Many individuals, families, whānau and businesses are struggling through the volatility caused by the pandemic. Our people have continued to take an empathetic approach - if people could not pay on time we supported them to file their returns and assisted them in making arrangements to pay. We focused in particular on employers because they needed to file to qualify for the Wage Subsidy Scheme.
This year, 94.3% of filed returns were on time, compared to 93.2% last year, and 89.9% of tax payments were made on time, compared to 85.9% in 2019-20. These are strong indicators of people actively trying to comply with their obligations in difficult times.
Tax debt did increase this year. Excluding debt related to child support, student loans and Small Business Cashflow Scheme loans, it rose by 3.2% to $4.4 billion. This was not unexpected given the impacts of COVID-19, although as the table 'Tax debt as at 30 June ($ million)' below notes, there were a range of factors behind the increases in different kinds of tax debt.
Importantly, while the growth in debt has continued, it’s been relatively slow compared to the growth in revenue (see the table below). We collected $93.8 billion in tax revenue, a 21% increase from last year. That debt grew at a smaller rate was in part due to us re-commencing all debt-related activities from December 2020. For example, we worked closely with tax agents, who continued to assist their clients while we focused efforts on customers without an agent.
We've also provided personal relationship managers for large organisations to ensure they stayed on track with payments.
We encouraged customers to enter instalment arrangements to pay their tax debt if they could not pay in full, which they can easily set up in myIR. We know instalments work - 41% have stayed on track this year and have paid off $403 million. When we look back to the arrangements set up in 2019-20, 49% have been fully paid off.
Other targeted assistance has also been available, such as writing off child support penalties and identifying child support customers who needed to re-estimate their income throughout the year.
Tax debt gets written off for several reasons, including serious hardship, bankruptcy, liquidation or if the cost of collecting the debt is uneconomical. $812.8 million of debt was written off this year, compared to $411.6 million last year.
For the 2020 tax year, the threshold for write-offs was increased from $50 to $200. Two products made up 59% of the write-off value - GST was 29% ($239.4 million) and individual income tax was 30% ($244.8 million). This included $117.7 million in use-of-money interest and penalties remitted for customers whose ability to pay tax on time was significantly affected by COVID-19 and who had entered into instalment arrangements.
Ratio of overdue tax debt to revenue ($ billion)
|Total taxation (excluding child support, student loans and Working for Families)||$77.88||$77.66||$93.79|
|Overdue debt (excluding child support, student loans, and Working for Families)||$3.49||$4.08||$4.19|
Assistance we provided for customer this year
- Customers entered into 140,000 arrangements to pay a total of $3.7 billion in instalments. 57,000 of these arrangements were set up by customers themselves.
- We set up 63,600 arrangements for child support customers to pay off their debt in instalments.
- We suppressed use-of-money interest for 22,300 customers who had entered into instalment arrangements.
- We remitted $117.7 million in penalties and interest for customers who were impacted by COVID-19, but still complying with instalment arrangements.
Tax agents worked closely with us
Tax agents have worked closely with us to help develop our COVID-19 initiatives and to let their customers know about the range of support available to them.
A November 2020 survey gave positive feedback from tax agents on our response to COVID-19.
Overall, respondents to the survey by Chartered Accountants Australia and New Zealand and Tax Management New Zealand were very satisfied with the way our initiatives were rolled out and supported by our people.
“Remembering what the Government and Inland Revenue were confronted with back in March last year, including having to act fast and not knowing for sure what would work, the survey indicates the Government’s business response is as deserving of accolades as its health response” - John Cuthbertson, Chartered Accountants Tax Leader, New Zealand
Focus on tax debt
Tax debt as at 30 June ($ million)
|2017||2018||2019||2020||2021||Change since 2020|
|Working for Families Tax Credits||$193.4||$140.1||$128.8||$167.2||$198.5||19%|
|PAYE and KiwiSaver*||$336.2||$417.3||$517.1||-||-||24%|
*The consolidation of employer deductions to an ‘employment activities’ account changes how we group tax debt. The lines marked with an asterisk are those tax types where we’re unable to compare debt with previous years
The 3.2% increase in debt has been caused by a range of factors.
- As a result of COVID-19, income streams for many businesses immediately stopped, and there was pressure to pay fixed costs (such as rent and net wages to staff) rather than tax. We focused on employers and businesses filing timely and accurate payday information over collecting associated debt. This contributed to a 24% increase in employment activities debt (this is largely made up of PAYE and KiwiSaver debt).
- The increase in employment activities debt was also influenced by large companies that were impacted by COVID-19, and which are now under instalment arrangements.
- The increase in ‘Other tax’ debt reflects the finalisation of a high-profile audit case.
- Automatic assessments for individual income tax brought more customers with debt into the system, contributing to growth in both income tax and Working for Families Tax Credit debt.
- Our focus on supporting customers as they dealt with the impacts of COVID-19, and got used to our transformation changes, meant we did less proactive follow-up on unfiled returns and outstanding debt. We’ve now resumed this work.
Management of debt and unfiled returns
Child support debt as at 30 June ($ billion)
|Total debt value||$2.736||$2.259||$2.208||$2.151||$1.366|
As shown above, child support debt decreased by 36% this year, largely due to work we’ve done to prepare for moving child support services onto new systems later in 2021. We wrote off $998 million, which included writing off penalties to encourage liable parents to re-engage with their obligations.
Student loan net repayment by overseas-based borrowers ($ million)
We collected $1.5 billion in student loan repayments this year, up 1.2% from last year. Of the total repayments, $1.07 billion came through PAYE, down 2.3% from last year, and $427 million directly from customers, up 11.1% from last year.
At 30 June 2021, overdue debt was $1.72 billion, an 8.9% increase from 2019-20. This increase was driven by aged debt owed by overseas-based borrowers. This debt which we cannot write off, is difficult for us to collect.