IR offers individual support to customers who want to do the right thing. As outlined below, we have emphasised to customers to get in touch with us now to avoid harsh outcomes, that we are targeting high-value and high-risk debt and using datasets in different ways—for instance when they can provide a more comprehensive view of the financial situations of customers.
Our approaches are in line with the Commissioner of Inland Revenue’s responsibility to collect the highest net revenue over time (which is behind prioritising high-value debt) while still maintaining the integrity of the tax system (the high-risk debt) and voluntary compliance (getting as much debt as possible under active management).
Collecting overdue debt is a priority for the Government. With additional Budget 2024 funding that it appropriated for this purpose, IR will intensify efforts to manage and recover outstanding amounts.
High risk, persistent defaulting
We are taking a firm approach with companies and self-employed business customers with high levels of debt and who persistently default on their obligations. As at 30 June 2024, we had targeted 5,300 cases that represented $1.4 billion in overdue debt through a range of collection activities, including negotiating repayments, applying relief options and legal action. Of these, 3,500 cases are under active debt management, excluding closed and liquidation cases.
Another priority is non-compliance by employers who make deductions (such as tax, student loan repayments or KiwiSaver contributions) from employees’ salaries or wages but do not pass them on to IR. Retaining deductions for their own use and failing to properly pay them is a serious breach and their actions can have a significant ongoing impact on their employees.
We have continued to progress a range of compliance options from assessing cases for investigations or liquidations and legal options. One South Island company director was sentenced to 2-and-a-half years’ jail in February 2024 after being convicted for a second time for failure to pass on deducted PAYE totalling $560,000 to IR. The offending was premeditated and deliberate and occurred over 4 years.
Prioritising GST and employment information and debt
IR has increased efforts to collect GST and employer debt and finalise overdue returns. GST returns have been a priority, as they are generally of high value. Employer returns are another priority as they contain information that ensures millions of individual salary or wage earners’ tax, KiwiSaver, student loan and child support contributions are calculated accurately.
Finalising high-value returns resulted in $1.71 billion of additional revenue this year. although we did not achieve our target for finalising 60% of unfiled returns within 6 months. This is $331 million more than in 2022–23, although a proportion of this may end up as overdue tax debt.
Focus on the construction industry
Where we identify business sectors at high risk of incorrect tax reporting, we run targeted campaigns to improve their compliance. For example, we continue to educate contractors in the construction industry about appropriate tax deductions, expense claims and reporting practices. Customers in this industry have among the highest levels of unfiled returns and overdue payments.
In a campaign running over April to June, we contacted and advertised to 40,000 individual businesses, giving them a last chance warning to pay their taxes. Customers were directed to an online Tax Toolbox for Tradies and we visited various hardware centres to provide advice and education. Our teams have emphasised that we’re willing to work with customers who need help. As one customer told us, “I am a good tiler and love doing it, but I can't do paperwork.”
One element of the campaign involved texting 2,400 customers over June and July to offer help with sorting their affairs. As at 31 July, IR had received $541,000 in lump sum payments, with instalment arrangements set up to cover $1.2 million in debt. We began unannounced visits to construction businesses in July 2024.
This campaign is a good example of IR using a range of ways to reach large groups of customers efficiently and deliver targeted enforcement activities.
People with overdue debt living overseas
The annual number of overseas-based student loan borrowers meeting their repayment obligations was at its lowest during the COVID-19 pandemic at June 2022 but has risen since. However, they owe 93% of all overdue student loan debt and only 29% met their repayment obligations this year.
When living in New Zealand, student loan payments are automatically deducted from the pay of most borrowers. Many only become aware of their responsibilities once they leave the country —biannual repayments can come as a shock as well as the loans no longer being interest free.
We run marketing campaigns, such as encouraging customers who have recently gone into debt to talk to us and set up an instalment arrangement.
One March 2024 campaign involved contacting 57,000 customers, a number of whom made a collective $10.4 million in repayments. This contributed to the $173 million in overall repayments made by overseas-based borrowers this year, an 11.5% increase on 2022–23.
Borrowers are located in approximately 100 countries: IR has prioritised activities in Australia and the UK, where we can get collection underway sooner. Starting in April 2023, IR has sent 26,500 cases to third parties in Australia to pursue collection, and 900 cases to a UK collector. This is showing good results, contributing $9.0 million in repayments this year
As you can read in a case study, we’re using a range of ways to reach customers who have defaulted on their obligations, from the campaigns noted above that reach many to enforcement where our options can include cross-jurisdictional legal cases for a few borrowers. We can also apply to Australian courts to deduct outstanding amounts from salary and wages, which is an action we consider carefully because it is resource intensive.
IR has the ability to stop people from leaving New Zealand if they have returned from overseas and been unwilling to engage proactively with us over a tax, student loan or child support debt. We use this ability in only the most serious of cases.
IR has also set up a dedicated team who are locating overseas-based student loan borrowers with invalid contact details, tracking frequent travellers with overdue repayments, applying for arrest warrants and handling national and international civil proceedings.
Debt under an instalment arrangement
Customers who have not paid on time can set up an instalment arrangement to get back on track and minimise penalties. Within a set of specific parameters, we encourage people to set up their own plan online to give them a sense of control over their own debt. Self-service plans continue to be more successful with 67.4% of customers making repayments to schedule as at 30 June 2024, compared to 58.9% of customers who set up an arrangement with IR’s assistance.
The number and value of arrangements have progressively increased since 2018, partly because of external factors such as economic and COVID-19 pressures and also because we improved settings such as decreasing minimum repayment amounts and increasing repayment timeframes.
IR is focused on further improvements that will get more debt under control, including trialling ways to better engage with customers who have missed payment plan instalments.
Debt can be written off in cases of serious hardship, bankruptcy or liquidation or if the debt is uneconomical to collect. This year we wrote off $694.5 million of debt using these provisions, compared to $523.5 million in 2022–23 (this excludes COVID-19 remissions).
Monitoring overall debt
Monitoring the overall level of overdue tax debt is important because it indicates how many customers are in difficulty and equates to uncollected cash for the Government. A growing and ageing debt book results in an increase in the impairment and reduction in value of the debt as an asset on the Government’s books.
IR is monitoring the levels of debt collection, write-offs and impairments made this year, and trends in impairment, as they are material to the Financial Statements of the Government and what it can plan to spend. The rise in the level of overdue debt had an associated increase in the impairment expense as did our reclassification of some overdue tax debt. As noted on the page below, expenditure on debt write-offs and impairment was higher than appropriated.