By Amanda Morrall
In 2008, New Zealanders who were shirking, deferring or dodging their taxes were believed to number anywhere between 200,000 and 300,000. Between them they were estimated to have debts with the Inland Revenue Department of NZ$4 billion.
In its 2009 report, the Auditor General warned that staggering amount could easily double in five years, outpacing Inland Revenue's ability to deal with the tax debt monster.
Inland Revenue responded by stepping up monitoring, reporting and collection practices, generally adopting a much tougher stance on tax debt.
However difficult to front up to this unenviable situation, Fiona Whyte, with Tax Debt Brokers, says the path of least resistance (i.e.avoidance) is long-term the most injurious, both emotionally and financially.
As an intermediary for debt-ridden taxpayers and the IRD, Whyte has seen first hand the toll that tax trouble can exact with hidden red-lined accounts killing marriages, businesses and crushing the spirits of otherwise keen entrepreneurs who add to the lifeblood of the economy.
Whyte's best advice is to face the music.
"Don't let sleeping dogs lie because when it wakes up, it's going to be a rottweiler,'' warns Whyte an intermediary between taxpayers with debt and Inland Revenue.
"We sit in the middle of the arrangement and work out a solution with the IRD, with the client, and help work through it with their accountant as well,'' said Whyte.
"If you think of it (the relationship) as a bicycle wheel, we are the hub in the middle bringing everyone together because we all want the same thing. We all want the situation resolved. The IRD want a compliant taxpayer and they want their money back too. So it's working out what's the best situation we can make of this.''
So at what level of debt is a broker necessary?
Whyte says the minimum threshold is generally around the NZ$10,000 mark.
Why use a broker for tax debt?
"As you can appreciate, it's an incredibly stressful situation and while you might be in a rational mind thinking yes I can logistically handle this. When they see the numbers it's very emotional. It can be daunting and difficult. So having someone that can walk alongside and hold their hand makes that process easier because if they are upset or anxious they can deal with that through an intermediary and we can work through that situation with IRD.''
Whyte says those owing tax are deluding themselves if they think the problem will go away on its own.
"Just because they're not knocking on your door doesn't mean they're not about to or are already knocking on the door of your accountant.''
And having an accountant is not necessarily a defense against the tax man, particularly if there's been a break down in communications with the accountant.
So what's behind all this tax debt drama and how did the bill gets so high?
"Sometimes, it is as simple as lack of cash flow planning,'' explains Whyte.
How to avoid it?
"One of the simplest rules is putting 20% aside in account so you know it's the tax money and don't touch it, it's there to pay the bill.''
Whyte cautions people against raiding the tax bill during tough times as invariably it just deepens the tax pain.
"We're in a recession and cash flow is incredibly tight so people forget about paying the IRD or they tell themselves they'll get it eventually after looking after other bills first.''
Fiona's tips to avoid tax debt:
1) Stay current - don't postpone tax payments
2) Look ahead - be prepared for any provisional tax due for Jan.15
3) Allocate - start setting aside monthly tax money
4) Good communication - start talking to your accountant now, not after the fact
5) Be proactive - get registered on-line with IRD so you can better assess the situation
6) Educate yourself - by taking in free workshops or seminars offered by IRD and other parties.
Tax brokers are paid fees by the taxpayer, often including a flat up front fee and a percentage of any financial relief.
5 Comments
A big item for many SME businesses no doubt. I wonder what success rate standard accountants have in this area?. Tax Debt Brokers would appear to be a product that will have real traction in this economy now SME's are seeing some light at the end of the GFC tunnel. it's good to see these specialist type businesses popping into the market place with such niche skills.
Accountants sometimes drop the ball...that was my experience.
For the benefits of SMEs, here's a link detailing upcoming free seminars on tax 101.
http://www.ird.govt.nz/contact-us/seminars/auckland/takapuna/
Comes across as an advertorial with strategic posts. Problem with accountants is they often are over committed and this type of client will not be a priority and get timely work performed. Can be sorted by documenting timelines upfront. The problem often with this service is you will be overpaying on percentage of tax arrears/penalties remmitted. They should be happy just charging $200 per hour as value based billing is a rort when you can easily as an advocate get remmited a substantial amount of penatlies/tax with a plan in place.
I'm pretty dubious about using a broker: if a taxpayer is heads up enough to use one, they can probably achieve just as much for nothing by dealing with IRD themselves: so long as they stick to any agreed instalment plan, they will be okay most of the time.
For Amanda, you might want to look at the uses of tax pooling, firms like Tax Management New Zealand which I use: brilliant for mitigating IRD's obscene use of money interest rates. Good for taking 'options' on provisional tax if cash strained, or for buying back dated tax payments.
Thanks Tribeless, appreciate the recommendation. Did you know that in 9 years we have assisted over 17,000 NZ companies and individuals to reduce their use of money interest rates and eliminate the late payment penalties? Love a win/win, tax gets paid so the IRD get off your back and you don't have to pay as much. Oh and the taxseller gets higher interest from their excess tax as well. Tax pools rule!
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