If you have watched any TV lately, it is likely you will have seen advertisements for tax refund companies. Yes, it's that time of year when people begin to wonder whether they might be eligible for an income tax refund.
You don't need a tax refund company to find out if you have a refund owing, or to get it paid to you if there is. You can call IRD, or check the IRD website yourself. But tax jargon can be hard to understand and sometimes it might seem easier to let someone else do the work. A tax-refund company can be an appealing alternative when you don't have the time, inclination, confidence or ability to do it yourself1. But make sure you have all the facts, and that you are aware of the implications of using such a service.
Some facts you should be aware of:
The tax refund company becomes your "agent"
When you register with a tax refund company you authorise that company to act as your tax agent. This means that any existing person or organisation you might have already nominated as your tax agent will be "de-linked" from IRD.
The company will continue to be your tax agent unless you advise it, or IRD, otherwise. During this time, the company cannot act on your behalf without your permission, but it can still receive mail sent to you by IRD. This is because your address with the IRD may have been changed to that of your tax agent.
Once the tax refund company is your agent, it has access to your income-tax information at IRD. The company uses this, together with the information you provide, to calculate whether you have a tax refund owed to you.
Payment of refunds
If you have a refund owing, the tax refund company will request and confirm your "personal tax summary" (PTS) and IRD will pay your refund to the company, which then pays it to you – minus its fees. But if you already owe money to IRD (for example, student loans, child support, overpaid tax credits or arrears in any tax type) your refund can be used to offset those debts instead of being refunded.
While a tax refund company might say it only takes a few minutes to find out if you're owed a refund, the money won't necessarily be paid to you that quickly. During the peak May – July "tax-refund season" IRD's increased workload may mean it'll take longer for a refund to be released.
Tax planning and group structures
If you are part of a group structure where you may receive distributions from a family trust or associated company, then it is advisable not to use a tax refund company. In this situation it is likely that your tax affairs are managed by an accountant who will calculate trust or company distributions for the benefit of the group as a whole rather than for you, the individual.
You may even have tax paid on your behalf by a trust or company as part of the group's tax planning which, if refunded, may need to be repaid.
Minors and young people especially, may not always be aware that they are part of a group structure, as their financial affairs may be looked after by their parents/family via an accountant or other tax expert.
Fees, terms and conditions
Read the tax refund company's terms and conditions carefully before registering so that you are aware of the differing fees and fee structures. Remember that all tax refund companies offer essentially the same service via their contact with IRD. IRD do not give "special treatment" or faster turnaround times to any tax agent, so tax refund companies are limited in their ability to offer you a premium service.
Remember that any fee you pay to have your income tax return prepared is a deductible expense (can be deducted from your taxable income) in the year in which it is paid.
DIY tax refunds
Finding out from IRD whether you're owed a tax refund isn't difficult. The IRD website explains things well and contacting IRD with a query can be no more daunting than calling a tax refund company.
So - give it a go! It's free.
References:
1.https://www.consumer.org.nz/articles/tax-refund-co..., "Tax Refund Companies", Kate Sluka, 30 Mar 2014, accessed 15 May 2016
2.https://www.mytax.co.nz, accessed 15 May 2016
You don't need a tax refund company to find out if you have a refund owing, or to get it paid to you if there is. You can call IRD, or check the IRD website yourself. But tax jargon can be hard to understand and sometimes it might seem easier to let someone else do the work. A tax-refund company can be an appealing alternative when you don't have the time, inclination, confidence or ability to do it yourself1. But make sure you have all the facts, and that you are aware of the implications of using such a service.
Some facts you should be aware of:
The tax refund company becomes your "agent"
When you register with a tax refund company you authorise that company to act as your tax agent. This means that any existing person or organisation you might have already nominated as your tax agent will be "de-linked" from IRD.
The company will continue to be your tax agent unless you advise it, or IRD, otherwise. During this time, the company cannot act on your behalf without your permission, but it can still receive mail sent to you by IRD. This is because your address with the IRD may have been changed to that of your tax agent.
Once the tax refund company is your agent, it has access to your income-tax information at IRD. The company uses this, together with the information you provide, to calculate whether you have a tax refund owed to you.
Payment of refunds
If you have a refund owing, the tax refund company will request and confirm your "personal tax summary" (PTS) and IRD will pay your refund to the company, which then pays it to you – minus its fees. But if you already owe money to IRD (for example, student loans, child support, overpaid tax credits or arrears in any tax type) your refund can be used to offset those debts instead of being refunded.
While a tax refund company might say it only takes a few minutes to find out if you're owed a refund, the money won't necessarily be paid to you that quickly. During the peak May – July "tax-refund season" IRD's increased workload may mean it'll take longer for a refund to be released.
Tax planning and group structures
If you are part of a group structure where you may receive distributions from a family trust or associated company, then it is advisable not to use a tax refund company. In this situation it is likely that your tax affairs are managed by an accountant who will calculate trust or company distributions for the benefit of the group as a whole rather than for you, the individual.
You may even have tax paid on your behalf by a trust or company as part of the group's tax planning which, if refunded, may need to be repaid.
Minors and young people especially, may not always be aware that they are part of a group structure, as their financial affairs may be looked after by their parents/family via an accountant or other tax expert.
Fees, terms and conditions
Read the tax refund company's terms and conditions carefully before registering so that you are aware of the differing fees and fee structures. Remember that all tax refund companies offer essentially the same service via their contact with IRD. IRD do not give "special treatment" or faster turnaround times to any tax agent, so tax refund companies are limited in their ability to offer you a premium service.
Remember that any fee you pay to have your income tax return prepared is a deductible expense (can be deducted from your taxable income) in the year in which it is paid.
DIY tax refunds
Finding out from IRD whether you're owed a tax refund isn't difficult. The IRD website explains things well and contacting IRD with a query can be no more daunting than calling a tax refund company.
So - give it a go! It's free.
References:
1.https://www.consumer.org.nz/articles/tax-refund-co..., "Tax Refund Companies", Kate Sluka, 30 Mar 2014, accessed 15 May 2016
2.https://www.mytax.co.nz, accessed 15 May 2016
