NZ's tax debt increases to $5b

IRD commissioner Robert Russell. Photo / Mark Mitchell

The global downturn has helped increase the level of debt owed to the IRD to about $5 billion, says New Zealand's top taxman.

"The more people are struggling to meet their [tax] obligations, the more pressure that puts on us," said IRD commissioner Robert Russell.

In its annual Compliance Focus report, released yesterday, the IRD said that over the past year 29,520 small- to medium-sized businesses had entered into instalment arrangements to pay off debts owed to the department. Those businesses currently owe $546.86 million to the IRD, the report says.

Deloitte tax partner Bruce Wallace said the amount of money under arrangement was indicative of the economic environment.

It was important for businesses to remain in control of their tax obligations, he said.

"Tax is often one of the things that people leave until last ... you see a lot of IRD-initiated liquidations."

Russell said the total debt currently owed by all taxpayers to the IRD sat at about $5 billion.

"More than half of that is uncollectable at any given time because it's either in dispute with the taxpayer, or maybe the taxpayer is bankrupt, or it may be something that's about to be written off."

The total debt owed to the department had increased since last year, Russell said.

"You'd expect that given the economic environment."

Russell said it was important for businesses to get in touch with the department as early as possible if they could not make a payment, so that an arrangement could be made and penalties not imposed. The IRD was also trying to intervene earlier, before debt levels got out of hand, Russell added.

The department also says it plans to develop and refine online tools that let businesses manage their tax obligations more easily, and offer more flexible payment channels.

Russell expected to the level of debt owed to the department to fall as economic conditions improved, but said debt would always occur.

Another focus for the IRD in the coming 12 months will be undeclared offshore income. Russell said countries that had traditionally held large amounts of capital in their banks for foreign nationals - such as Switzerland - were becoming more co-operative with tax authorities from other countries, such as the IRD.

"We believe we're in a better position to monitor offshore income, so we're trying to tell New Zealanders that we have better information than we used to."

Legislation was introduced in 2006 that allowed the foreign income of migrants to be exempt for their first four years in New Zealand. Russell wanted to remind people that had been using that loophole that they may soon need to start paying tax on that income.

"They can't have that holiday forever."