Inland Revenue urgently fixing tax calculator that gave 'incorrect results'

Monday, 5 July 2021

The number of overpayments caused by a faulty Inland Revenue calculator may have been limited by the lucky situation that few overseas shares fell in value last year.

Inland Revenue has removed an online tax calculator from its website after an investor discovered it had a flaw that could lead people to pay too much tax.

The department said it was working on an “urgent fix” after Napier accountant Sarah Taylor described the fault to Stuff.

The problem was discovered days before the deadline for filing annual tax returns on Wednesday.

The calculator is designed to help taxpayers who fall under the Fair Dividend Rate (FIF) tax regime as a result of having invested at least $50,000 in overseas shares, and who have bought or sold shares during the tax year.

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The calculator was failing to subtract any losses on those “quick sales” from any gains, calculating investors’ gross profits, instead of their net profit, thereby potentially overstating their taxable income.

An Inland Revenue spokeswoman said the calculator was producing some incorrect results and apologised to any taxpayers who had been affected.

Hatch founder Kristen Lunman says Inland Revenue's slip-up highlights a wider problem with the dividend tax rules, which are overly complicated for the growing number of retail investors to whom they now apply.

The spokeswoman said Inland Revenue did not currently have information on the scale of the issue.

Most people who need to file returns for the tax year will have already done so.

Kristen Lunman, the chief executive of sharebroking service Hatch, had also been aware of the issue. She said she expected the number of people who would have been disadvantaged by the calculator fault would be small.

That was because it was used by a small group of taxpayers and relatively few shares fell in value during the bull market in the last tax year, she said.

But Lunman said some investors who had already filed returns may have lost out and the fault highlighted a broader issue with the complexity of the FIF regime, which a growing number of retail investors now fell under.

“It is really hard to find a standardised and transparent explanation of how to reach those calculations,” she said.

“We struggled. We spoke to five tax accountants all of whom had different methods to get their calculations.”

Lunman feared the complexities of the FIF regime might have dissuaded some New Zealanders from investing in overseas shares, and therefore from profiting from the strong gains they had made.

“Modern investors have access to the world. But investors are choosing not to invest overseas because of that limitation, which is really limiting New Zealanders’ wealth opportunities,” she said.

The $50,000 qualifying figure for the FIF regime was “archaic” and it was probably time for it to be re-evaluated, she said.

“It does not take long to reach $50,000 if you are investing regularly.”

In the past people who fell under the FIF regime would probably have had their own accountant, she said.

“What we are seeing now is the modern retail investor who can quickly build up to that level.

“They don’t want to spend thousands of dollars on tax accountants each year, when really it should be quite a simple calculation.”

Lunman indicated she did not want to throw Inland Revenue under the bus. “The rise of the retail investor had caught everyone off-guard,” she said.