IRD error means incorrect tax for thousands

An IRD mistake resulted in more than 4000 incorrect tax bills. Photo / 123rf

By Susan Edmunds of RNZ

More than 4000 people have been affected by an Inland Revenue error that could have meant they paid the wrong amount of tax.

RNZ was contacted by a reader who said he had noticed the error when he went to finalise his tax return.

Inland Revenue now issues income tax assessments each year for most New Zealanders, which tells them whether they have paid the right amount of tax.

The man said he and his wife would fill out an IR3 every year. “Nowadays the income, tax and imputation credits are automatically filled in, whether that be from investments in bonds, equities or bank accounts.

“Having always done this myself longhand, I still do this and thank goodness I did.”

He said, between them, they would have lost about $20,000 in credits if he had not noticed the problem.

“I found that my summary of income was correct; income, RWT, imputation credits. But when this was automatically input into the IR3 form, the imputation credits were only 50% of what they should have been.”

Inland Revenue said it had looked into the issue and identified a problem with how returns in the myIR system were pre-populating imputation tax credits for people who received dividends with imputation credits from jointly owned shareholdings.

“We have fixed this so any returns started in myIR from November 26 will not have this issue.

“Customers were able to amend the figure before filing the return; however, we have identified that approximately 4500 customers appear to have filed the return without changing the figure – so with the incorrect pre-populated imputation credits.

“We are currently working through the best way to amend these returns for the affected customers. Once we identify the easiest way to correct this error, [we] will be contacting those affected customers.”

Inland Revenue said it believed the amount involved was an average of about $300 per person, “all in the taxpayer’s favour. Late next week we should have a clearer picture of the exact number of customers and tax involved as we implement a fix.”

Deloitte tax partner Robyn Walker said anyone who had not noticed the problem could have paid more tax than they needed to, or received a larger refund than they should have.

“It’s interesting that the income and tax credits aren’t kept together when the amounts are halved for spouses – I would have expected that the income and credits would have both been wrong.”

She said it was a problem that a system that was meant to be able to be relied upon by taxpayers was not working correctly.

“In the scheme of the total number of people who might invest in shares receiving dividends, it’s possibly not a big error population; however, the existence of any error in pre-population is concerning. One of the risks associated with income and tax credit amounts being pre-populated is that there is a natural tendency to just accept what is there if it seems ‘about right’ rather than taking the next step of validating that the information is actually correct against source documents. It would seem that this is what those 4500 individuals have done.”

- RNZ