Nash looks for advice on tax rule change
Revenue Minister Stuart Nash has sought advice on remedying the tax system that has potentially meant hundreds of thousand of New Zealanders have unwittingly paid the wrong amount of tax.
But Nash said it was still the responsibility to individual taxpayers to ensure they were paying the correct amount. He even said experience from Australia showed that the current settings encouraged financial literacy.
“In the end our tax system is one of self-assessment, I’m not blaming anyone, but what I am saying is every single year everyone who has invested in a PIE, KiwiSaver or non-KiwiSaver receives a statement that tells them the rate they are being taxed at."
“This plays to our level of financial literacy in this country… in the end responsibility does lie with the taxpayer to say, ‘is this the right rate?’ And to query their PIE provider,” he said.
But National Revenue Spokesperson Andrew Bayly said the rules were unfair.
“Why is it fair that people who paid too much tax don’t get a refund and those who haven’t paid tax are let off,” he said.
IRD is currently contacting 450,000 people to tell them they had paid the wrong tax rate on their KiwiSaver and other managed funds. KiwiSaver funds are portfolio investment entities, better known as PIEs. They pay a prescribed investor rate, or PIR of 10.5, 17.5, or 28 percent. Unlike many other taxes, people are not able to be refunded if they overpay.
Appearing before Parliament’s Finance and Expenditure Committee, Naomi Ferguson said the issue related to the age of IRD’s current system.
“The current legislation was established many years ago when we had a very different system,” Ferguson said.
The IRD is currently in the process of its “business transformation” project, one part of which aims to make sure that people are paying the right amount of tax.
KiwiSaver has been added to the project and Fergusson said “going forward” the IRD would be able to look at KiwiSaver tax settings.
But people who had overpaid in the past will not be eligible for a refund.
Bayly said information he received from financial planners suggested that as much as $70 million had been overpaid to default KiwiSaver providers.
“That could be easily fixed if IRD shared tax information with default providers,” Bayly told Newsroom.
“The Government has known about this issue since it was first raised a year ago,” he said.
He said there was likely more money that had been overpaid, and had requested the figure of overpaid tax from the IRD. That figure could be as high as $200 million, based on information submitted to the Finance and Expenditure Committee in 2015.
Fergusson said the problem with refunding PIE tax overpayments was that they were managed separately under the current tax legislation. Underpaid tax could be demanded, but overpaid tax is not able to be refunded.
“Under the PIE regime the legislation states that is a full and final position and does not allow that refund to be paid — it’s a different legislative regime,” she said.
Nash would have to decide to change tax legislation before any overpaid PIE tax could be refunded.
“The Minister has asked to provide him advice,” Fergusson said.
She said that the current system dated back to 2006. Going back and quantifying the amount of incorrectly paid tax would be resource-intensive.
IRD would not answer questions after the hearing. Newsroom requested written comment.
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