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IRD treatment of Tax Credits

May 16, 2019

As part of IRDs plan to simplify the tax system for all taxpayers, they are now automatically providing refunds in near real-time if they cannot see any debt or do not know what tax account the money should be going toward.

Making a payment

When making a payment – including by direct credit or internet banking – make sure you include the correct details. These details include your IRD number as well as the payee code.

The payee code is the account that you’re paying (for example, ‘INC’) followed by the period (DDMMYYYY). If you’re paying for more than one account or more than one period, you need to include this in the details.

Example 1

You pay $1,000 to INC 31032019. This assessment is fully paid, and a credit is left in INC 2019. As there is no unpaid INC debt in any other period – and no other instructions – IRD will refund.

IRD do see some taxpayers submit incorrect details with their payment – for example, they might include ‘INC’ instead of ‘FAM’ or the wrong tax period. IRD will refund these payments within 24 hours, so we recommend double-checking the details of a payment before you make it.

If you make a payment in advance of filing a return in a period, that credit will be held until the return is processed. For example, if you’re making voluntary payments for provisional tax or a payment for a period where you have not yet filed a return, IRD will hold the credit in that account.However, the credit will be refunded once the period has been assessed and there is no debt to offset.

Example 2

You pay $1,000 to INC 31032019. This assessment is fully paid, and a credit is left in INC 2019. INC 2020 has a provisional tax estimate, and we are instructed to transfer the INC 2019 credit to INC 2020. We will transfer the credit and won’t refund INC 2020 until this period has been assessed (and a refund is payable).

More information on making payments to IRD is available on IRD’s make a payment page.

CG comment

Be really careful when you are paying your Income Tax as we regularly identify payments that clients have made (for example) to their 2018 (terminal) Income Tax accounts instead of their 2019 (provisional) Income Tax Account.

As part of our Tax Management Service, we check (just after the payment Due Date) that your payments have been made and if they were made to the wrong year (or even wrong tax type), we transfer the payment. However if IRD are making refunds ‘in real time’ there just won’t be time for us to pick up these mistakes. This may mean that the payment is transferred back to your account and you will need to make it again to the right tax account/year – meaning that the payment may be late and penalties incurred. We will of course, continue to check each payment due date to ensure that payment has been made and will follow up with you if the debt is outstanding (for whatever reason)

NB: We have already identified one client where their 2019 provisional tax payment was made (by mistake) to their 2018 income tax account and IRD had already refunded it back to the client using the bank account details they have on file. IRD did not transfer it to the 2019 year even though there was a debt for the same amount, and we had no chance to organise a transfer! We have contacted the client and asked them to check they have received the credit and to make the payment again to the correct year

If you have any questions about the IRD treatment of tax refunds, or you find that you have received a refund that you weren’t expecting, please contact us to discuss.