The process of automatically calculating individuals’ income tax assessments is designed to make tax simpler for New Zealanders.
We’re using the data we get throughout the year to help ensure people are paying and receiving the right amounts. Having up-to-date data means that any errors or changes in circumstances are identified and addressed during the year - for example, ensuring customers are on the right tax code.
If deductions are accurate throughout the year, customers should have smaller refunds or bills to pay (if any) at the end of the tax year.
Issuing income tax assessments automatically is still a relatively new process. As changes to employment and investment income reporting were introduced progressively, the year ending 31 March 2021 was the first full year we received more details, more often, about recipients of investment income.
Building on our experience to improve in 2021
Planning for the 2021 automatic assessment season continued to build on lessons learnt from 2020 and 2019. We worked to get the assessments out faster than in previous years to give customers certainty faster - especially families.
To help ensure assessments were as accurate as possible, we contacted 450,000 customers and employers during the year to let them know that they were on unsuitable tax codes and needed to update their details.
We took steps to enhance the customer experience by improving the accuracy of data to reduce the possibility of errors or confusion. We used focused marketing campaigns to encourage customers to update their details, such as bank accounts.
Insights generated from our analytical tools enabled us to tailor interventions to identify and address specific issues that customers were struggling with.
We’re focused on further improvements. From 31 March 2021, income from portfolio investment entities - such as KiwiSaver schemes - is included in the end-of-year income tax assessment process and automated where possible. We continue to learn from each year and focus on how to make the next annual assessment run as smoothly as possible.
Trends in accuracy of assessments
As at 30 June 2021, 2.9 million assessments had been issued to customers through the 2021 automatic income tax assessment process.
We have seen a year-on-year improvement in the accuracy of income tax assessments resulting in refunds.
The average tax to pay decreased from $458 in 2020 to $412 in 2021, although this is still provisional. An increase from 2019 to 2020 was, in part, due to a large number of people being on a higher or lower prescribed investor rate than they should have been.
Following changes to legislation, from 1 April 2020, we have provided portfolio investment entities with correct rates for people on an incorrect rate. From the year ending 31 March 2021, portfolio investment entity income is included in the end-of-year income tax assessment process and automated where possible.
It’s important to note that the 2021 tax-to-pay results will be inflated by a significant number of customers who received an extra pay, leading to extra tax - this happens once every 11 years or so. This extra tax gets written off for many customers.
Note, 2021 information is at 30 June 2021. Customers with agents have until 31 March 2022 to amend their 2021 assessments.
2019 information is as at 31 March 2020 and 2020 information is at 31 March 2021.
Average refunds and tax to pay from automatic individual income tax assessments
|Year||Average refund||Average tax to pay|