If you have been keeping up to date with current taxes, but you are struggling to make a dent in old tax liabilities, maybe it’s time to apply for a tax write off. Since Covid-19 started, IRD debt management team has been more willing to enter into negotiations for instalment arrangement and tax relief.

Here are two case studies, representing the many successful applications we have made on behalf of taxpayer clients.

Tax Relief Case Study

In May 2022, we successfully won a sole-trader about $20k of tax relief. Cue a little happy dance!

I have been working with this client for two years. She had three years of GST and income tax debt when we started. With lots of encouragement from me, she has been paying her current GST on time and paid off a big chunk of income tax.

The past two years have been a huge challenge for her. In between covid lockdowns, she gave birth to her third child, had surgery, moved house, and recently caught covid. She pivoted her business to be less reliant on face-to-face interaction, but her business still required her to be in it. Every time she tried to reboot after every stoppage, something else came up. She had not been able to make a dent in her old GST debt.

I spoke with my IRD account manager, sent him the relevant information and he agreed to write off three years of GST and two years of income tax. Her latest income tax bill is on an instalment arrangement to pay off over 12 months.

It's not just about the debt, it's also about her confidence as a businesswoman, a parent and a citizen. She doesn't have the burden of old tax debt holding her back. She will feel more able to provide for her family. She has better money management than she did two years ago.

We think these factors helped her case for tax relief:

• She filed her recent GST and income tax returns on time. Paid them on time too.
• Her financial position had been severely impacted by Covid-19 and her own health.
• Her level of income is lower than standard household living costs, so there is nothing left to pay the old tax debts.
• She has a young family.
• She made efforts to reduce the Covid-19 impact.

Instalment Arrangement Case Study

In August 2020, we estimated provisional tax down and applied for an instalment arrangement for a company taxpayer affected by Covid-19. The company was impacted because supply chain issues affected availability of its products and business customers were nervous about spending on equipment. The company forecasted ahead 12-months, so the Board knew that the instalment arrangement was affordable.

IRD remitted all interest and penalties for late payment, saving about $10,000 for the taxpayer. IRD accepted the instalment arrangement request for the first provisional tax amount, then we were able to add the second and third provisional tax amounts to the arrangement.

The instalment arrangement bought the company time to adapt. It was easier for the company to spread its tax payments across the whole year, and it paid off its income tax in full just before the terminal tax due date.

What worked well for this taxpayer was:

• The taxpayer was proactive and made contact with IRD through us, before the income tax was due.
• Covid-19 had impacted the business, and the business adapted itself to its new environment.
• The taxpayer had cashflow projections, which was revised at each instalment. The instalment arrangement bought time for the company to sort out its working capital issues.
• The instalment plan was for a short period, only a few months.
• The taxpayer never missed an instalment payment for income tax, and kept paying payroll taxes and GST payments on time.
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Applications that Haven’t Succeeded… Yet

Not all our applications have been successful, and there are three main reasons why they have been failed. Either the taxpayer is behind with filing their returns (income tax, GST and/or payroll) or the taxpayer has not kept up with the payment plan. Sometimes the payment offer is spread out too far into the future. When applications don’t succeed, it usually isn’t the end of the matter. We work with the taxpayer to remove the objections over a period of months, and present a more acceptable picture to IRD.

Is this You?

If you're struggling to deal with old tax debt, chat with us about whether you qualify for an instalment arrangement or the hardship tax relief. We help you to put forward your best case to IRD. Then you can join in with our little happy dance!

- Serena Irving

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Serena Irving is a director in JDW Chartered Accountants Limited. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

A well-written article like this, which is general in nature, is no substitute for specific tax advice. Results are not guaranteed, even if you think your situation matches those discussed in the case study. If you want more information about the issues in this article, please contact the author.