About 115,000 Kiwis will be stung with a tax bill for the first time next year and experts are warning there could be teething issues even for those who get refunds.
The Inland Revenue is undertaking a major overhaul of the way it collects information from employers from April and will use it to issue automatic tax assessments.
While 1.67 million people are expected to get a refund a further 263,000 will get a bill – of which 115,000 will receive a tax bill for the first time.
The change has also hit the tax refund industry with some businesses set to shut up shop and lay-off staff while others switch their business to other focuses.
Terry Baucher, a tax consultant, said he was in favour of the changes but had questions over how well IRD would handle it.
“Generally speaking I am in favour of them. But I have reservations over whether IRD is really going to be up for it.”
He pointed to headaches this year when the department switched to a new way of handling GST payments.
“There will be teething problems,” he predicted, due to a big increase in the number of refunds being paid.
A spokesman for Inland Revenue said of the approximately 1.67 million people eligible for an automatic refund next year, around 720,000 had not previously sought one.
It is a jump up from the million refunds paid out this year and because of the increase the spokesman said it would likely take several weeks to pay out the money.
“From mid-next year we’ll be starting the automatic refunds. We have bank account details for many of our customers and can make the payments straight away.
“For customers where we don’t have their bank account information, we’ll be making contact with them if they’re due a refund.”
He said the IRD would be working hard to make sure everyone got the money due to them but people could also help themselves by updating their bank account information in its online myIR system.
Baucher said those who got a refund may have to wait some time for it while those who got tax bill may be in for a nasty surprise.
He said some of the underpayments of tax would relate to people being on the wrong tax code.
People who worked more than one job but do not use an S or secondary tax code for their second or third jobs were at risk of underpaying.
Baucher said those who earned income on investments and were not paying withholding tax at the right rate could also face a bill.
Meade Perrin, an external relationships leader at Inland Revenue, said the best way to avoid a surprise bill was for people to make sure they were on the right tax code, especially if they were a salary and wage earner and circumstances changed.
“It’s also a good idea to ensure your financial institution has the right tax code to apply to your investments and that any additional income is declared.”
Perrin said from April it would be receiving information throughout the year, which would allow it to be proactive with customers to make sure they were on the right tax code.
The change will virtually make tax refund businesses obsolete.
Lester Binns, chief executive of MyTax.co.nz and co-chair of OTANZ – the online tax industry refund body- said the change would put an end to the industry as it existed now. “It won’t be what it is now that is for sure.”
Binns said there were around 30 companies in the industry which in total did the tax returns for around one million Kiwis a year.
MyTax.co.nz wouldn’t be closing down but Binns said it had let some staff go and moved others around its business which would now be doing IR3 work instead.
He said most companies had around 10 to 15 staff on a permanent basis and then scaled up with temporary workers during the peak tax time. He said the industry had known the changes were coming for around four or five years.
Dean Affleck, a director of taxrefunds.co.nz, said it would be closing down next week and had laid off 30 staff from its Christchurch-based offices.
He believed the automatic tax refund system would only work for around 80 per cent of people as those with more complicated situations need more help. Affleck predicted the IRD would receive a flood of calls from people who received tax bills.
He said many of his clients didn’t trust the IRD and were happy to pay a fee to have someone work on their behalf.
“They have taken away an individual’s choice by doing this.”
Binns also predicted that the change would be challenging for the IRD. “We are working really closely with IRD right now to make it as painless as possible.” The company was handing over client data on contact details and bank account information to Inland Revenue.
Binns said the biggest problem was around collecting information about people who had not had any interaction with Inland Revenue before.
He urged anyone not already signed up with a myIR online profile to do so now ahead of a potential rush in June. Those who get a tax refund should also consider going back and looking at the last four tax years to see if they were owed more money.