Commerce watchdog warns cowboy' tax refund operators

Accountants should be upfront on their hourly rate or charge a fixed fee. Photo / APN

Tax refund companies have been put on notice by the Commerce Commission after many were found to provide misleading information.

A key industry player has welcomed the investigation and warned of "cowboy" operators who charge too much and have lax privacy measures.

The companies offer a hassle-free "no refund, no charge" way to claim income tax refunds from the Inland Revenue Department.

The industry has grown over the past three years since salary and wage earners were no longer required to file tax returns.

About 350,000 Kiwis use the services of the three largest companies alone.

Such companies file returns on behalf of clients, but take a cut of any refunds.

But the commission has written to 30 tax refund companies warning them they may be failing to meet their obligations under the Fair Trading Act.

Numerous providers failed to clearly disclose crucial information about the cost of services and any ongoing contractual relationship with customers.

Stuart Wallace, competition branch manager, said the commission had received a number of complaints from the public.

A subsequent investigation revealed some companies may be:

* Failing to properly disclose what it costs customers to use their services.

* Obliging customers to use their services in future years, without making this clear.

* Making misleading claims about turnaround times.

"Our general advice to consumers is that they can find out for free whether they are entitled to a refund and apply for it themselves through Inland Revenue," Mr Wallace said.

"But if consumers do choose to use a [tax refund company], we want to be sure they are being given accurate information."

Phil Rance, chief executive of Taxrefunds.co.nz, said the company's website would be amended to make clear an 18 per cent commission was taken from refunds.

"For us, our fee structure is buried away in the terms and conditions. And that's a valid point from the Commerce Commission.

"There are always things you can do better. I'm quite happy that we're meeting 90 to 99 per cent of [the commission's] requirements."

Taxrefunds.co.nz investigates a person's eligibility for refunds in following tax years, but always contacts a customer before lodging an application.

"At the end of the day you've got ultimate control. And if you don't like it, you just ring us up and say, 'I don't want that to happen'."

Mr Rance said the three biggest refund companies - Mytax.co.nz, Nztaxrefunds.co.nz and Taxrefunds.co.nz - had about 350,000 active clients.

He said the service was popular because it considered additional rebates clients may be entitled to, and guarded against applications resulting in a bill from the IRD.

"We're not unhappy that the Commerce Commission is looking into it, frankly. Because there are cowboys in the industry."

TAX REFUNDS

Some companies criticised for:

* Failing to adequately disclose what cut is taken from refunds.
* Not making clear customers obliged to use service in future years.
* Making misleading claims about turnaround times.