The Inland Revenue Department collected 170 times more from former students living in Australia last year than from delinquent taxpayers across the Tasman, Thomas Coughlan reports from official documents.
IRD collected just $10,000 in unpaid tax from people living in Australia last year, but netted $1.7 million in student loan repayments from Australia.
The IRD made just eight requests for assistance from the Australian Tax Office (ATO) in the 2017/18 tax year to net the $10,777.44 in unpaid tax, according to information released under the Official Information Act.
A 1995 tax treaty with Australia, updated in 2009, allows the IRD and ATO to share information and request assistance in collecting tax.
The low take is especially surprising the IRD collected $1.7 million in student loan debts and $45.2 million in child support debts over the same period.
Terry Baucher, director of tax consultancy Baucher Consulting, filed the OIA request and told Newsroom he was “shocked” at the tiny amount of unpaid tax collected from Australia, especially given how many New Zealanders live there — including some who move to escape tax owed here.
“A classic story is for people where it doesn’t work out here for whatever reason, skip across the ditch,” Baucher said.
According to the Australian Bureau of Statistics, slightly over 500,000 people living in Australia are New Zealand born. Many do not know that information sharing means they can still be pursued for unpaid tax.
New Zealand also has a tax agreement with Revenue and Customs, or HMRC in the UK, but the IRD only made two requests for assistance in the 2016/17 year, and did not net any revenue.
A spokesperson for IRD told Newsroom tax collection can be a slow process.
“These situations can be complex and take time to resolve, so there are cases still in progress,” they said.
High level of debt collected from students and parents
The low amount of unpaid tax collected in Australia stands in contrast to the organisation’s recent efforts to collect more debt from Australia.
But the debt being collected isn’t unpaid tax. It is student debt and child support payments.
IRD has moved particularly quickly to collect student debt.
In October 2016, it signed another agreement with the ATO which allowed them to exchange information on student loan borrowers. It sent information on 91,000 student borrowers to the ATO the following month, in November 2016. The ATO matched 60,000 of those borrowers against its database.
IRD then sent 5000 of those records to a Australian-based collector, netting $1.7 million from 190 people before the financial year finished in June 2017.
In just eight months, the IRD had managed to collect 170 times more debt from student borrowers than it had done in a year from tax debtors under a twenty year-old treaty.
But this pales in comparison to the amount of child support debt collected on IRD’s behalf in Australia.
The Australian Department of Human Services collected $45.2 million in unpaid child support and late-payment penalties in 2016/17 — 4,200 times the amount of tax collected in Australia on IRD’s behalf.
In total, IRD has collected $449.1 million in unpaid child support from Kiwis in Australia since it began sharing information with the Department of Human Services in 2001.
Baucher said it was important to remember that a large amount of child support debt collected would not be returned to supporting parents, as the $45.2 million comprised both child support debt and late payment penalties.
Only the debt was returned to parents, while the IRD booked the penalties itself. Penalties for defaulting on child support are high — greater than those the organisation imposes on those who default on PAYE or GST.
Low hanging fruit
The disparity between the amount of unpaid tax versus student and child support debt collected from Australia follows reporting by Newsroom which revealed the disparity in resourcing allocated to pursuing student loan debtors and property investors who failed to pay tax owed under the bright-line test.
Information released to Newsroom under the OIA found IRD had a dedicated team of 64 staff pursuing overseas student borrowers, but no dedicated team pursuing property speculators who failed to meet their obligations under the bright-line test.
The IRD responded to the story with a release saying it had just under 100 “compliance specialists” and a property compliance programme dating back to 2008.
The release said that in 2017/18 over $7 million of resident land withholding tax was collected from overseas-based vendors subject to the bright-line test.
But a June paper submitted by IRD to the Tax Working Group released this month showed bright-line compliance was still a problem. Auditing work by IRD has found that in nearly 50 percent of cases, sales are not bright-line compliant.
Baucher said the IRD’s targeting of students and child support debtors shows the organisation targeted people who were likely to pay without fuss.
“Where the IRD fears it will get push-back it might not try it on, but they’re happy to try it on with others, as is the case with student loans,” Baucher said.
But this strategy has led to an imbalance.
“One of the things that frustrates me about the cases I see is people are allowed to run up PAYE debts for years before something happens, and yet I’ve had clients who’ve had deduction notices issued when they only owe $250,” he said.
The return on investment for targeting easy debtors is often greater than that of complex cases of international tax evasion.
IRD’s 2017 annual report showed return of investment of $18.11 for every dollar spent on recovering overseas debt. This contrasts with a return on investment of $11.55 for every dollar spent on initiatives for “additional investigations, education and marketing activity in the hidden economy, property compliance and complex technical issues areas”.
The overall return on investment for “investigation activity” was even lower, at $8.31 for every dollar spent.