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Currently about 1.2 million taxpayers have to file IR 5 returns each year, while employers file with Inland Revenue Department 200,000 annual reconciliations to balance the PAYE deductions they have made during the year. They also provide each employee with a tax deduction certificate showing the income earned and the tax deducted.
Under the Taxation (Simplification and other Remedial Matters) Act individual taxpayers no longer have to file tax returns, instead IRD will generate Income Statements for taxpayers based on information provided by employers on wages and salaries subject to PAYE and on interest and dividend payments subject to resident withholding tax deductions.
However, investors in most unit trusts do not receive dividends which have RWT deducted, rather, imputation credits are attached to dividends received. These credits can then be used to offset tax liabilities.
However, because IRD does not collect this information it can't use it in the calculation of an individual taxpayers' Income Statement.
The end result is that taxpayers who save and who have surplus imputation credits will end up over-paying tax.
IRD's answer to this problem is that taxpayers who are owed a refund of more than $50 must contact IRD to get their refund.
PricewaterhouseCoopers tax specialist John Shewan says most taxpayers in this situation will be unaware of this requirement.
No one is able to say how many people are affected by this problem, however it is potentially significant as it impacts on any share or managed fund investment which pays imputed dividends.
While it is a potential loss for taxpayers, it is a windfall situation for the Government.
Shewan says it need not be a windfall for the Government if taxpayers take appropriate action to use their credits.
He says the IRD "owes it to the community" to widely publicise this situation and educate investors about the impact of the changes.
Advisers need to be aware of this situation and tell their clients to seek refunds from IRD if they have surplus imputation credits.
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