Relief for troubled taxpayers

By BRIAN FALLOW

Life will be easier for people who get into trouble with their taxes, under legislation before Parliament.

The aim is to encourage taxpayers who get behind to contact Inland Revenue as soon as possible.

The tax laws' debt and hardship provisions will still require Inland Revenue to maximise the recovery of outstanding tax, but not if that would mean serious hardship for a taxpayer or represent inefficient use of the IRD's resources.

If the IRD can collect more of a debt through an instalment than through bankruptcy or liquidation it would be required to do so, and any amount not recovered would be written off.

Debt would also be written off if the IRD decided that the administrative costs of recovering it would exceed the amount collected.

The clock would stop running on late penalties when a taxpayer contacted the IRD seeking financial relief. If that relief was granted, late penalties would not apply so long as the taxpayer lived up to the deal.

Serious hardship includes being unable to meet minimum living expenses "according to normal community standards", or financial difficulties arising from serious illness or the cost of medical treatment, or the cost of educating taxpayers' dependants.

The legislation also lets taxpayers renegotiate instalments if their financial situation changes.

The proposed amendments will apply to tax outstanding as at July 1 next year. They do not apply to student loans or child support.

The law changes flow from a select committee inquiry into the human toll that the IRD's administration of the tax laws was taking.

PricewaterhouseCoopers partner John Shewan described the outcome as "quite a victory for the process of democracy".

But a better legislative framework was only 20 per cent of the problem, he said. "The other 80 per cent is how they administer it. We will have to wait and see."

Taxpayers had to realise that they were not off the hook and that the penalties regime was still there, Mr Shewan said.

The measures reflect proposals in a discussion document released in August.

The tax bill does not include three controversial proposals in that document.

* The idea that taxpayers should be liable for shortfall penalties even when it is their agent's fault. Accountants say that idea ignores and even undermines the benefit the IRD gains from people using tax agents.

* Another idea was to drop the requirement that any information the IRD seeks be "necessary or relevant" for enforcement of tax laws.

* And a proposal to penalise "promoters of tax avoidance schemes" was viewed as having a potentially chilling effect on many activities the knowledge wave was supposed to foster.

A spokeswoman for Revenue Minister Michael Cullen said that although these proposals were not in the latest tax bill it did not mean the Government had dropped them. "There's more consultation to be done. They have not yet reached the stage of draft legislation."