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A lack of tax knowledge may be at the root of a problem that has left around a thousand retirees facing an additional tax bill this year, according to a tax expert.
Stuff reported last week that a number of people who collect superannuation were surprised to receive tax bills, Inland Revenue denies telling retirees to use the wrong code * Retirees claim bad tax tips are to blame for the bills
“> sometimes thousands of dollars.
This was because their income was taxed at the wrong rate.
When a person receives the pension but is also employed, his or her main source of income should generally be taxed at the M tax rate. His secondary source of income, whether it is from the pension or from paid employment , must then be taxed at a secondary tax rate.
READ MORE: * Inland Revenue denies telling retirees to use wrong code * Retirees claim bad tax advice is to blame for bills
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About 1,000 people were affected.
But some retirees said the Department of Social Development or Home Revenue sometimes told them to apply an M tax code to their super, even though they still had a full-time job. This meant that they hadn’t paid enough tax on it in the year.
Inland Revenue said around 1,000 people were trapped because the tax department believed they had quit their jobs when they had not.
This was due to the information we received from their employer and led to the use of the wrong tax code for their pension. We apologize and are working to contact those involved.
Robyn Walker, a tax partner at Deloitte, said the problem was with tax culture and people’s ability to truly understand what their tax obligations are and act on them.
She said there weren’t high levels of understanding of how the system worked. People no longer have to systematically file income tax returns if they are receiving PAYE income.
Until recently they could request a tax slip and only pay if they had taxes owed, now invoices are generated automatically.
We have moved to a world where people are so little involved in taxation that they just assume that the system should do it right, but if the system has imperfect information it will never be correct. Some of the problems may arise because more and more people receiving retirement pensions are earning more income, which then affects the marginal tax rate.
It is understood that the Inland Revenue is not considering changing any process.
In other cases, people received surprise bills because they had had an extra pay cycle in the past year. In these cases, the Inland Revenue will usually write off the debt provided there is no further tax payable.
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