Photo: RNZ
A former business owner says she is waiting to hear whether Inland Revenue plans to force the sale of her house to cover her tax bill.
Laura, who does not want to be identified, and her husband owned their small business for 10 years and built up a an income tax debt over that period.
But she said she was "bombarded" on the MyIR dashboard with provisional tax bills that she owed from 2022, when the business made a profit, and that meant she missed notices telling her about an amount that was overdue.
"By 2023 I had had enough suffering from a heart condition and had no choice but to close our business.
"It was only when our final accounts were completed that I learned of our outstanding debt of $15,000 comprising of $12,500 income tax and $2500 GST."
She went to a budget adviser for help with a payment plan but through this process, Inland Revenue also discovered a Working for Families error.
"I now owe IRD nearly $34,000 and counting. Presently I have had to submit another three months of bank statements, my mortgage details - as my last conversation with my budget adviser was that IRD wanted to foreclose on my property that we live in, all of my bank accounts including savings to the 'debt recovery team'.
"They will then decide on 31 January whether or not to wipe the debt out or work out a payment plan. I am afraid that they may foreclose on my property that I have owned for over 30 years.
"IRD also sent a deduction letter to my current employer of deducted $532 the week of Christmas."
Laura felt IRD was "aggressively" going after New Zealanders. Photo: Supplied
She said it felt as though IRD was "aggressively going after hard-working Kiwis who own small businesses".
She said she received a call from IRD's debt recovery team and was told because she had equity in property, it could not wipe her debt.
"No matter how much you disclose and explain to them that I cannot afford the penalty rates they continue to load onto the outstanding debt, they are simply dismissive….I tried to explain to her that I've tried to apply for a bank loan to pay this [but] I was turned down due to income not meeting the bank's criteria for the loan.
The lady yesterday hung up in my ear...now I have IRD letters sitting in myIR which I'm too scared to open."
Keaton Pronk, an insolvency practitioner at McDonald Vague, said there had been a "huge jump" in Inland Revenue activity recently, as it chased down tax debt.
He said the department had doubled its applications to wind up businesses compared to the same time last year.
Last January, IRD was responsible of 31 of just under 60 winding up applications and the year before 22 of 56. So far this month, it has initiated 65 of 85.
Pronk said that was not surprising when it was trying to recover tax debt from individuals that stood at about $6 billion in June.
He said it was likely that the change was IR returning to a more normal pattern of activity after a few years of disruption due to its own systems being upgraded and then Covid.
"I suspect businesses got used to a lighter approach from the IRD over Covid when the directive from above was to 'be kind' and businesses were receiving a lot of government support - wage subsidy, small business loans … the current approach is probably more in line with how they approached matters historically.
"There is a large amount of tax arrears that need to be collected and IRD has been provided budget to collect it and to keep on top of businesses current tax obligations moving forward."
IRD said there was an increased level of compliance activity in line with the extra funding for the work in last year's budget.
Cash collected from overdue debt activities was significantly up in the September quarter.
There was $1.213 billion collected in the quarter three months, near the top of the target range and significantly up on the $914.3m of a year earlier.
"Inland Revenue wouldn't suggest to people that they sell the family home as a way to access funds to pay their Inland Revenue debt," an IRD spokesperson said.
"Equity in a family home, however, may form part of the overall repayment/relief discussion. It depends on each individual situation.
"For example, if the additional cost of servicing a new loan, factoring in all other standard costs of living, tips the debtor into financial hardship, then this would not be an option we would pursue.
"Under such circumstances, a debtor is more likely to qualify for relief under the 'serious financial hardship' write-off provision."
Chartered Accountants Australia New Zealand spokesperson John Cuthbertson said IR had been clear in signalling it was intent on getting back to business as usual.
Audit activity had picked up and there was a focus on debt collection, he said.
Cuthbertson said people who were worried should work with their accountants or the department to find a solution.
"Anecdotally we hear that a lot of the time taxpayers don't do anything until IRD physically calls them. They ignore emails and texts. It can get quite late in the piece before there is actual engagement."
He said some businesses would have to look at how viable their business really was. If it could not pay tax, or could not pay the owner a wage, that was only survivable for a period of time.
"What that really shows is the business either hasn't got enough cashflow generated or is not sufficiently capitalised to get through those periods.
"The last thing you want to do is send someone down that track where they keep tipping in more of their own resources and they end up losing everything including the family home."
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