IRD chases students while speculators don’t comply

The IRD has no team dedicated to pursuing property investors who fail to comply with the bright-line test. This is in stark contrast to its student loan team which employs 64 staff to collect payment from overseas borrowers, Thomas Coughlan reports. 

In spite of the bright-line test having an incredibly low compliance rate, Inland Revenue has no full-time staff chasing property investors who fail to pay what they owe.

The test, which came into effect in late 2015, is designed to crack down on property speculation by automatically taxing profit made on the sale of residential property (other than the main home). Initially it applied to property sold within two years of purchase but earlier this year the Government passed legislation extending it to property sold within five years.

Nearly one in three eligible property investors fails to comply with the test and documents released to Newsroom under the Official Information Act show the compliance rate is worsening. A report given to Revenue Minister Stuart Nash in May estimated bright-line test compliance could be lower than 50 percent. 

Despite this, the IRD has not, in the three years since the bright-line test was implemented, established a team for chasing non-compliance and recovery.

Information released under the OIA to Newsroom said the IRD did not have dedicated teams for bright-line recovery nor did it have a separate budget for bright-line recovery activity. Instead existing staff were used to track down people who had not filed a return for possible tax due under the bright-line test.

Crackdown on students. 

This stands in stark contrast to the student loan system, which has 64 staff chasing borrowers who have moved overseas and are behind on their repayments. The team had a budget of $2.245 million for the period July 1, 2017 to January 2018.

This sits on top of more than 3000 staff across IRD involved in some way with compliance activity and debt recovery, including chasing overdue student debt.

The 64 staff employed by the student loan team are "predominantly" tasked with tracking down more than 75,000 overseas borrowers who collectively owe $1.2 billion dollars, according to the latest report from IRD. 

They have had some success, reducing the total number of overseas borrowers with outstanding debt by 3000 since the scheme started. But the total dollar amount owed by overseas borrowers has increased by about $1 million, to reach $1.1 billion in June last year. 

The average amount owed by an overseas student loan borrower is $1625. It is possible the average amount netted by a bright-line transaction is greater, but accurate data is not available. A Regulatory Impact Assessment for the bright-line extension estimated it would net the taxpayer roughly $50 million per year once fully established. 

Chasing students for their own good

Nash says the choice to proactively target student rather than property speculators could send the impression the IRD had its priorities round the wrong way.

“If you look at the figures without looking at the background I could see absolutely how you would come to that conclusion,” he said.

But Nash said the IRD was targeting student loan borrowers because the Government did not want to see borrowers’ loans balloon to an unmanageable size after leaving overseas. Borrowers are charged interest on their student loans after they have been out of the country for more than six months. 

“What tends to happen with these young Kiwis is they head overseas, their loan starts ballooning and they bury their head in the sand. Before they know it a $20k student loan is a $40k loan,” Nash said. 

There are 13,525 overseas based borrowers with balances that exceed $60,000, and 1281 of these have a balance in excess of $139,999. 

Nash said he had asked the IRD to “go hard” on bright-line non-compliance.

“Chasing those who are breaking the law around bright-line should be a priority because they are breaking the law, that’s the bottom line,” he said.

It is relatively easy for the IRD to follow up on unpaid taxes for property transaction as Land Information New Zealand (LINZ) notifies IRD of each property transaction.

This article was first published on Newsroom Pro on Tuesday, September 12 at 4.30 pm. Subscribe to Newsroom Pro here.

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