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					July 2010 IR504                                                                IR504




Individuals

Protecting your identity
There are 5.4 million ind ividuals registered with us, including New Zealanders living
overseas. They include people who aren’t registered for GST and who interact with us
about their personal income tax and related business, eg, student loans.

We identify a person or business by t heir IRD number. We’ve recently tightened up our
procedures for establishing and protecting identity by collecting enough details about an
individual or business to clearly consider them unique and recognise them in our system.

These processes give us confidence that the individual or business we’re dealing with is
who they say they are and authorised to query or make changes to an account. It also
protects them from identity-related fraud.



We will address identity issues by:
   further developing our identity management solutions so individuals and businesses
    can securely access our systems and do what they need to do to comply

   working with other government agencies to ensure accurate identification and
    maintain the security of information

   continuing to investigate identity theft and fraud issues, particularly ones that
    support fraudulent tax claims.


Filing a tax return
Non-compliance issues are often caused by people not understanding or being unaware
of their tax obligations.


Salary and wage earners with other income
Some individuals receive additional income on top of their salary and wages, including
interest and dividends. If they haven’t paid the right amount of tax throughout the year
they’ll need to do an end-of-year square-up by confirming a personal tax summary (PTS)
or filing an Individual tax return (IR 3). Not doing a square-up or failing to include all
income leads to compliance issues.


Not required to file
Our records may show someone is required to file an inc ome tax return, but if their
circumstances have changed, eg, they no longer receive rental income, or income from
an estate, trust or royalties they may not have to. We want people to contact us if they
think they don’t need to file an income tax return.




www.ird.govt.nz                                                           Page 1 of 6
July 2010 IR504                                                                IR504


Habitual non-compliers
Our research shows a link between having outstanding tax returns and being non-
compliant in more serious ways, eg, committing tax evasion or fraud.

Habitual non-compliers consistently and deliberately:

   fail to keep, maintain or provide documents and tax returns

   don’t pay tax

   commit document fraud or evasion, manipulate their personal/family circumstances
    to access payments they’re not entitled to, or reduce their liabilities

   initiate, promote and take part in aggressive tax planning schemes

   have a history or pattern of general non-compliance, eg, phoenix fraud schemes.



We will address non-filing by:
   contacting individuals early when returns become overdue

   running advertising and media c ampaigns about end of the tax year responsibilities

   making it easy for individuals to tell us about changes in their circumstances to stop
    returns becoming or remaining outstanding when they aren’t required to file tax
    returns

   review ing the PAYE and PTS processes to simplify PAYE, cut compliance costs, reduce
    end-of-year square-ups and provide more certainty for individuals

   researching the reasons why people are habitual non-compliers

   identifying and monitoring people likely to be repeat non-compliers

   taking enforcement action where individuals choose not to comply.



Student loan borrowers travelling overseas
Borrowers planning to go overseas for six months (184 days) or more must:

   contact us before they leave and when they return

   give us their contact details while they’re away

   check the repayments they’ll need to make.

Borrowers should check www.ird.govt.nz before travelling overseas to find out how to:

   use the student loan repayment calculator

   register for online services

   make repayments, eg, using debit or credit cards through our website




www.ird.govt.nz                                                           Page 2 of 6
July 2010 IR504                                                              IR504


   nominate someone to handle any queries - complete an Elect someone to act on your
    behalf (IR 597) form

   register for Notify Me, a quarterly e- mail update about managing student loans.

While overseas for six months or more:

   we generally charge interest on borrowers’ loans - see the list of exemptions on our
    website

   a three-year repayment holiday begins the day borrowers leave New Zealand.

Going overseas or not, all borrowers could be eligible for a 10% voluntary repayment
bonus. If they repay $500 or more above their repayment obligation for the tax year,
they’ll get an additional 10% reduction in their loan balance.

As when making any financial decisions, we advise borrowers to seek appropriate
financial advice before taking advantage of the voluntary repayment bonus.



Paying tax

Personal tax summary (PTS) tax refunds
Because of the increased public interest in getting a PTS and growth in social support
payments, more individuals are having an end-of-year square-up to make sure they’ve
paid the right amount of tax throughout the year.


Using the wrong tax code
Individuals using the wrong tax code, either with their employer for s alary or wages, or
with their bank for interest earned, will have the wrong amount of tax deducted. The
number of individuals who have credits because they’ve overpaid their tax is growing.
This happens through people not understanding how to choose a code or not reviewing
their code when their circumstances change. We often see this with people who intend to
work only part of the year or who are on working holidays.

Student loan borrowers who use the incorrect tax code for salary or wages will have the
wrong amount of repayments deducted - and they could underpay their loan and have a
debt at the end of the tax year.



We will address incorrect tax payments by:
   helping individuals whose circumstances change during the year to use the right tax
    code and enc ouraging them to review their tax code regularly

   contacting student loan borrowers (and their employers) using the incorrect tax code
    to get them to change to the right code

   enhancing our online services so individuals can request and confirm a PTS for the
    current and previous four years in real time and get their refunds quickly




www.ird.govt.nz                                                        Page 3 of 6
July 2010 IR504                                                                IR504


   developing and ref ining our online tools to let individuals self -manage their payment
    obligations.


Managing debt
Individuals can get in debt at the end of the tax year by not paying the correct amount
of tax throughout the year.

This year, fewer individuals had a tax debt to pay at 7 February. This decrease resulted
from our proactive identification of potential debt situations throughout the yea r and by
working with individuals to make sure they paid the correct amount.

We’re seeing a growing level of new student loan debt, partly caused by the increased
number of people taking out a student loan. We’re also aware that for many borrowers,
repaying their student loan isn’t a priority against other debts they may have.



We will manage debt by:
   contacting individuals early when tax becomes overdue

   offering flexible payment channels, eg, paying by credit card

   contacting resident student loan borrowers who haven’t met their current year
    repayments

   actively managing overdue student loan debt cases over $12,000 to ensure
    borrowers pay the overdue amount, set up instalments and direct debits, or apply for
    hardship relief

   issuing deduction notices against wages to employers of borrowers w ith student loan
    debt if they haven’t attempted to pay the overdue amount

   taking enforcement action against individuals who choose not to comply.


RWT (resident withholding tax) on interest and PIEs

Interest
There are a significant number of individuals using a lower rate of RWT than they should
be and an increasing number of individuals who don’t include interest income on their
tax return or PTS when they should. We’ve found this is because they either don’t really
know the correct rate or they deliberately use a lower RWT rate than they should. This
has flow-on effects for working out an individual’s correct entitlements and liabilities,
eg, Working for Families Tax Credits, child support payments and student loan
repayments.

We’ve been working with the New Zealand Bankers’ Association and other financial
institutions to find ways of progressively reducing the number of interest earners whose
individual RWT rates don’t align with t heir personal tax rates.




www.ird.govt.nz                                                          Page 4 of 6
July 2010 IR504                                                                IR504


Portfolio investment entity (PIE) investments
Most of the income allocated by PIEs doesn’t need to be included in an investor’s income
tax return. But, if the investor uses the zero prescribed interest rate (PIR) or a rate that
is too low to calculate the tax on their income, the income needs to be included in their
return.



We will address using incorrect RWT rates by:
   raising awareness about which RWT rates and PIR individuals should use

   undertaking further research about why people use a lower rate and their level of
    know ledge

   continuing to work with banks, tax agents and finance institutions to ensure we have
    the right information and help with customer education

   targeting visits and investigations at deliberate non-compliers to make sure they’re
    using the correct rate.


Diverting personal income
Some individuals avoid paying the top tax rate by diverting personal income to
companies, trusts, portfolio invest ment entities or using other techniques. They also use
these techniques to claim more social support than they’re entitled to or to reduce their
liability for payments, eg, child support or student loans.

From 1 October 2010 personal tax rates will be cut and from the start of the 2011–12
income year the corporate tax rate will drop from 30% to 28%. This will reduce the
opportunity and incentive for people to divert their personal income. We’ll continue to
focus on those individuals who use structuring techniques inappropriately to reduce their
taxable income.

We’re currently investigating income splitting by professionals, payment of excessive
remuneration and the transfer of assets for inadequate consideration to minors (children
under 16) or associated individuals.



We will address diverting personal income by:
   further researching and scoping the use of trusts and entities for aggressive tax
    planning, including schemes promoted by tax agents

   investigating cases where we have identified non-compliant behaviour.


Expatriate employees and non-resident contractors’ remuneration
We know some highly paid contractors working on international assignments have used
tax havens and tax planning to hide or divert overseas income to minimise the tax they
have to pay in New Zealand. We pick up on these issues through anonymous
information, media and industry publications, knowledge of upcoming major events or
the contractor tells us. In the past we have focused on major capital works, projects and


www.ird.govt.nz                                                          Page 5 of 6
July 2010 IR504                                                                IR504


events. We provide information and undertake review activities and compliance checks,
as appropriate.



We will address remuneration issues by:
   keeping alert through research and analysis to the issues and determining the extent
    of non-compliance and causes

   informing contractors and recruit ment agencies about their New Zealand tax
    obligations and the consequences of non-compliance

   targeting advisors who promote tax evasion schemes to contractors.


New immigrants
We work w ith the migrant community and Immigration New Zealand to make sure new
migrants know their New Zealand tax and social support obligations and comply with
them. It’s also important that we understand different cultures to tailor our interactions
with communities, and identify potential areas of non-compliance for new migrants.



We will work with new immigrants by:
   developing education tools and considering the tax practices in their country of
    origin, to help them understand and comply with New Zealand’s tax obl igations

   doing further research to understand potential issues with new migrants’ compliance
    levels, and who may need more help.



When your temporary tax exemption on foreign income finishes, you’ll
have to file
Individuals who become New Zealand tax residents may qualify for a four-year tax
exemption on certain types of foreign income.

The temporary tax exemption is automatically granted to anyone who qualif ies, without
having to contact us. But, the exemption is a one-off opportunity - it can’t be extended
or renewed after it finishes. So, when the four years are up, individuals will need to
include all their foreign income in their annual income tax return and pay tax on it. And
they’ll have to file an income tax return for every year after that as long as they receive
foreign income.

Individuals whose temporary tax exemption ran out on 30 April 2010 will have to file an
income tax return for 2011. They’ll need to do this by 7 July 2011, unless they have a
tax agent or extension of time.

For more information, go to the non-resident and visitors section of our website.




www.ird.govt.nz                                                          Page 6 of 6

				
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