Compliance focus 2009-10: Community and business segments

Individuals

  

Our compliance approach

Since 1999, most individual customers have not had to file a tax return. Instead, tax is taken out of salary and wages by their employer and passed on to us through the pay-as-you-earn (PAYE) system.

Individuals who receive additional income, such as rent, interest, or income from overseas or investments may have to file an Individual income tax return (IR3).

Others can claim tax credits on donations, childcare or housekeeping.

While we have made the tax system simpler for individuals, many now have little interaction with us and, as a result, they tend to have a limited awareness or understanding about their obligations. For many, our systems seem complex and they are worried about contacting us. Our compliance approach focuses on helping and supporting people to get it right and showing them it is easy to deal with us.

We are making improvements to our e-services so individuals can self-manage and do a lot more online. This includes updating their bank accounts and contact details, viewing the information we have about their income, and filing an individual income tax return.

Our online calculators let individuals check if they owe money or have money owing to them at the end of the tax year, instead of having to call us.

Individuals can also use the INFOxpress service to order a personal tax summary and change or confirm details in their personal tax summary.

Areas of focus

Establishing identity

An IRD number is a unique identifier for people and businesses. It is not compulsory for every individual to have one, but when they start earning income, set up a business, or receive other types of income they have to pay tax on, it is useful to have an IRD number.

An IRD number is the key to all our products and services, such as working for families tax credits and student loans.

Instances of identity theft are increasing and agencies are looking at ways to improve registration processes to protect customers from identity-related fraud.

Our people are trained to pick up fraudulent identities. If, at any point a suspicious application is picked up they attempt to resolve the issue by asking for other identity documents to ensure registrations are legitimate. We will take further action if we suspect fraudulent activity.

What we will be doing

• improving our registration process through a face-to-face verification system and integrating the all-of-government evidence of identity standard into our system and business processes.
• investigating joint services with other government agencies to verify applicants’ identity. This will improve accuracy and reduce the compliance effort for individuals applying for an IRD number.
• working with other government agencies to apply an all-of-government approach so, when a customer provides proof of identity for another government agency’s service they will not have to give proof of their identity again when applying for an IRD number.
• strengthening our relationships with national and international law enforcement agencies and organisations that address identity theft and fraud to facilitate information sharing, best practice and, where relevant, cross-border enforcement activity.
• continuing to identify and investigate identity theft and fraud issues, particularly those that aid fraudulent claims.

 

Changes to the IRD number application process

In 2008 the process for applying for a new individual IRD number changed to protect people from identity-related theft and fraud. Individuals wanting an IRD number can now apply at Inland Revenue offices, Automobile Association (AA) centres and selected NZ Post retail outlets - that is over 400 locations throughout the country. When applying for a new IRD number, applicants have to provide two forms of identification, one of which must contain a photo. Read the full list of approved identity documents. The AA or selected NZ Post retail outlets will confirm the applicant’s identity and send us photocopies of the documents. We will notify the applicant of their new IRD number within 8 to 10 working days. This process is in line with the new All-of-Government Evidence of Identity Standard.

Donation tax credits

Many people donate to charitable organisations to help them continue to provide important community services and products.

People who make donations may not know they can claim a tax credit.

Some people misuse the tax credit scheme. In the past we have found ineligible claims. The law change that applies from 1 April 2009 removing the limit on what individuals can claim for donations is likely to increase the number of ineligible and fraudulent claims.

What we will be doing

We will be:

• providing information to people, including charitable organisations and key social and cultural networks, about who can apply for a tax credit for donations and other forms of expenditure, how much they can claim and what they can claim for
• continuing to identify behaviour or activities that indicate tax credit fraud by analysing claims, identifying patterns and trends and undertaking investigations. Where individuals have made an error and claimed money they are not entitled to, we will help them to make sure they get it right in the future. In many instances where people have made dishonest claims we consider prosecution. In all instances we will reclaim the funds.

Filing a return

At the end of the tax year most individuals do not have to do anything because their income is deducted by their employer and passed on to us through the PAYE system. Most people who earn salary or wages pay the correct amount of tax.

In some situations individuals use the wrong tax code, either with their employer for salary or wages, or with their bank for interest earned. This means the income tax deducted will be incorrect.

Some individuals, for example, who have earned additional income to their salary and wages, including interest and dividends, or who have not paid the right amount of tax, are required to do an end-of-year square-up. They can request a personal tax summary or file an Individual income tax return (IR 3).

Because many individuals have little interaction with us throughout the year they do not know how to do a square-up or why. So, more individuals are asking intermediaries to act as their agent to ensure they do the right thing and receive any tax they have overpaid.

What we will be doing

We will be:

• providing information about what individuals need to do through our peak season advertising and media campaign
• improving the end-of-year square-up process by making changes to reduce or remove compliance costs and obligations
• making the end-of-year process easy to get right by providing online tools individuals can use to confirm their personal tax summary and file an individual income tax return. Online returns automatically include information we have about individuals, such as their name, IRD number, address and PAYE income
• improving the accurate use of tax codes. For example, we will be working with the Ministry of Social Development to make sure customers turning 65 and starting to receive New Zealand superannuation payments are on the right tax code
• supporting PTS intermediaries to help their clients comply by developing e-services and processes for non-agent intermediaries.
• increasing awareness of the tax obligations on interest. We will work with the New Zealand Bankers Association to inform individuals about using the correct tax codes through their interest statements and information on their websites. We will identify and investigate non-compliance.

 

Helping people understand and meet their obligations

When our community relationship advisors visit secondary schools they get the opportunity to talk to year 13 students about income tax, why we pay it and what it is used for. A lot of the students have after-school jobs, so it is a good opportunity to also talk about topics related to what they will need to do when they start working, like completing a tax code declaration and the amount of tax they should pay. The community relationship advisors also show the students how our online services work. In one presentation a student volunteered to go through the online registration process. He was able to activate his account and even learned he qualified for a 2008 refund. The whole process took about 15 minutes and was a very engaging way to show the other students what to do.

Student loans

 

The student loan scheme provides finance to tertiary students to cover course fees, course-related costs and subsidise their living expenses.

We work closely with other agencies who administer the student loan scheme - the Ministry of Education and StudyLink. This includes the yearly transfer of loans from StudyLink to us, the publication of a cross-agency student loan scheme annual report, and issuing student loans newsletters to borrowers twice a year.

Loans are transferred to us at the end of the academic year. We collect payments once a borrower starts earning over a certain repayment threshold. Most repayments are made through the pay-as-you-earn (PAYE) system. This relies on borrowers telling their employers to use the appropriate student loan tax code when deducting tax from their income. Using the right tax code means the correct repayments are collected through the PAYE system and there is no further square-up for payments owing at the end of the tax year. We have done a lot of work in the past to make sure borrowers are using the correct tax code and most people are getting it right.

What we will be doing

We will be making enhancements to our service to make it easier for borrowers to manage their loans and make repayments. This includes:

• enhancements to the student loan online calculator to allow student loan repayment calculations for both overseas based and New Zealand-based borrowers
• an account look up online service allowing borrowers to access and update information about their loan details
• an enhanced credit/debit card payment option that includes the transaction fee being paid by us
• improved online information
• expanding the "notify me" service
• continuing to educate borrowers of the importance of using the right tax code to repay their student loan by working with employers and proactively calling borrowers we have identified as not using the correct tax code
• proactively contacting the borrower where there are overdue repayments and working through repayment options
• case managing high risk cases, including appropriate enforcement action when people choose not to comply
• helping manage other borrowers who have overlooked their repayments
• placing deduction notices on salary and wages where the borrower has not complied voluntarily
• working closely with the New Zealand Customs Service as part of the interest-free policy for overseas-based borrowers to receive information about borrowers who leave New Zealand without letting us know. We use this information to update our records and ensure we do not c harge interest to borrowers who are entitled to interest-free loans.

 

Student loan amnesty

Student loan borrowers living overseas who had fallen behind in their repayments were encouraged to take advantage of the amnesty on late payment penalties between April 2006 and March 2008. Working with the New Zealand Customs Service we identified overseas-based borrowers. All eligible borrowers either had their late payment penalties reversed or not applied to their account. They then had to apply for the amnesty and agree to start making payments on their student loan by 31 March 2008 to avoid having a one-off amnesty penalty applied to their account. More than 13,000 (30%) of eligible borrowers applied. About 31,000 borrowers who didn't apply received a one-off amnesty penalty. Borrowers whose amnesty applications were accepted were required to make four equal repayments over two years towards their student loan. For the majority of borrowers, the two-year term will end in the 2010 tax year. If a borrower does not meet their amnesty repayment obligations, a one-off amnesty penalty will be added to their loan balance, based on the number of payments they have made.

 

 

Date published: 09 Jun 2009

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