KEY POINTS:
The Inland Revenue's helpline staff are ill-prepared for new tax changes and much of the information they're giving out is incorrect, a Business Herald investigation has revealed.
The Business Herald conducted a series of "mystery shopping" phone calls of the help lines last week and the vast majority of the answers received were incorrect.
The tax changes include the introduction of the KiwiSaver retirement account, the Fair Dividend Rate (FDR) tax on foreign shares, and Portfolio Investment Entities (Pies) - a new form of managed fund that attracts lower tax - and are the biggest changes to the tax structure for individuals since the Rogernomics era, says economist Gareth Morgan.
Morgan, who runs Gareth Morgan KiwiSaver, and Cameron Watson, head of research at stock broking firm ABN Amro Craigs, helped supply some tricky questions to put to the help lines.
However, the Business Herald struggled to find staff who had even heard of the new FDR tax or Pies, let alone any that could understand or answer the questions.
One call centre staff member said our caller needed to see a tax accountant to find out what the letters "FDR" stood for because the question was "too technical". Another was convinced it stood for "franked and unfranked dividends". We were even referred to a 1992 document to answer one question about FDR, even though the tax came into effect only this year.
Experts said they felt sorry for the helpline staff who had not been given training on the tax implications of FDR, Pies and KiwiSaver.
Murray Brewer, associate taxation consultant of accountancy firm Grant Thornton, pointed out that individuals who got it wrong thanks to poor advice from the IRD help lines could face stiff penalties. "The IRD follows the stick model, not the carrot model. This isn't tiddlywinks."
Investors have three choices, says Brewer, if they don't want to fall foul of the IRD: to become a tax expert themselves, although they'd need to be pretty savvy indeed just to find the information on the IRD's website; to consult their financial planners and fund managers; or to see a tax consultant.
FDR tax was first mooted two years ago in Finance Minister Michael Cullen's Budget of May 19, 2005, and received the name "Fair Dividend Rate" in September of last year.
It came into effect more than a month ago.
The IRD responded to the investigation saying that it was "preparing to receive calls from customers seeking information on the tax changes for FDR and Pies".
An IRD spokeswoman said the call centre knowledge base was being updated so that "call centre representatives can assist inbound calls".
The IRD has published information on its website, "aimed at assisting customers to understand the new tax rules". However, the document in question "April Tax Information Bulletin, Vol 19 No 3", was not found when the Business Herald used the search box on the IRD's website and entered "Portfolio Investment Entities" and then "Fair Dividend Rate" and also their acronyms.
The spokeswoman concluded: "Inland Revenue makes every effort to ensure that the information provided to callers is accurate and helpful. People wishing to discuss information of a specific and complex nature however, are advised to contact their tax agent for advice."
Morgan said he thought it reasonable for the public to expect to get correct answers about tax matters from the IRD's staff. He pointed out that individuals could be fined by the IRD for incorrect tax returns.
QUESTIONS TO THE IRD HELPLINE
* Business Herald: Will Australian listed equities Oil Search Ltd and Auspine Ltd be excluded from the FDR tax?
* Inland Revenue helpline: "FDR. Do you know what that stands for?"
* Correct answer: ABN Amro believes Oil Search will be taxed and Auspine will be excluded. The list of excluded firms will change over time as they need to be listed on the ASX/S&P All Ordinaries Index and meet other criteria.
* Business Herald: Is it true that if I earn income from Portfolio Investment Entities (Pies) my tax falls from 33 per cent to 19.5 per cent for income between $38,000 and $60,000?
* IRD helpline: The IRD staff member initially said the portion between $38,000 and $60,000 of income from Pies would be taxed at 33 per cent, but was unsure and invited our caller to submit the question to questions@ird.govt.nz, which would be replied to within three weeks.
* Correct answer: "The highest tax rate in a Pie is 30 per cent, so 33 per cent is not possible," says Watson.
* Business Herald: How is a family trust taxed when it invests in a Pie?
* IRD Budget helpline: "The tax will be paid at the beneficiaries' nominal tax rate."
* Correct answer: The family trust can elect to pay tax at 30 per cent or zero and as a result the beneficiaries pay at their nominal rate, says Murray Brewer, associate taxation consultant of accountancy firm Grant Thornton.
* Business Herald: Can I put my KiwiSaver account in a family trust?
* IRD 0800 KiwiSaver helpline: "Yes".
* Correct answer: No. KiwiSaver applies only to employees and "natural persons", says Christina Varcoe of Gareth Morgan KiwiSaver.
* Business Herald: Can I employ my child in my business and pay them tax-free employer contributions?
* IRD helpline: No.
* Correct answer: "The member must be treated, under the Minors' Contracts Act 1969, as if they were aged 18 years. This would indicate that they should receive the full benefit of the scheme if they are employees - including the tax breaks from employer contributions," says Varcoe.
* Business Herald: "I've made $9743 profit from 30 shares trades in the UK. Do I pay FDR tax on that?
* IRD helpline: After consulting with his "technical team" the call centre staff member told our caller that FDR applied only to share traders who had made a loss.
* Correct answer: Individuals who own more than $50,000 worth of overseas shares and couples with more than $100,000 will pay FDR tax on their overseas shares (excluding some Australian ones).
