Date posted: 15/07/2019 2 min read

Concern over latest IR Use of Money Interest Rates

Inland Revenue creates favourable situation for itself for interest rates it charges and pays NZ taxpayers.

Inland Revenue has created a favourable situation for itself, or from the taxpayers’ point of view a ‘lose-lose,’ with latest changes to its Use of Money Interest Rates, says John Cuthbertson, New Zealand Tax Leader for Chartered Accountants Australia and New Zealand.

In changes which come into effect in New Zealand on 29 August, IR will increase the interest rate it charges taxpayers on unpaid and under paid tax from 8.22% to 8.35%.

At the same time, it will cut the interest rate it pays taxpayers on over paid tax from 1.02% to 0.81%.

“That’s a lose-lose for the taxpayer,” said Cuthbertson. “My first thought it was a mistake, but unfortunately not.”

IR says its rates are in line with market interest rates. 

“The new rates based on the floating first mortgage new customer housing rate (plus 2.5%) and the 90-day bank bill rate (plus 1%),” Cuthbertson said “We question the need to make this adjustment which is now relatively significant in a low-interest environment.” 

They were last changed in March 2017.

He said there were “a couple of interesting things in the announcement.

“An area of long-standing concern is the differential between the interest rate IR charges taxpayers and the rate it expects taxpayers to pay.

“Instead of getting smaller, the size of that differential has increased steadily over the past four Use of Money Interest Rates revisions by almost one percentage point in total – in IR’s favour.

“All at a time when the floating first mortgage new customer housing rate and the 90-day bank bill rate are falling.

“We are in a low-interest environment, so it is hard for IR to justify the rate it charges tax payers.”

Cuthbertson said many taxpayers regarded the rate charged for underpayments as “more in the nature of a penalty”.

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