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Inland Revenue has kept a strong focus on helping any customers who are struggling to pay their tax obligations. Our research shows that 1 in 3 households are facing financial challenges, small businesses are operating in an unpredictable environment, and COVID-19 is increasing the risk of customers getting into debt.

Most customers want to do the right thing. This year, the vast majority continued to file on time despite the difficult environment, even if they could not pay. 96% of the returns filed by customers were on time this year, which is 2% higher than 2020-21. Customers also made 89% of tax payments on time, the same as last year.

We believe the best approach to assist people with debt is to help them avoid getting into it in the first place. We've emphasised to customers the importance of contacting us as soon as they know they have a problem. Our systems have done much of the heavy-lifting as they help us quickly identify customers who miss a payment and send them reminders. This has enabled us to continue to manage debt while delivering our priorities.

Read more about our approach to managing debt.

Management of debt and unfiled returns

Typically we run interventions throughout the year to help customers at risk of getting into debt. We've run fewer this year because of the focus on COVID-19 support, but we have trialled some new ways to help people get back on track with their payments as early as possible. For example, around the 7 February income tax due date, we trialled 3 text message campaigns. Compared to those who did  not receive a message, 10% more customers paid on time, 8% more customers entered into instalment arrangements and 15% fewer customers needed enforcement action. We will use what we've learned from this trial for future campaigns.

We've worked through options with customers who end up in debt them to come up with a plan specific to their circumstances. Instalment arrangements help people to get back on track and minimise the costs they incur by paying late. This year, approximately 120,000 customers set up a plan to pay their tax over time. These arrangements covered $2.38 billion in debt. Of this, $491 million has already been paid in full.

It's easy for customers to set up an instalment arrangement themselves in myIR. We encourage customers to do this because if they set up their own payment plan they are more likely to stick to it. This year, 68% of arrangements customers set up themselves were being adhered to, compared to 58% of arrangements that we helped to set up. 

"From feeling really guilty and defeated because I couldn't keep up with my bills. To feeling like there's hope, and knowing that I can and will get this debt down in a manageable way." - Inland Revenue customer

Inland Revenue has used other debt relief options for customers facing serious hardship, besides instalment arrangements. We use them to keep customers from getting into an unrecoverable debt situation and to protect the long-term integrity of the tax system. This helps us focus our resources on collecting debt that is recoverable and dealing with customers who deliberately do the wrong thing.

Overall, we wrote off $688.7 million of debt this year, compared with $812.8 million in 2020-21. Write-offs of GST and individual income tax debt made up 58.8% of the total value this year. We write off debt for a range of reasons, including liquidations, bankruptcies and when customers are in serious hardship.

The total amount written off is lower this year due in part to us prioritising COVID-19 support over proactive debt collection work.

Included in this year's write-offs were provisions that the Government created specifically for businesses affected by the pandemic. We wrote off $176.1 million, which includes some write-off amounts that depend on customers paying off their tax debt as soon as practicable.

Inland Revenue now has a wider range of tools to address tax debt than it used to, and this has contributed to fewer businesses being liquidated over time. We work with businesses that are normally viable, but currently vulnerable, to help them continue to trade if we believe they can maintain current and future tax payments.

Unfortunately, this is not the case for all businesses and we have begun to look more closely at those with bigger debts. Since November 2021, we've contacted around 1,350 businesses, with debts totalling $356 million, to see if they have underlying issues that mean they cannot pay what they owe. For example, the pandemic has fundamentally changed some sectors and industries and meant some businesses are not viable. Some of the businesses we contacted were able to pay their debt. By 30 June 2022, approximately $90 million had been paid in full or was under an instalment arrangement.

Liquidating any business is a step of last resort, but an action we take to protect the integrity of the tax system and to ensure there's a level playing field for other businesses that are meeting their tax obligations. Companies who trade insolvently undermine the whole trading community because they have an unfair advantage over other companies by not paying tax.

This year 1,292 companies went into liquidation across Aotearoa New Zealand. In the same period, we commenced the liquidation process against 759 companies, leading to us liquidating 163 companies in the High Court. A further 592 companies went into liquidation owing tax debt once we initialised the process.

Last updated: 15 Sep 2022
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