Annual report - 2004 - Part 3

Managing debt and outstanding returns from the 2004 Annual Report - 1

Our overdue debt and return collection activities allow us to influence and maintain community confidence, through tailoring our enforcement activities to reflect the severity of non-compliance. By doing so, we can show people that deliberate non-compliance will be dealt with firmly, while minor transgressions are dealt with in a more appropriate manner.

Much of the work mentioned earlier in this report helps prevent debt, but when debt does occur we have worked hard to assist those who have genuinely tried to comply but, for whatever reason, have failed to do so.

We have also taken firm action against deliberate non-compliers, including those identified through our audit activities. For example, during the year there has been an increase in our use of our statutory powers to gain payment where companies have been deliberately stripped of their assets to avoid paying their tax liabilities. Several sums over $1 million have been recovered using these statutory powers.

We are also identifying taxpayers who are using the insolvency laws to avoid paying tax. These non-compliers voluntarily liquidate their companies and choose the liquidator. A new company is then incorporated to continue the same business but without the liabilities.

We are now highly active in the insolvency area and have replaced questionable liquidators, followed up assets that have been transferred out of the company for no consideration or under their value and pursued directors for the personal use of company funds.

Our efforts in one liquidation resulted in the director of the company entering into an arrangement with the liquidator to pay $850,000 of tax. This was to avoid legal action against the director for the personal use of company money. In addition, our actions in the insolvency area have been effective in having four people banned as directors for their repeated involvement with insolvent companies.

Improving our performance

We have also been looking at how we can maximise the level of taxpayers filing and paying on time by ensuring we work with taxpayers to make it easy to comply. To achieve this result in 2004-05 we will complete an on-time filing and paying strategy. This will guide us in the further development of our processes, our people capability and our relationships with customers, so that we achieve and maintain higher levels of compliance. This year we have carried out research on the issue. We are combining the findings of our analysis and the research so we can develop services tailored to respond to different behaviours.

Even though considerable efforts are being placed into improving and maintaining on-time filing and paying, maintaining our current performance will be a challenge in 2004-05, as we continue to deal with the increasing level of complexity in debt.

The performance highlights for our outstanding return and overdue debt management activities are outlined as follows.

Outstanding returns

During the year, we identify all returns that were expected to be filed, but were not, and take appropriate follow-up action to obtain these returns. Of those not filed, 82.1% were collected within 12 months of their due date. The prompt collection of returns ensures that we are able to assess a taxpayer's correct liability in a timely manner.

At times, it is necessary to prosecute non-complying taxpayers who have taken a stand against filing their returns (see section Using the full force of the law).

Given the compliance nature of outstanding return collection work it is hard to achieve high levels of customer satisfaction. This year, our survey of customers with outstanding returns showed that 61% were satisfied with our return collection activities, compared to 57% in 2002-03.

Overdue debt

During 2003-04, we collected a total of $1.099 billion of overdue debt in cash.

^{18 These debt figures include all debt types with the exception of child support debt.}

Improvements in the management of overdue debt included:

• clearing 39,500 more debt cases than in 2003, thereby removing 9,500 debtors from our books
• reducing by 3.1% the average age of open debt cases
• $184 million decrease in net collectable debt and a $120 million increase in debt under instalment.

These results mean our collectable debt position improved by $64 million, the first time that debt has declined in five years.

These improvements can be linked to:

• focusing on collecting high value debts
• legislative change through the debt and hardship provisions, and
• the investment made in upskilling our staff working in this area.

Included in the total outstanding debt figure are monies that can be collected and those that are categorised as being non-collectable at the time.

The level of collectable debt decreased by 4.7% to $1.296 billion - the target was less than $1.35 billion. Collectable debt includes debt that is under an instalment arrangement. These arrangements allow taxpayers to successfully reduce their tax debts over an agreed period of time. Currently, $570 million (51,314 taxpayers) of debt is under an arrangement representing 44% of collectable debt, compared to 33% in 2003.

Over 100,000 new instalment arrangements were entered into in the last 12 months, up 40% on last year. Of the new arrangements over 40,000 had paid their debt by 30 June.

The other component of collectable debt is net collectable debt which is at its lowest level since February 2001. We are currently undertaking collection action on 71% of the net collectable debt.

A key measure of debt performance is collectable debt as a percentage of revenue.

The increase in revenue has contributed to this improvement, along with significant improvements in our debt collection activity.

The balance of Inland Revenue debt is categorised as non-collectable debt and includes:

• debt deferred or under dispute in the courts. Much of this debt relates to litigation following tax audits. There is currently $435 million in the deferred debt category, up $99 million on June 2003.
• assessments raised by the department in the absence of a filed return by a taxpayer, and
• debt that is with the Official Assignee or Liquidator and awaiting declaration of a final dividend.

Other pages in: Annual report - 2004 - Part 3

• Our compliance model from the 2004 Annual Report
• Making it easy to comply from the 2004 Annual Report - 1
• Making it easy to comply from the 2004 Annual Report - 2
• Tailored services meeting needs from the 2004 Annual Report - 1
• Tailored services meeting needs from the 2004 Annual Report - 2
• Focusing audits on long-term compliance from the 2004 Annual Report
• Managing debt and outstanding returns from the 2004 Annual Report - 2
• Managing debt and outstanding returns from the 2004 Annual Report - 3
• Adjudicating and ruling on the law from the 2004 Annual Report
• Using the full force of the law from the 2004 Annual Report

Date published: 15 Nov 2004

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