Deloitte tax partner Robyn Walker said whenever people’s income changed, it created a higher chance of paying too little or too much tax.
“It all comes down to the facts of a particular time or a particular person – when are they having their baby in comparison to the tax year of April 1 to March 31, are they having their income reduced?”
She said people getting the standard government-paid parental leave payments might be paid less than normal, but some employers might top up incomes. “It is definitely a real period where tax outcomes could fluctuate.”
She said it was always an unpleasant surprise to get a bill. “If someone is getting a lump sum it should normally be taxed at a flat rate but it depends where that payment falls relative to the start or end of the tax year, whether or not you might potentially end up in a not perfect tax outcome.”
Inland Revenue said not all tax assessments had been completed yet because people with a tax agent had an extension on their filing deadline.
Not everyone who received paid parental leave would be automatically assessed for tax.
“Inland Revenue can’t definitely say a bill was as a result of someone receiving PPL during the year. Paid parental leave is for six months and there would be other income which makes up their end-of-year position,” a spokesperson said.
She said the process of sending out automatic individual tax assessments had been smooth. These were sent between May and July and at the end of July, 3.6 million customers had been sent assessments, including requests for more information.
At June 30, 1.978 million people, or 55%, had been assessed as being owed a refund. Another 353,658 had tax to pay and 769,387 were assessed as having a balance to pay that was small enough to be written off.
“The most common reasons we saw for refunds and bills were incorrect choice of tax codes, and fluctuating incomes including lump sum payments,” the spokesperson said.
The process of automatically calculating and sending assessments to customers is a reflection of IR’s aim to make sure people are paying the right amount of tax and making that process easy for customers. It allows customers who have tax taken out before they are paid, to sit back and relax while IR gathers all the necessary information and calculates their end-of-year tax position for them.
“Over 70% of individual customers requiring an end-of-year income tax assessment now receive it automatically. After each annual event we consider how we can improve the event the following year.”
Walker said her son received a refund of 1c this tax year. There is no amount under which refunds are written off.
“[It’s] probably not worth the angst of someone going to the media to complain that they won’t refund their 1c. I assume it’s a relatively costless automatic process these days rather than having a human decide whether to release the refund.”
Some of the bills RNZ reported on were blamed on the parents having received holiday pay at the same time as paid parental leave, but there are a number of reasons why people could receive a tax bill.
Their income might change during the year, or they might receive an extra payment, particularly when not working for a full year.
You could also get a bill for getting your prescribed investor rate (PIR) wrong or earning more than the Working For Families system expects. Some years, due to the way dates fall, you could also have an extra pay day, which could cause tax complications.
“When there is an extra pay day, the PAYE rules won’t be entirely accurate because all the calculations assume there are only 52 weeks or 26 fortnights,” Walker said.
Different employees are hit in different years depending on what day of the week they are paid, given 365 isn’t perfectly divisible by seven days.
If your underpayment is entirely due to this calendar quirk, Inland Revenue can write it off – but if there are other factors involved, it won’t.
