Adjustment pains of IRD's new system costs taxpayer trust

Even if you have a tax agent, you may have recently received a notice from the IRD regarding tax that you have already paid or containing an assessment of tax that doesn't seem quite right.

You are not alone in this - as the IRD continues to iron out the kinks of their new IT system, taxpayers and their tax agents are bearing the brunt of systemic issues.

This can be reviewed in practice in numerous ways. An example often experienced is an overdue notice that is issued by the IRD to a taxpayer who uses a tax pool intermediary (for example, TMNZ). This overdue notice may have been issued despite the taxpayer being flagged in the IRD system as a Tax Pool Payer. Ordinarily, if the taxpayer is flagged in this manner, it should mean that the IRD would recognise that the overdue amount has likely been paid through the intermediary and such will be transferred to the IRD later.

However, with overdue notices sent incorrectly to these flagged taxpayers, some are feeling panicked upon receipt and are making a payment to the IRD for the amount, which is effectively a double-payment of tax. Alternatively, they are ringing their tax agent who must ‘down tools’ to allay these unfounded fears.

There are also often examples attributable to the automation of the IRD system, including incorrect auto assessments issued.

The system is noticing that taxpayers have certain income levels in previous years and issuing auto assessments to the taxpayer for the most recent income year for which they are required to file. This is particularly frustrating for taxpayers who use a tax agent, and who ordinarily have an extension of time to file their tax returns.

We have repeatedly asked that auto-assessments not to be applied to our clients for this reason.

Another very common issue is where an amount of provisional tax has been correctly paid to the correct period but credited to the wrong year, and then refunded. This results in the taxpayer receiving an overdue notice for an amount that they have already paid, simply because the system did not allocate the amount to the correct tax year, even when there is a matching liability within the system.

If you do have a tax agent, you may also be suddenly receiving mail (and multiple copies of some) that would have previously been sent to the tax agent to be dealt with. This is inefficient and creates data overload where these letters are better received by the tax agent. Again, the ensuing conversations where there is no underlying error just consume time, energy and money pointlessly. And imagine how many erroneous letters your accountants are receiving across their many clients every day.

Systems issues relating to GST filing have included a transfer of an entire GST refund to the taxpayer when a portion was requested to be transferred to another period, and payment due date reminders for a GST return based upon the GST return for that period that has already been filed by the taxpayer.

Although we can all understand the challenges and frustration that comes with the adopting of a new system, these IRD issues are costing taxpayers and tax agents time and money to respond to incorrect letters. This is compounded by the fact that the IRD are behind in dealing with correspondence.

For example, we are aware of one instance where a tax payer was refunded money three times because the original correspondence and two follow-up letters just had not been processed, so the system was automatically refunding, obviously without the ability to question “why would a taxpayer repay a refunded amount several times”?

Our concern, beyond the drag on the economy, is that this is undermining taxpayers' trust in our tax system; trust that is extremely vital to the IRD to enable the efficient, fair collection of tax.

If you have received statements or notices that seem to be incorrect, please don't be alarmed; they probably are. Just contact your tax agent. As we have received many complaints about the recent errors issued, we have become efficient in dealing with the IRD and tax pool intermediaries. It is helpful for us to communicate these frustrations to the IRD directly, as we have been, in the hope that collectively this will show how urgently solutions are required.

This article was originally published by the Otago Daily Times