DEBT OPTIONS-  IF YOU ARE UNABLE TO PAY TAX

 

 

If you cannot pay your tax or other amounts on time you should contact Inland Revenue Department as soon as possible.   IRD will consider your financial position and discuss with you the best option for dealing with your debt, and may take one or more of the following steps:

Request immediate payment in full

Enter into an instalment arrangement

Defer debt collection action

Grant relief or remission from payment of tax and/or penalties.

 

PAYMENT IN FULL

Consideration will be given to your financial situation, and if IRD think you are able to pay, they will ask you to make immediate payment of an outstanding debt in full.   This may happen, for example, if you have:

Sufficient funds in a bank account

The ability to raise and service a loan

Sufficient equity in assets to raise finance e.g. insurance policies, houses, cars or shares.

There are advantages in paying in full as this will avoid any penalties for late payment and interest that would be charged by IRD.    If you raise money specifically to pay an IRD debt (and if you are running a business) any interest paid is tax-deductible whereas if you donít pay it on due date only interest charged by IRD (and not their penalties) are tax-deductible.

 

INSTALMENT ARRANGEMENTS

In some situations, if you are in financial difficulties, IRD may agree to an instalment arrangement.   This is where the tax and any penalties and interest due are paid off in two or more instalments.     Instalment arrangements can be agreed before or after the due date for payment of the tax.   There are greater reductions in the penalties charged if the arrangement is agreed to before the due date. 

IRD will generally accept an instalment arrangement after establishing that full payment cannot be made immediately.   Factors they will take into account are:

Whether you are in financial difficulties.   IRD considers a taxpayer to be in financial difficulties when their financial position means that debts cannot be paid in time, and either there is a real prospect that creditors will be able to have the taxpayer put into liquidation, or judged bankrupt, or the taxpayerís debts substantially limit the carrying out of normal income- producing activities.

Whether the repayment proposal is realistic (can the instalment payments be met based on the income or other amounts being received?)

Whether future tax liabilities can be met as well as the agreed instalment payments

Whether any previous arrangements with IRD have been met

Whether all returns have been filed

Tax payment and return filing history

Other recovery options available

All applications for instalment arrangements to IRD should be made in writing.   IRD may ask you for a Cashflow Forecast and a Statement of your Assets and Liabilities.

Once an arrangement is made, IRD will send you a letter of confirmation, which will set out the amounts under the arrangement, the terms of the arrangement (how much you have to pay and when) and any other conditions of the arrangement.   If you do not keep to the arrangement IRD will cancel it, and take other action to recover the debt. 

Penalties and interest will continue to be added to your account during the arrangement and will show on your regular statements of account.   If you meet your obligations, at the end of the arrangement IRD will cancel any late penalties charged after the date the arrangement was agreed to.   Any amount of interest accrued during the term remains payable. 

IRD have the right to review the arrangement if your financial position changes. 

 

DEFERRAL OF COLLECTION ACTION

Deferral of collection action means that IRD will temporarily stop any action to collect your outstanding debt.   They may do this when you can show that your financial position will improve, allowing the debt to be paid in the future.   This may be, for example, a prospective increase in income, decrease in other debts, sale of assets, financial windfall, or other improvement. 

IRD have the right to offset any subsequent credits from tax returns against the outstanding debt. 

Penalties and interest will continue to accrue on your account.

  

TAKING SECURITIES

IRD can take a security over a taxpayerís property to secure the payment of outstanding tax debts.   Generally, the security would be taken over land, but could be over other valuable assets. 

IRD may do this with your consent if there is a long-term arrangement in place with IRD, or they may do it without your consent if you have not taken any action to deal with your debt.   In both cases, you will be responsible for any costs incurred. 

Penalties and interest will continue to accrue until the debt is paid in full. 

 

RELIEF FROM PAYMENT DUE TO HARDSHIP

You can apply in writing to IRD for relief from payment if you are in financial difficulties or if payment of the amount owed will cause serious hardship.   Relief from payment means that the outstanding debt is legally waived, and IRD will not pursue collection of the outstanding debt. 

Serious hardship means the taxpayer or their dependant family members could not meet basic living requirements. 

The relief provisions apply only to income tax or fringe benefit tax debts-  IRD cannot grant relief to other taxes such as GST and PAYE.

As all taxpayers have a legal right to pay tax in full and on time, granting relief from payment of tax is a last resort. 

Once relief has been granted, it can only be cancelled if the information was misleading, or IRD receive further information about your affairs as at the date the relief was granted and if they had this information at the time they would not have granted relief.

 

WHAT WILL HAPPEN IF YOU DONíT DO ANYTHING ABOUT YOUR DEBT

If you do not pay or make contact with IRD about your debt there are a number of recovery actions that they can take.   IRD will endeavour to contact you before they take further action.   The recovery actions they take may include:

Deducting money from your wages or bank account, or form a third party that owes you money

Offsetting future tax refunds against the debt owed

Taking securities

 Serving documents on you to start civil legal proceedings, possibly leading to bankruptcy or liquidation

Charging you court and other collectioin costs

 Publishing your name in the Mercantile Gazette if they obtain judgement against you.

 Prosecuting you if you have outstanding returns, which may result in a criminal conviction.

Penalties and interest will continue to accrue on your account.

 

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