IRD here to help

March 19th, 2009 at 12:00 pm by David Farrar

Kudos to the IRD for their attitude:

If putting off paying tax is what a company needs to do to survive, then it should, the Commissioner of Inland Revenue says.

is urging businesses to get in contact at the earliest opportunity if they are having trouble meeting their tax obligations.

Bob Russell said the department could ease the burden in a number of ways, such as agreeing to payments in instalments and waiving penalties.

Tax payments can be challenging for some businesses, especially that you often have to pay tax on income before you have always received it all.

However be aware you will still have to pay interest, and IRD interest will be more than what you can borrow comercially for.

IRD charged use-of-money interest – currently 9.73 per cent, having dropped from 14.24 per cent as part of the Government’s small-business relief package – and it was not opposed to companies considering that as a banking facility if they needed to for a time.

“In fact we might think that that’s a good strategy for them if they come and talk to us and get into an instalment arrangement,” Russell said.

“We’re prepared to wait a little while, the interest will accrue but the penalties can be turned off while they do the things they need to do to survive and get past their difficult time.”

Very reasonable.

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16 Responses to “IRD here to help”

  1. jacob van hartog (309 comments) says:

    Some were ‘putting off paying’ even in the good times as the BNZ tax case before the courts shows.

    Inland Revenue argued that the structured finance transactions used by banks were devoid of commercial purpose other than to avoid paying tax.
    It found that banks paid just $191m in tax in 2003 on profits of $2.87b.
    That meant banks were paying an effective tax rate of 6.7 percent, compared with the official 33 percent company tax rate.

    Thats right profits of $ 2.87 B for the banks and only paid $191 million in tax.

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  2. getstaffed (9,188 comments) says:

    JVH – the banks pay what is legally required of them. That your lot weren’t about to crowbar more out of them surprises me a bit. Must have been easier to pickpocket your taxes from poor, individual taxpayers. Typical bullying behaviour.

    Back on-topic: It’s great to see this kind of pragamatism. Well done IRD (Gee that hurt!)

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  3. goodgod (1,363 comments) says:

    When John Key announced these changes he said that the IRD would not be operating as a bank. He was quite certain about that. Brings a whole new meaning to the term conflict of interest. Probably better to go bankrupt than get into an endless cycle of borrow and delayed repayment with the IRD. Cullen would be proud.

    IRD – we’re here to help… ourselves.

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  4. wreck1080 (3,533 comments) says:

    I disagree – you should never spend money earmarked for tax.

    Whenever a company makes a profit, they should put some aside at that time for tax.

    If that company needs cash, they should visit a bank rather than use IRD money.

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  5. David in Chch (503 comments) says:

    Remember they are paying not only the tax from last year but ALSO pre-paying the projected tax for the next term. They are supposed to be paying tax on projected profits. (A friend has a small company and has to prepay a certain portion based on previous income.)

    So there could easily be a cash-flow problem because the projected income (and thus tax owed) won’t come up to previous levels.

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  6. wreck1080 (3,533 comments) says:

    david in chch : IRD provides several methods of re-estimating income during the year.

    Also, the new GST ratio method ensures you pay provisional based on actual earnings.

    So, I have still heard of no good reason. I imagine there could be a few exceptional situations out there, where I would be wrong. BUt, they would not be the norm and IRD discretion could be applied.

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  7. Kimble (4,095 comments) says:

    “If that company needs cash, they should visit a bank rather than use IRD money.”

    I view it as simply an extension of credit from the government working within the current taxation framework. If they are going to extend this credit anyway, it is better to do it in a fashion that is obviously temporary.

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  8. PhilBest (5,112 comments) says:

    I personally have found the IRD, since Rodney’s long crusade bore fruit, to be very much preferable to deal with, than the ACC. The ACC making out I am their “client” and they are a “service provider” is just bollocks. We should either move them in-house with the IRD and quit the sham, or de-nationalise workplace insurance for good.

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  9. side show bob (3,660 comments) says:

    As far as Dairy farming goes the IRD should be having a good year with a record payout paid. But the shit will well truly hit the fan next year as we have taken at least a 40% drop in income. I would say that there will be some slim pickings. I know a few of my mates will be paying record tax amounts and are none to impressed. I tend to disagree with Wreck1080 how can one calculate an income that can rise by huge amounts one year and hit the floor the next, the IRD require payers to be within ten percent of calculated income and any screw ups will be dealt to with loan shark interest rates. How many fucking government departments calculate their budget for the year and are within ten percent of their totals, sweet piss all I would bet but no such luxury for the peasants.

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  10. gd (2,286 comments) says:

    I have mixed feelings about this As an accountant of 35plus years my experience has been that if a business cant pay its creditors who ever they might be at any point it is very unusual for the situation to change of the better.

    In most cases but not all the hole just keeps getting bigger.

    There is usually no fairy to wave the money wand and produce the deficeit.

    However as a taxpayer do I want the IRD to businesses under and maybe recoup the unpai tax only to see the owner and employees go on the dole.

    So instead of the other taxpayers getting maybe something they now collectively have to pay out with no return

    My understanding is that the IRD forecasts are very bleak the worst ever. The Tax take is diving and is expected to go into a 90 degree curve over the short term.

    I sympathise with Side Shw Bob and wonder if a pramatic solution might be to suspend Provisional Tax payments for a year but insist on PAYE/GST being paid on time Afterall they are merely taxes collected by a business as an agent for the IRD

    They are NOT the businesses own cashflow and never were and never should be.

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  11. slijmbal (1,134 comments) says:

    jvh – “Some were ‘putting off paying’ even in the good times as the BNZ tax case before the courts shows”

    don’t be silly that’s straight tax avoidance (and arguably tax evasion – is tax evasion now) – keep up with the play

    I don’t believe that the IRD will change its spots – they have made nice noises before but they’ve never translated to actions. And lets be straight the rules themselves aren’t reasonable – I can see why they are in place but they are a problem for smaller business with lumpy income

    Example on the rules – paid GST recently and for some reason the form details never got entered – thus got assessed – wasn’t worried as had paid the correct amount in time – but assessment was more than paid – received various letters and bills – didn’t sort it out for several months and voila, by the time late payment penalties and use of money etc have been applied the effective interest rate of the owed money was getting on 50% p.a. Luckily, I got the forms sorted out and I’m now 35 cents in credit.

    Similarly, IRD have always said come talk to us. I had a problem with $ and did what they said and received the incredibly helpful advice to pay what I could – “What about penalties, interest etc?” I asked – all the same at incredibly punitive rates – no change. Agreed – that’s historic but do I really think they would waive penalties now? I think the hoops required to jump through to get them to do it will be damn hard otherwise everybody will ring up and get a cheaper loan from the government than from the banks if they need a loan.

    It’s quite easy to be in the situation where the GST ratio method does not apply so the old rules that required a crystal ball where one had to get ones provisional right for the year during the year still apply or end up paying 5% more than previous year or potentially suffer use of interest as tax was required to be paid evenly over the year even though income might not be even.

    That said, we have seen a slow movement over the years away from treating anyone who runs a business as an evil so and so required to be punished at every turn if something isn’t done perfectly. For instance, it’s no longer an instant 10% fine for being one day late paying GST.

    Not holding my breath.

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  12. Tauhei Notts (1,511 comments) says:

    I get the feeling that “side show bob’ s getting inadequate tax planning advice. When his gross income drops from $7.90 per kg milksolids to $5.10, his nett income drops a damned sight more than 40%. Any competent provincial town beancounter would have him estimating his provisional tax in an intelligent manner. Also, as a cocky he will have access to the Income Equalisation Scheme. That is a tax avoidance scheme that is perfectly legal but limited only to farmers. And did his beancounter organise a way to make that imminent drop in herd scheme values tax deductible. If he didn’t, sack the bastard.
    I could go on but I know that us beancounters can make your eyes glaze over.

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  13. slijmbal (1,134 comments) says:

    Tauhei – I am part owner/director of a multi-million dollar service business – under the current rules if profit increases or decreases substantially under the current rules it is really easy to end up with extra tax costs measured in tens of thousands of dollars.

    For instance, if you overpay provisional during the year you cannot get the money back. We spend a lot of money on accountants as 5K can save us 10K. The requirement for the crystal ball remains in many cases.

    Without understanding that particular business I have a sneaking suspicion side show bob is accurate as the rules are always set against the tax payer.

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  14. burt (7,096 comments) says:

    wreck1080

    You make a valid point about not using “money tagged for taxation” for cash flow. I also note that with regard to the ratio option registration for using that option closes in a few days. For some reason there is an arbitrary date for registration. Also interesting to note that the ratio option calculates no uplift for the prov tax % calculation. So if you earn less you pay proportionally less. Simple, small business operators who pay provisional tax should check it out.

    Dave in CHCH, realistically you should only ever be paying last years tax and this years in the same year once, and that is after a year of not being required to pay any. If you budged throughout the first year as wreck1080 (and others) would recommend then this ‘budgeting” will simply continue and be refined as you continue in business. Many people complain the first prov tax year is painful, almost always it’s because of poor planning and lack of accumulating a provisions for taxation. As a caveat, there is another Dave in CHCH who would say nothing about IRD is fair and having read his book I might be inclined to agree with his position if not necessarily his conclusions.

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  15. OECD rank 22 kiwi (2,787 comments) says:

    It’s good of the IRD to promote tardiness for tax payments. Treasury will have real fun trying to determine why the tax take is in freefall. All the better for a massive Government Deficit blowout. New Zealand really is heading back to the early 80′s.

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  16. slijmbal (1,134 comments) says:

    OECD – the IRD does not promote against tardiness for taxpayers – it dons balaclavas, sub-machine guns and demands money with menaces – for instance, the punishment for late payments has in good and bad times been draconian.

    Added to this powers that the police envy and the system is set up to treat the people who actually assist NZ making money as evil bastards – I’ve been doing this for almost 20 years here. It’s an active discouragement.

    The rationale is that some people rort the system but the 99.995% who don’t work under rules that promote active fear of not getting it right – this is not punishment for fraud it is punishment for getting it wrong – the punishment for me doing incorrect tax is substantially greater than someone on a salary or benefit doing fraud.

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