most recent tax year.
She referred the Herald to comments made by Nash at the finance and expenditure committee last Wednesday.
Nash told the committee New Zealand’s tax system was based on selfassessment and every year portfolio investment entity providers, which includes KiwiSaver providers, send a letter to individuals outlining the tax rate they were on.
The Inland Revenue Department will start contacting people from midJuly to let people know if they are on the wrong rate.