The Inland Revenue (IR) has confirmed that some taxpayers may have suffered an overestimation of their taxable income due to a prolonged fault in one of their online tax calculators. The fault has reportedly been in effect for the last 15 months and was only just realised days before the deadline for filing annual tax returns.
The calculator is used by taxpayers who qualify for the Fair Dividend Rate (FDR) tax measure on foreign investment funds (FIFs). It works by helping those that have invested over $50,000 in overseas shares and transacted in those shares during the tax year define their tax obligation. The calculator was found to not be subtracting losses experienced from quick sales from gains. It was using gross profits rather than net profit, thereby overstating taxable incomes.
An IR spokeswoman confirmed that due to the error, some taxpayers may have received incorrect results. She added that IR did not as yet know the scale of the issue. Some experts, including digital investing platform Hatch’s GM, Kristen Lunman, however estimates that the number of those affected will be small. She said that only a small group of taxpayers fall in this grouping and that few shares fell in value during the previous year’s bullish market.
Lunman also pointed to the complexities of the FIF regime that would likely have discouraged many investors from going for overseas shares. She termed the $50,000 qualifying figure for the FIF regime ‘archaic’ and called for it to be re-evaluated.
The IR was notified early on about the problem and failed to act accordingly. The department admitted that they were informed by Deloitte on the issue in September last year. They claim to have taken down the calculator at the time, but failed to identify the problem and put it back up. It is following a more recent and report by Napier accountant, Sarah Taylor, that the IR understood the problem and took steps to fix it.
This was however just days to the tax filing deadline, meaning many of the qualifying taxpayers may already have filed using incorrect information. Deloitte’s Robyn Walker expressed concern that taxpayers could have been affected from as far back as April 2020.
National’s revenue spokesman, Andrew Bayly, has said that the government should do more to fix the problem. He said the IR should attempt to identify and notify those affected, no matter the cost involved. The IR has advised anyone who thinks they were affected to contact the department for corrections to be made. Though the IR will not be contacting taxpayers directly due to difficulties in trying to identify those affected, they have said they would communicate with the Chartered Accountants Australia and New Zealand to update them on the issue and how to help their clients.