Dept options A5

Debt options What to do if you’re having trouble paying your tax on time

IR 582 February 2011 Debt options

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Contents About this booklet

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Why paying tax matters

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Glossary—terms we use

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If you think you can’t pay a tax bill that’s due soon

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If you already owe us money

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Options for paying a tax bill

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Ways to pay Inland Revenue

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What Inland Revenue will do if you do nothing

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If you disagree with the amount we say you owe

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Late payment penalties and interest we charge

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Late filing penalties we charge

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Dismissing penalties and interest

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How to contact Inland Revenue

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About Inland Revenue’s services

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This guide is A5 and can be economically printed 2 pages per A4 sheet. If you are printing from a downloaded pdf, check the layout settings in your printer options to achieve this.

About this booklet

This booklet tells you what to do if you are having trouble paying your tax on time, or are in debt to Inland Revenue.

It’s important to pay the right amount of tax. However, we understand that sometimes it’s difficult to make tax payments on time.

This booklet includes information about:

To talk about overdue tax payments and returns, call us on 0800 377 771.

If you need to call from overseas, the number is +64 3 951 2004. The line is open 9 am to 4.30 pm, Monday to Friday.

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advice if you think you can’t pay a tax bill that’s due soon

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options if you already owe us money

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the penalties and interest we charge on unpaid tax

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the actions we may take if you do not pay a tax bill or let us know you can’t pay on time

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what you can do if you disagree with the amount we say you owe.

The most important thing to do is to contact us if you can’t pay on time. We’ll discuss your circumstances and work with you to decide the best solution for you.

You’ll find a full list of our phone numbers on page 20.

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Why paying tax matters Everyone who earns money in New Zealand must pay their share of tax. The government uses taxpayers’ money to pay for services we all need—such as hospitals and healthcare, schools and education, social welfare, policing, and roading.

Health $13.1b

Here’s how the government spent our taxes in 2009-10.

$0.5b Primary services $3.1b Law and order $2.3b Finance costs Housing and $0.3b community development

Heritage, culture and recreation $1.3b Defence $1.8b Economic and industrial services $2.8b Transport and communications $2.3b Government superannuation fund $0.3b

$21.2b Education $11.7b

Core government services

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$3b

$0.08b Other

Social security and welfare

Glossary – terms we use Assessment is an estimate we send you of the amount of tax you need to pay.

Bankrupt (bankruptcy) means you are judged by a court to be unable to pay your debts.

Credit rating is a measurement that lenders use to judge someone’s ability to pay their financial commitments.

We have aimed to use clear language in this booklet. We have had to use some tax- and finance-related words and terms. Here they are, with the meanings for their use in this guide.

Deferment (deferring) means putting off payment until a later date that we agree to.

Employer monthly schedule is a monthly report that employers send to Inland Revenue, with details about their employees, what the employees have been paid, and deductions such as tax and KiwiSaver.

File a tax return means you send Inland Revenue a form that estimates how much tax you owe, which we need from you at certain set times of the year.

Imputation is a system that allows companies that pay dividends, and the shareholders that receive them, to pay tax on them once. The company pays tax on the dividend, then pays it to the shareholder with “imputation credits” for the tax it has already paid; the shareholder can claim the imputation credits against their tax bill.

Instalment plan is one we make with you to pay your tax bill, either at a later date or in regular payments over time.

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Interest is money we charge you regularly at a particular rate, for use of money you have borrowed, or for delaying your repayment of a debt. If you are late paying a tax bill, Inland Revenue will charge you interest on the amount you owe.

Negotiation period is the period of time we agree with you, for you to get information for us about your financial circumstances.

Penalty is the money Inland Revenue charges to encourage payment of a tax bill.

Remission is the withdrawing of penalties, interest, or both, that you owed Inland Revenue. When penalties or interest have been remitted, you no longer owe the money.

Tax agent is an accountant who manages your tax on your behalf.

Tax return is a form you fill in to give us an estimate of how much tax you owe.

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If you think you can’t pay a tax bill that’s due soon If you don’t think you can pay a tax bill by the due date, please contact us as soon as possible. Don’t wait until the due date has passed. We will talk with you about ways to pay the bill. You’ll find the options on page 6.

If you don’t pay your tax on time, Inland Revenue will have to charge you interest and may also charge you penalties.

If you contact us early, we may be able to reduce the overdue penalties. (However, we still need to charge you interest.) Find out about penalties and interest on page 13.

If you already owe us money If you have an overdue tax bill, contact us as soon as possible. It could save you money.

Interest is money we charge you regularly at a particular rate, for use of money you have borrowed, or for delaying your repayment of a debt.

If you are late paying a tax bill, Inland Revenue will charge you interest on the amount you owe.

Penalty is the money Inland Revenue charges to encourage payment of a tax bill.

We may ask you for more information, such as filing a return or completing a form. We’ll agree a time frame with you for providing the information. During this time we won’t apply further late payment penalties.

(However, we will still charge you interest.) There’s more about penalties and interest on page 13.

To talk about overdue tax payments and returns, call 0800 377 771. If you need to call from overseas, the number is +64 3 951 2004. The line is open 9 am to 4.30 pm, Monday to Friday.

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Options for paying a tax bill These are the options for repaying a tax bill: •

paying in full

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paying through instalment

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writing off the amount, if we decide that full payment would cause you serious hardship

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a combination of an instalment arrangement and a write-off

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hardship relief for student loans—deferring collection of your student loan repayment (called capitalisation).

Paying in full The first option we’ll talk about with you is whether you can pay the full amount.

The money you owe us will be gathering daily interest and late payment penalties. It may cost you less in the long term to get money from other sources to pay your tax bill in full. Here are some of the questions we’ll ask to see if you can pay in full.

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Do you have money in a bank account, such as a term deposit?

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Can you get and pay back a loan?

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Do you have enough equity in assets to get finance?

Assets could include insurance policies, houses, cars, shares or business assets.

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Can you get an overdraft?

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Can you pay the bill on a credit card?

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Paying through instalment If you can’t pay in full on time, you can apply to pay the full amount in a series of regular payments. We call this an instalment plan.

You can also apply to pay the full amount at a later date.

We call this deferment.

If you set up an instalment plan or arrange deferment with us before your tax bill is due, we will not charge you penalties after the due date, as long as you make the agreed payments.

You’ll still pay interest on the money owed and this will be factored into the payments.

Instalment plan is one we make with you to pay your tax bill, either at a later date or in regular payments over time.

Deferment (deferring) means putting off payment until a later date that we agree to.

It’s important to keep up with instalment payments.

If you find you can’t make payments, contact us immediately. We might be able to work out a new plan with you.

If you miss payments and don’t contact us, we may cancel the agreement. We could charge penalties on the money still owed and take action to get the money paid.

This could include legal action.

How to apply for an instament plan or arrange deferment You can call us to talk about arranging an instalment plan or deferment. If you can provide all the information we need, we may be able to set things up over the phone. What we need to ask will depend on your circumstances. We need to look at whether your plan for repaying is realistic and whether you will still be able to pay future tax bills.

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If you can’t give us all the information immediately, we’ll agree a time frame for you to get it for us. During this time we will not charge penalties. (However, the tax owed will still gather interest.)

When we’ve made an agreement with you, we’ll send you a letter confirming how much you have to pay and the dates payments are due.

Writing off a debt because of serious hardship You can ask us to write off a debt when you know you won’t be able to pay the full amount without serious hardship. Serious hardship means that if you paid the debt, you couldn’t afford minimum living expenses.

Writing off the debt means you don’t owe the money any more. We may agree that we will write off part of the debt and you will pay the rest in an instalment plan.

We’ll need to get details about your finances. We may be able to get this information from you over the phone, or we may need it in writing. Once we’ve agreed to a write-off we’ll confirm this in a letter to you.

Hardship relief for student loans If you can’t pay a student loan because of hardship, we can’t write off the debt. Instead we use a process called capitalisation.

When we capitalise all or part of your student loan repayment, you do not need to pay that amount immediately. The amount is added back to your loan balance and we may charge interest on it.

For student loans, we can only grant hardship for:

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the past tax year

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the current tax year

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the next tax year.

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Serious hardship applies to all individuals and, in limited circumstances, to some companies.

If you owe payments for other years, you’ll need to pay them straight away or work out an instalment plan with us.

Hardship relief and company tax If you’ve had your company tax debt written off, here’s how this will affect losses and imputation credits.

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If you are declaring a loss this tax year, or carrying forward a loss from last year, we’ll decrease the loss figure. We will reduce it by one-third of the amount of tax debt we’re writing off.

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If you have a credit in your imputation account, we will reduce the credit figure by the amount of tax debt we’re writing off.

If you have both a loss and imputation credits, we decrease the loss figure first, and then reduce the imputation credit figure.

Imputation is a system that allows companies that pay dividends, and the shareholders that receive them, to pay tax on them once. The company pays tax on the dividend, then pays it to the shareholder with “imputation credits” for the tax it has already paid; the shareholder can claim the imputation credits against their tax bill.

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Ways to pay Inland Revenue When we have agreed the best way you can pay us, you can make payments electronically through your bank, by cheque, or at any branch of Westpac. Never post cash to Inland Revenue.

Electronic payments You can pay by: • automatic payment • direct credit • online banking.

Most banks have a special online tax payment system on their websites, which includes your correct payment reference details with your payment.

If your bank doesn’t offer this, you can pay online using the ordinary website banking service. Make sure you put your IRD number in the reference field, so we can process your payment correctly.

Paying by cheque If you post us a cheque on the last day for payment, it will still be on time as long as the stamp is postmarked with the due date of your tax bill.

When you write your cheque, make sure you: • make your cheque payable to “Inland Revenue” • cross it “not transferable” • put it in the envelope we provide, and put in the payment slip that we sent with the tax bill.

At Westpac You can go in to any branch of Westpac and pay by cash or cheque. Remember to take in the payment slip that we sent with the tax bill so bank staff have all the information they need.

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What Inland Revenue will do if you do nothing If you don’t pay the money you owe us or contact us to make a plan, we can still collect the amount you owe.

We can: •

take money directly from your wages, bank account, or from someone who owes you money (if we do this, we will send you a copy of the letter arranging this with them)

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take securities over your property

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start legal action—which may lead to bankruptcy or liquidation

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start legal action for outstanding returns—this may result in a criminal conviction

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charge you court costs and other costs for collecting the money

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obtain judgment against you in court, which will result in your name being published in the New Zealand Gazette and may affect your credit rating.

Bankrupt (bankruptcy) means you are judged by a court to be unable to pay your debts.

Credit rating is a measurement that lenders use to judge someone’s ability to pay their financial commitments.

The action we take will depend on your circumstances and your history with us.

You can contact us at any time. We want to help you to pay the tax you owe.

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If you disagree with the amount we say you owe Contact us for an explanation If we’ve asked you in writing for a payment in a notice, statement, or letter, and you don’t understand why you owe that amount, call us and ask for an explanation.

If you disagree with the amount because you’ve made payments that don’t show in a notice, statement, or letter, call us. Have the payment details handy including dates, bank account details, and cheque numbers.

Was the figure a default assessment (an estimate from us)?

If we’ve asked you to file a tax return and you haven’t done it yet, we’ll estimate the amount of tax we think you owe. This is called a default assessment.

The default assessment is likely to be more than your actual assessment, so it’s important you file your return as soon as possible. Once your return is filed, it will replace the default assessment.

If you believe you don’t need to file the return, it’s important to contact us.

If you don’t file your return or contact us, we’ll take action to collect the amount in the default assessment.

We will also ask you for the tax return.

Find the right number to call on page 21.

Assessment is an estimate we send you of the amount of tax you need to pay.

File a tax return means you send Inland Revenue a form that estimates how much tax you owe, which we need from you at certain set times of the year.

Seeking dispute resolution If you disagree with the amount we say you need to pay, and we can’t resolve the matter over the phone, you need to use the dispute resolution process.

You need to start the process within four months from the date of the assessment, or from the date a personal tax summary becomes a formal assessment.

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You’ll find full details in our factsheet If you disagree with an assessment (IR 778).

Late payment penalties and interest we charge If you don’t pay your tax in full and on time, Inland Revenue will charge you late payment penalties and interest, starting the day after the tax was due.

These charges do not apply if the total you owe is $100 or less.

Why we charge penalties Inland Revenue charges late payment penalties to encourage you to meet the government’s tax requirements. The scale of penalties is set to match the seriousness of the case. They increase the longer the tax bill stays unpaid. Inland Revenue applies penalties consistently and impartially.

Inland Revenue may also charge you a penalty if you do not file a tax return on time.

Why we charge interest Inland Revenue charges interest to repay the government for not being able to spend unpaid tax.

The interest is calculated daily on the total amount owed, which includes penalties on top of the unpaid tax. The interest rates are set by the government, and are based on market rates.

Penalty is the money Inland Revenue charges to encourage payment of a tax bill.

each month

4%

7th day overdue

1%

1st day overdue

Late payment penalties for most taxes •

On the day after the due date we will charge a 1% late payment penalty.

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Seven days after the due date we will charge a 4% penalty. This penalty is worked out on the total of the unpaid tax plus the earlier penalty.

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Every month this total amount remains unpaid, we add a further 1% penalty to the total amount.

1yr overdue

Penalties after 1 year

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For penalties applied from 1 April 2008 Inland Revenue charges penalties as above. However, if you have a good history of paying us, we may contact you before we apply the penalties.

For penalties applied before 1 April 2002 If your tax bill was due earlier than this, you’ll find details of penalty charges on our website ird.govt.nz (keywords: penalties before 1 April 2002).

Late payment penalties and interest for student loans Penalties—from 1 April 2007 •

On the day after the due date we charge a 1.5% penalty.

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For every month after this we add a further 1.5% penalty to the total amount owing—the unpaid amount plus the interest.

Penalties—Before 1 April 2007 •

On the day after the due date we charge a 2% penalty.

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For every month after this we add a further 2% penalty to the total amount owing—the unpaid amount plus the interest.

Interest on student loans Student loans are interest-free for borrowers who live in New Zealand for at least 183 consecutive days (that’s a day over six months) of the year.

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You’ll find more information in the booklet Interest-free student loans (IR 222).

Late payment penalties for employer monthly schedules and KiwiSaver Employers who don’t pay their Employer monthly schedule (IR 348) will be charged a 10% non-payment penalty. This is on top of the late payment penalties and interest we talk about above.

Inland Revenue doesn’t charge the non-payment penalty immediately. We first send you a reminder letter and, if you don’t pay and don’t agree to an instalment arrangement, we then charge the penalty.

We charge a further 10% each month the amount remains unpaid, up to 150% of the unpaid tax.

Two situations where we won’t charge you late payment penalties If you agree to an instalment plan or deferment If you contact us about your tax bill before it’s due and we agree an instalment plan or deferment, we will only charge the initial 1% late payment penalty.

Employer monthly schedule is a monthly report that employers send to Inland Revenue, with details about their employees, what the employees have been paid, and deductions such as tax and KiwiSaver.

There are also penalties for contributions to KiwiSaver. For details go to www.ird.govt.nz (keywords: KiwiSaver for employers).

We won’t charge you any further late payment penalties as long as you make the agreed payments on time.

If we ask you for more information Inland Revenue will not charge you late payment penalties during a ”negotiation period”. This is the time frame we agree with you when we ask you to give us more information about your financial circumstances.

While you are getting that information during this time, we stop charging late payment penalties. However, we will still charge you interest on the tax you owe.

Negotiation period is the period of time we agree with you, for you to get information for us about your financial circumstances.

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Late filing penalties we charge If you don’t file a tax return on time, Inland Revenue may charge you a late filing penalty if: • we tell you a return is required and you don’t file it • you don’t give us a valid reason for not filing • you don’t have an extension of time.

When we charge a late filing penalty, we send a statement of account showing the date you have to pay it by. If you don’t pay the late filing penalty on time, we will add late payment penalties and interest to the late filing penalty.

If we charge a penalty and you believe you don’t have to file a return, please contact us. Find the right number to call on page 20.

Other conditions vary depending on the type of return.

IR 3 return (individuals) and IR 4 return (companies) • You can apply for an extension of time to file the return. Call us on 0800 377 771.

• We will notify you 30 days before we charge a late filing penalty.

• The penalty ranges from $50 to $500, depending on your net income.

– If you haven’t filed a return, the penalty is based on the net income from your last year’s return.

When you file the late return, we will adjust the penalty in line with your actual income figure.

• The due date for paying the penalty will be the later of: – 30 days from the date of the statement of account that tells you about the penalty – the due date for the end-of-year tax payment; this is usually 7 February, or 7 April if you have a tax agent.

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Tax agent is an accountant who manages your tax on your behalf.

GST returns (GST 101 and GST 103) •

We cannot grant an extension of time.

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We apply the penalty automatically.

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The amount of the penalty depends on the accounting basis you use: – Invoice or hybrid accounting basis—$250 – Payments basis at the return due date—$50.

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The due date for paying the penalty will be the 28th of the month, after the month the GST return was due. We make two exceptions; when the late filing penalty would normally be due on: – 28 January, it is due on 15 February – 28 May, it is due on 7 June.

Employer monthly schedule (IR 348) •

We cannot grant an extension of time.

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We apply the penalty automatically.

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The penalty for filing an employer monthly schedule late is $250.

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If you must file your employer monthly schedule electronically, and do not use the required format, you may be charged a non-electronic filing penalty.

The penalty is the greater of: – $250, or – $1 for each current employee for the month that the schedule covers.

Fringe benefit tax •

There is no late filing penalty for fringe benefit tax returns.

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Dismissing penalties and interest We can dismiss penalty and interest charges in some limited legal circumstances. We call this “remission”. You need to pay the tax which the penalties and interest are charged on before we can consider remitting penalties or interest.

You can apply for remission over the phone or in writing. You’ll need to give us full details of the situation, so make sure you have all the information handy.

When we remit interest or penalties, you no longer owe the money to Inland Revenue.

We can’t consider your financial situation when we consider a request for remission.

Remission of penalties You can apply for remission of penalties “for reasonable cause”. This is if a situation like an accident, disaster, or illness reasonably prevented you or your tax agent from paying a tax or filing a return.

You can also apply for remission of penalties because:

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you made a genuine error

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there was a one-off situation—for example, your accountant was unexpectedly ill on the date they should have sent the payment, and their back-up had to unexpectedly take their child to hospital with a broken arm; so although they had a process in place, it broke down because of unexpected events

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we gave wrong advice.

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Remission is the withdrawing of penalties, interest, or both, that you owed Inland Revenue. When penalties or interest have been remitted, you no longer owe the money.

Factors we’ll consider include: •

whether you filed the return or paid the bill as soon as possible after the event occurred

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where possible, whether you’ve taken steps to ensure the situation does not happen again

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any other information we think is relevant.

Remission of interest Inland Revenue can remit interest only in limited circumstances. Contact us, and we will consider each application on its own merits.

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How to contact Inland Revenue Our 0800 self-service lines This service is available seven days a week (any time, except between 5 am and 6 pm) for a range of selfservice options. Remember to have your IRD number with you when you call.

Order publications and taxpacks

0800 257 773

Request a summary of earnings

0800 257 778

Request a personal tax summary

0800 257 444

Confirm a personal tax summary

0800 257 771

All other services

0800 257 777

Monitoring the quality of our customer service We are committed to providing a quality service.

As part of this we record all phone calls to and from our contact centres.

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For personal information such as account balances, you’ll also need a personal identification number (PIN). You can get a PIN by calling 0800 257 777 and following the step-bystep instructions.

Find out more about this policy and how to access your recorded information at www.ird.govt.nz (keywords: call recording privacy statement).

Our phone numbers Overdue payments and returns

0800 377 771

Personal tax enquiries General tax, rebates, and refunds

0800 227 774

Working for families tax credit and payments

0800 227 773

Payment options

0800 227 771

Paid parental leave

0800 377 777

Child support

0800 221 221

Student loan

0800 377 778

Passwords

We take calls 8am to 8pm Monday to Friday and 9am to 1pm Saturday.

Remember to have your IRD number with you when you call.

Calling on a mobile phone, or from overseas

Get a password on your account to save you time when you call Personal tax customers

0800 227 774

Business tax numbers

0800 377 778

Business tax enquiries General tax, rebates, and refunds

0800 337 774

Employers

0800 377 772

GST

0800 377 776

Large enterprises

0800 443 773

You can’t call our 0800 numbers from a mobile phone or from overseas. You’ll find all our direct dial numbers at www.ird.govt.nz/ contact-us.

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Our Complaints Management Service 0800 274 138 We’re here to take your call: •

Monday to Friday from 8 am to 8 pm

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Saturday from 9 am to 1 pm

Our postal addresses If you live in: Northland or the South Island, our address is: Inland Revenue PO Box 3752 Christchurch Mail Centre Christchurch 8140 Auckland, our address is: Inland Revenue PO Box 1454 Waikato Mail Centre Hamilton 3240 another North Island area, our address is: Inland Revenue PO Box 39090 Wellington Mail Centre Lower Hutt 5040

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Remember to have your IRD number with you when you call.

For a full list of addresses go to www.ird.govt.nz (keywords: contact us).

About Inland Revenue’s services Our online services Go to www.ird.govt.nz for information, services and tools.

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Secure online services—log in to check your account information, file an employer schedule, confirm personal tax summaries, and update your family details and income.

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Get it done online—complete and send us forms and returns, make payments, make an appointment to see us, and give us feedback.

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Work it out—use our calculators, worksheets and tools to help you manage your tax business, such as checking your tax code, or your filing and payment dates.

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Forms and guides—download our guides, and print forms to post to us. You can also check out our newsletters and bulletins, and have your say on items for public consultation.

How to get our forms and guides You can view copies of all our forms and guides mentioned in this guide by going to www.ird. govt.nz and selecting “Forms and guides”. You can also request copies by calling 0800 257 773.

Free business tax information, and kaitakawaenga Māori Business tax information officers (BTIOs) and kaitakawaenga Māori business tax information officers offer a free business tax information service to new businesses and organisations to help them meet their tax responsibilities. This service is available to individuals and groups.

Most of our offices also have a kaitakawaenga Māori who can advise Māori organisations and individuals on their tax responsibilities. Our BTIOs and kaitakawaenga Māori will tell you: •

which taxes you need to know about

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what records you need to keep

Find out more about these services and our free seminars at www.ird.govt.nz or by calling us on 0800 377 774.

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how to complete your tax returns (eg, GST and employer returns)

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when to file returns and make payments.

Your information and privacy By law, you have to meet the government’s tax requirements. This goes beyond paying your taxes. You must give us accurate information so that we can assess the tax you need to pay, or refunds we may pay you, under the laws that Inland Revenue administers.

If you don’t give us accurate information, we may charge you penalties.

We may also exchange information about you with: •

some government agencies

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another country, if we have an information supply agreement with them

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Statistics New Zealand (for statistical purposes only).

If you ask to see the personal information we hold about you, we’ll show you and correct any errors unless we have a lawful reason not to. Call us on 0800 377 774 for more information.

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For full details of our privacy policy go to www.ird.govt.nz (keyword: privacy).

If you have a complaint about our service We’re committed to providing you with a quality service. If there’s a problem, we’d like to know about it and have the chance to fix it.

You can call the staff member you’ve been dealing with, or if you’re not satisfied, ask to speak with their team leader/manager.

If your complaint is still unresolved, you can contact our Complaints Management Service on 0800 274 138: •

Monday to Friday from 8 am to 8 pm

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Saturday from 9 am to 1 pm.

Remember to have your IRD number with you when you call.

There is more information about the Complaints Management Service at www.ird.govt.nz (keyword: complaints).

If you disagree with how we’ve assessed your tax, you may need to follow a formal disputes process. For more information read our factsheet, If you disagree with an assessment (IR 778).

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