Annual Report - Inland Revenue

B–23
Annual
Report
2015
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ISSN 1176-6654 (Print)
ISSN 2230-4053 (Online)
ird.govt.nz
Presented to the House of Representatives pursuant to the Public Finance Act 1989 and the Tax Administration Act 1994.
Contents
About Inland Revenue
7
Delivering and improving our core business
11
Contributing to the Government’s priorities
23
Business Transformation
31
Organisational health
35
Our performance
43
Measuring our performance
57
Departmental financial statements
93
Non-departmental financial schedules
125
Audit Report
145
Additional information
149
ANNUAL REPORT 2015
1
From the Commissioner
A year of making tax simpler
Easier for customers
As Commissioner I’m
enormously proud of how
much Inland Revenue has
achieved for the people of
New Zealand. This year’s
Annual Report reflects many
of the improvements you’ll
notice next time you look
for information online, file
a return or claim a refund.
We’re making the business of
tax and entitlements simpler,
more open and more certain
for customers and businesses
across New Zealand.
Our Business Transformation will
completely change how people interact
with the revenue system in future. And
as we prepare for transformation, we’re
making it easier every day for businesses
and individuals, through continuous
improvement and innovation.
More people are doing a lot more online.
During the year we improved our website
and myIR online services, and made it
easier to register and find information.
Since August customers have been able to
activate their new myIR account instantly
via text. Customers are embracing new
digital opportunities – last year 67% of
returns and almost 83% of payments
were done online. Our mobile app that
lets small businesses do GST on the go,
developed through crowd-sourcing and
research, is hugely popular.
Going digital gives customers increased
certainty. But if they need to call us we’re
answering more calls and answering
them faster: 75% of our 3.24 million
calls received last year were answered
in less than two minutes. Voice ID, with
1.5 million customers registered, and
automatic call-back makes the process
even smoother.
These changes and more contribute to
Better Public Services, making it simpler
and more seamless for New Zealanders
to deal with Government. We’re working
with many other agencies on a range
of projects from sharing information
that supports customers to joint service
delivery. Businesses are noticing the
difference: a recent survey reported a 23%
reduction in the effort of dealing with
Inland Revenue.
Getting it right
Our new Compliance Model helps us
understand customers better and tailor
our approaches to respond to different
customer behaviours and needs. We want
2
ANNUAL REPORT 2015
to help people get it right from the start,
make tax simpler and more certain, and
help more people avoid debt.
For the first time in five years, Inland
Revenue’s overdue debt total has reduced.
We’ve done this by contacting businesses
and individuals upfront to prevent them
getting into debt, following up fast with
effective arrangements to manage any
debts, and recognising that some debt
costs more than it’s worth to collect.
The vast majority of student loan debt is
owed by borrowers now living overseas,
and much child support debt is owed by
liable parents living in Australia. We’ve
used innovative campaigns to successfully
reach these customers and recover debt.
Our student loan campaign was a goldmedal winner in communications awards.
We also reduced overdue tax returns
by 21.5% last year, finalising 1.45 million
overdue returns and reducing the number
outstanding to the lowest level in five years.
We also take further action to ensure
everyone pays the tax they should.
During the year we tackled the hidden
economy, property tax compliance and
aggressive tax planning, with an excellent
rate of return on each. We also had some
outstanding wins in the courts.
Reforming child support
A significant project during the year
was changing the child support system
to better reflect how families live since
child support was introduced in 1992.
After earlier public consultation, the first
changes took effect on 1 April 2015, with
the second stage to come in April 2016.
In preparation we contacted thousands of
parents who pay or receive child support
to make sure they understood the changes
and were well-prepared for their impacts.
We used social media and texts as well as
more traditional channels. 68,000 visitors
used our online calculator to work out
how changes could affect them.
Future Inland Revenue – Business Transformation
Implementing our Business Transformation programme is one of our three strategic
priorities for 2014–18. I’m excited to see preparation for changes that will create a
modern tax administration by 2023, now coming to fruition.
It’s critical we have the right people helping us develop and implement transformation.
After an intensive selection process we appointed Accenture and Fast Enterprises, along
with several New Zealand-based supporting companies, to work alongside us. We also
completed high-level design for all four transformation stages taking place over the next
eight to 10 years and started detailed design of the first stage expected to start next year.
We’re involving stakeholders across all areas, with four advisory panels providing a wide
range of advice and opinions. Quality assurance reviews from external organisations who
make sure we’re spending taxpayers’ funds wisely, have all been positive.
We asked New Zealanders for their thoughts on the tax system of the future through two
significant Government consultations during the year. These received great engagement
from the public and tax community, with more than 900 comments online and over 90
written submissions.
Conclusion
It’s a privilege to be Commissioner of Inland Revenue. Alongside great customer service
delivered every day this organisation provides advice to Government on tax and social
policy; and contributes to solving international tax issues.
This year we helped make New Zealand an even better place to live and work in many
ways - including collecting $59.7 billion of tax revenue that helps fund services to benefit
all New Zealanders.
I’m proud of our people who are committed to making a difference in people’s lives and
adding value every day. As we look forward to next year’s challenges I am confident
Inland Revenue has the people, skills and innovation to meet the future.
Naomi Ferguson
Commissioner of Inland Revenue
ANNUAL REPORT 2015
3
Highlights
WE COLLECTED
WE TRANSFERRED
$59.7
$4.8
BILLION OF TAX REVENUE FOR
THE GOVERNMENT
BILLION OF KIWISAVER
CONTRIBUTIONS TO PROVIDERS
WE PAID
$3.4
$
BILLION IN WORKING FOR
FAMILIES TAX CREDITS,
KIWISAVER, PAID PARENTAL LEAVE
PAYMENTS AND PAYROLL SUBSIDY
WE NOW HAVE
1.5 MILLION CUSTOMERS
REGISTERED WITH VOICE ID
MOBILE APPLICATION LAUNCHED FOR
APPLE PRODUCTS – SMALL TO MEDIUM
ENTERPRISES CAN NOW MANAGE THEIR
GST ON THEIR SMARTPHONES
OVERDUE DEBT CASES
HAVE DECREASED BY
16
%
(67,000)
4
ANNUAL REPORT 2015
KIWISAVER MEMBERSHIP
REACHED
2.5
MILLION
BUSINESSES WHOSE MOST RECENT INTERACTION WITH
GOVERNMENT WAS WITH INLAND REVENUE REPORTED A
23
%
REDUCTION IN EFFORT OF DEALING WITH US,
IN THE LATEST BUSINESS REFERENCE GROUP SURVEY
THIS IS THE FIRST TIME IN
five years
THAT WE HAVE BEEN ABLE TO
REDUCE THE TOTAL AMOUNT OF
OVERDUE DEBT
INLAND REVENUE IS THE
FIRST AGENCY TO REACH
five stars
IN THE ENERGY EFFICIENCY
AND CONSERVATION
AUTHORITY (EECA) ONE2FIVE
ENERGY MANAGEMENT RATING
$
EECA LOOKED AT OUR ENERGY USAGE AND
HOW WELL WE DEMONSTRATE CORPORATE
COMMITMENT, TARGETS AND PERFORMANCE
INDICATORS, PLANS, AND ACCOUNTABILITY
TO ENERGY MANAGEMENT. OUR FIVE STAR
RATING IS AN IMPROVEMENT FROM OUR FOUR
STAR RATING IN NOVEMBER 2013.
CONTINUED INCREASE IN
CUSTOMERS’ USE OF DIGITAL
SERVICES. WE RECEIVED
82.5
%
67.4
%
OF PAYMENTS ELECTRONICALLY
COMPARED TO 74.2% LAST YEAR
OF RETURNS ELECTRONICALLY,
UP FROM 59.8% LAST YEAR
OUR BUSINESS TRANSFORMATION
PROGRAMME ACHIEVED
ALL ITS MILESTONES AND
WAS UNDER BUDGET
WE ACHIEVED
91
%
OF OUR SERVICE PERFORMANCE
TARGETS COMPARED TO 85%
LAST YEAR
CHILD SUPPORT REFORMS PHASE
ONE COMPLETED AND IMPLEMENTED
SUCCESSFULLY
SIGNIFICANTLY CONTRIBUTED TO THE GOVERNMENT’S
RESULT 10 TARGET OF “AN AVERAGE OF 70% OF NEW
ZEALANDERS’ MOST COMMON TRANSACTIONS WITH
GOVERNMENT WILL BE COMPLETED IN A DIGITAL
ENVIRONMENT” WITH
Tax
return
88
%
OF INDIVIDUALS FILING
THEIR TAX RETURNS
ELECTRONICALLY AND JUST OVER
81% PAYING INDIVIDUAL TAX
ELECTRONICALLY
ANNUAL REPORT 2015
5
6
ANNUAL REPORT 2015
01
About
Inland Revenue
ANNUAL REPORT 2015
7
About us
Outcomes
Why paying tax matters
Inland Revenue contributes to the
economic and social wellbeing of New
Zealand by collecting and distributing
money. New Zealanders pay tax to and may
get money from the Government. We are
accountable to the Minister of Revenue.
In 2014–15, Inland Revenue collected $59.7 billion in tax revenue, which is around 80% of the
money government uses to pay for services that all New Zealanders benefit from, including
healthcare, education and policing.
Inland Revenue’s success is reflected in two
outcomes:
• Revenue is available to fund government
programmes through people meeting
payment obligations of their own accord.
• People receive payments they are entitled
to, enabling them to participate in society.
Strategic intentions
Our strategic intentions set out in our
Statement of Intent 2014–18 are to:
• Deliver and improve our core business
• Contribute to the Government’s priorities
• Implement our transformation change
agenda.
We are working on these three areas to
ensure that we deliver for our customers
today and transform for tomorrow.
In 2014–15 the Crown expected to spend the following:
Where taxes go – Total Crown expenses $73,107 million*
Forecast 2015
Economic and industrial services
Defence
Heritage, culture and recreation
Primary services
Other
Environmental protection
GSF pension expenses
Housing and community development
In the tax year ended March 20141:
•GST.
These three main tax types have broad
bases, allowing substantial amounts of tax
to be collected at modest tax rates.
8
ANNUAL REPORT 2015
12,827
4,816
3,883
3,486
2,217
2,215
1,984
770
700
543
510
395
326
* includes $291 million for forecasted new operating spending and ($875) million top down expense adjustment which are not included in graph
An effective tax and social policy system
comprises good policy settings plus good
administration. A well-functioning tax system
supports a more competitive and productive
economy and helps the Government achieve
its fiscal, economic and social objectives.
• Company income
15,065
Transport and communications
Scope of operations
• Personal income
23,954
Social security and welfare
Health
Education
Core government services
Finance costs
Law and order
Our tax system
Most of New Zealand’s tax revenue is from
three main sources:
$million
Individuals—about 1.08 million
individuals filed annual tax returns
Employers—about 196,000
employers filed almost 2.1 million
employer monthly schedules with
PAYE deductions for employees
Companies—392,000 company
tax returns were filed
GST filers—631,000 registered
customers filed 3.0 million GST
returns.
We also manage or share the
administration of:
Working for Families Tax
Credits—we distributed, with the
Ministry of Social Development,
$2.4 billion in entitlements to
support working families.
Child support—we collected
$463 million from 174,000 liable
parents who pay child support
and distributed $265 million to
parents who are main carers of
children. The balance is collected
for the Government as an off-set
for custodial families supported
through the benefit system.
01
Executive Leadership Team
From left to right:
Greg James, Deputy Commissioner Change
Giles Southwell, Chief Financial Officer
Mary Craig, Deputy Commissioner Corporate
Integrity & Assurance
KiwiSaver—we administer the
scheme by collecting contributions
and transferring them to scheme
providers for investment. At
30 June 2015 there were 2.5 million
people enrolled in KiwiSaver. We
distributed $4.8 billion to scheme
providers.
Student loans—we jointly
administer this programme with
Mike Cunnington, Deputy Commissioner
Information, Intelligence & Communications
Naomi Ferguson, Commissioner
Arlene White, Deputy Commissioner Service Delivery
Myles Ward, Chief Technology Officer
Struan Little, Deputy Commissioner Policy & Strategy
Martin Smith, Chief Tax Counsel
Jeanie Truell, Chief People Officer
Paid parental leave—we make
payments, for the Ministry
of Business, Innovation and
Employment, to parents who
take leave from their job or
business to care for a baby. We
made $180 million in payments
to 27,500 parents.
Our operating budget
Our operating expenditure for the
2014–15 year was $704.2 million, an
increase of $3.7 million over the prior
year. Expenditure for 2015–16 is
forecast to be $764.9 million, an increase
of $60.7 million. Most of the forecast
increase relates to expenditure on our
Business Transformation programme.
1
2015 figures not available
the Ministries of Education and
Social Development (StudyLink).
We had 728,000 student loan
borrowers and collected $1.1 billion
in repayments.
ANNUAL REPORT 2015
9
10
ANNUAL REPORT 2015
02
Delivering and
improving our
core business
ANNUAL REPORT 2015
11
We aim to make it easy for our customers to manage their own tax and
social policy obligations and entitlements by providing information,
assistance and tools so they can do it themselves.
Digital services
We are enabling our customers to
do more online. It is part of our
strategy to save our customers and
Inland Revenue time and money.
Completing their tax and social
policy obligations online also helps
customers get it right the first
time and means we do not have
to contact customers to check the
information provided is accurate.
Over the past year the number of
people who have started to file
online and use our online tools
has increased. The number of
returns we received electronically
increased by 8.3 percentage points
since last year compared to a 4.4
percentage point increase the
previous year.
Customers are able to register for a myIR
account to manage their own tax and
social policy affairs. To make things easier
for our customers, we have updated myIR
and introduced more online documents
to provide access to statements, notices
and letters electronically. We made
eDocuments available to customers in
April 2015. This fits with the objectives of
the Government’s Better Public Services
Result 9 and 10 goals covered on page 27.
Customers expect to be able to interact
with us using all their digital devices.
12
ANNUAL REPORT 2015
In January 2015, we launched our new
free mobile application myIR on Apple
products. This enables small to medium
enterprises to manage their GST through
their smartphones.
We recognise that our website is the first
place most people go when they want
to find out information so we work hard
to make sure it is the best it can be. We
also publish instructional videos on our
YouTube channel InlandRevenueNZ. We
are continually improving our website
and YouTube information to make sure
customers are able to find the information
they need. One of the improvements
we made was to add transcripts of our
introductory videos written in Korean
and traditional and simplified Chinese
to reflect the changing needs of our
customers. These are in addition to
information in English, Māori and New
Zealand Sign Language already available.
Another example of improvements we
have made to our website is the employer
superannuation contribution tax (ESCT)
tool. Customers told us that ESCT was
hard to understand so we created an
educational tool in July 2014 to help
employers. The tool explained what ESCT
was and how to calculate, file and pay ESCT.
This has been used over 163,000 times.
Our work to make tax
easier to understand on
our website was recognised
again. In December,
ird.govt.nz won the ESET
NetGuide best Government
website award for the eighth
time in nine years.
02
Phone calls
COVERAGE
2014–15 ACTUAL
OUR TARGET
Minimum percentage of attempted
calls that we answer
96.5%
75%
75%
75%
TIME
Minimum percentage of telephone
calls answered within two minutes
We aim to make sure our customers can get the answers to all their questions online.
However, if customers cannot find the answer they need online then most will call us.
When people do call, we are answering more phone calls and answering them faster.
We answered 3.24 million calls this year, which was 96.5% of calls received. Overall the
number of calls we answered was similar to last year but our contact centres received 4%
(141,000) fewer calls this year than last year.
At the end of June 2015,
1.5 million people were
registered for Voice ID.
Inland Revenue has one of
the world’s highest rates
of enrolment for voice
recognition services.
Reducing the time it takes for us to answer customers’ telephone calls improves their
experience and satisfaction. This is why we aim to answer calls as quickly as possible. We
answered 75% of our customers’ calls within two minutes.
We managed our calls more effectively by directing calls to staff with the best skills to help
and by offering our customers call-back options including the opportunity to book a time
for us to call them back when they are free. We have also reduced the number of phone
calls that are related to follow-up contact by improving how quickly we get back to people.
We introduced Voice ID in November 2011 as a way to recognise people and remove the
need for us to ask questions to confirm that we are talking to the right people. This saves
the customer time and enables us to answer calls faster. People register with Voice ID
once then use the system each time they call.
Tax agents
Some of our customers choose not to manage their own taxes, but instead use tax
agents. Tax agents are a key customer group for us. A tax agent is a person who prepares
the returns of income required to be filed for 10 or more taxpayers.
We have been working with tax agents to continue to make things easier.
An example of the changes we made to help tax agents was creating new correspondence
guidelines for any requests they send to us. These explain what information needs to be
provided so the request can be considered or the return processed as quickly as possible.
We also updated the Tips for Faster Processing page on the tax agent section of our
website to improve accuracy and reduce common errors when they are filing returns.
Tax agents also told us that linking Inland Revenue client information with their systems
was an issue. In March 2015 we made changes to myIR where tax agents link and delink
clients and they can now do this easily for new customers or if a customer chooses to no
longer use a tax agent.
Tax agents’ overall satisfaction with us showed statistically significant improvement from 89%
satisfied and 69% very satisfied in 2013–14 to 92% satisfied and 78% very satisfied this year.
ANNUAL REPORT 2015
13
Returns
Returns are the way in which customers give us their tax information for the year. We aim
to be more proactive by letting customers know their returns are due before issues arise.
This proactive approach is working.
The number of outstanding returns was down 21.5% at the end of June 2015, to reach the
lowest number in the last five years. This reflects an ongoing reduction and we had about
234,000 fewer returns outstanding at 30 June 2015 than at 1 July 2014.
We are encouraging as many customers as possible to use our online channels to file
their returns.
YEAR
% GST RETURNS RECEIVED
ELECTRONICALLY
% OF GST CUSTOMERS FILING
ELECTRONICALLY
30 June 2013
47.6%
44.9%
30 June 2014
54.9%
50.6%
30 June 2015
64.0%
62.5%
Electronic returns by tax type
2012–13
2013–14
2014–15
INCOME TAX
84.1%
86.9%
88.8%
GST
47.6%
54.9%
64.0%
EMPLOYER MONTHLY SCHEDULES
41.3%
49.6%
60.0%
Making payments
Our proactive approach of letting people know their obligations before their payments
are due is also supported by Budget 2012 and 2014 funded projects which improved our
predictive modelling capability. These projects looked at how we can identify patterns of
compliance and engage with customers before issues arise.
When customers need to make payments, we are making it easier for them to pay
electronically. This also makes it easier for us to process payments faster.
To help our customers know all the ways they can pay electronically, we developed a
45-second video on the Make a payment page of our website. We have also made the
payment page responsive and easy to use on mobile devices. Around 20% of customers
visit our payment page using a mobile device.
We removed the option for cheque payments at Westpac. Now that Westpac only receives cash
or EFTPOS payments, we have seen a large reduction in exceptions. Exceptions are payments
that cannot be processed or that are missing information like IRD numbers. In December 2014,
we had 21 payments which could not be processed. These exceptions were worth $10,000.
This compares with 5,400 exceptions worth $56 million in December 2013. During January and
February 2015 we had one exception each month and by March we had no exceptions.
For customers who want to pay over the counter at Westpac, we introduced barcodes on
payment slips in June 2015. The barcode aims to reduce time and errors for these transactions.
14
ANNUAL REPORT 2015
GST
return
Predictive modelling helps us change
customer behaviour before issues arise
Our work on the probability
of GST returns being filed
shows we can reliably
predict customers who are
highly unlikely to file GST
returns on time. We have
changed our processes
based on our findings.
This has already resulted in
a reduction of more than
98,000 outstanding GST
returns during the past year.
In the future, we will be able
to take a more proactive
approach for these
customers and contact
them before any potential
GST filing issues arise.
$
We had 82.5% of payments
made electronically
compared to 74.2% in
2013–14 and 70% in 2012–13.
02
Social policy programmes
We have an important role
in administering social policy
programmes, often in conjunction
with other government agencies.
During the year we made changes
to our child support, paid parental
leave, and KiwiSaver systems to
implement Government policy
changes.
Child support changes
Inland Revenue collects and distributes
child support payments for about 200,000
children whose parents do not live together.
The Government recognised that things
have changed for families since child
support was first introduced in 1992.
After significant public consultation,
extensive changes were made to the
scheme to better reflect family life today.
These changes come into effect in two
stages on 1 April 2015 and 1 April 2016.
The first stage went live on 1 April 2015
and changed the way child support was
calculated. The calculation moved from
focusing on the liable parent’s income to
the cost of ongoing care of the child by:
calculators have had 68,000 visits.
We used social media as a new way
to improve engagement with some of
our child support customers and also
contacted parents through our normal
communication channels. We undertook
our first question and answer session
on Facebook on the privately-run Child
Support NZ Facebook page. During the
session we had 139 participants in a
one-hour discussion, received over 200
questions and had over 680 comments
made. We also had over 10,000 views of
the Facebook page during the session.
An additional change we made is that
parents who received child support
payments from more than one liable parent
can now see who made the payment.
Changes to paid parental leave
We make paid parental leave payments for
the Ministry of Business, Innovation and
Employment (MBIE), to parents who take
leave from their job or business to care for
a baby. We are responsible for ensuring
people receive their correct entitlements.
• taking into account the income of
both parents
On 1 April 2015 paid parental leave was
extended from 14 to 16 weeks. From
1 April 2016 this will be extended to
18 weeks. Also from 1 April 2015, the
parental tax credit increased from $150 to
$220 a week and the payment period was
extended from eight weeks to 10 weeks.
• recognising lower levels of shared and
regular care provided for each child.
KiwiSaver
• taking into account the cost of raising
children
To ensure the liable and receiving parents
knew how the changes would affect them,
we contacted them via either mail, phone,
text messaging or email to ensure we
had the correct information about their
situation and to help them understand
the changes.
As part of the changes we developed two
new calculators and made them available
on our website to help parents work out
how the changes would affect them.
Since going live in September 2014, the
One of our outcomes is
to ensure people receive
payments they are entitled
to, enabling them to
participate in society.
In the 2014–15 financial
year we collected $463
million from 174,000 liable
parents and distributed
$265 million to receiving
caregivers. This is an
increase of 3% in payment
collection.
Inland Revenue administers members’
KiwiSaver contributions through the
PAYE system. We do this by collecting
contributions and transferring them to
scheme providers for investment.
Through Budget 2015, changes were made
to KiwiSaver. The KiwiSaver Budget Measures
Act enacted on 27 May 2015 removed the
KiwiSaver $1,000 kick-start payment to help
contain the cost of the scheme to taxpayers.
Removing the kick-start payment for
ANNUAL REPORT 2015
15
future enrolments will save over $500 million over the next four years.
In March, we got excellent feedback from an Australian research company SuperRatings
for the role we play in administering KiwiSaver. Their assessment also recognised our role
is critical in maintaining the efficiency of the system and the overall cost-effectiveness of
KiwiSaver schemes in comparison to other countries’ retirement systems.
In April 2015, KiwiSaver
membership hit a significant
milestone of 2.5 million people.
AB
AP
I LIT Y
MO
CUSTOMER
PO
RT
UNI
TI VATI O N
OP
A key aspect of our core business is helping to maximise voluntary
compliance. We assist customers who are willing to meet their
compliance obligations but are unaware or uncertain about how to
do so. Influencing voluntary compliance, targeting inadvertent noncompliance by providing information, assistance and tools, and detecting
and deterring deliberate non-compliance are part of our core activities.
C
Improving compliance
TY
Understanding and influencing customer behaviour
We aim to make it easy for people to understand their obligations and entitlements. In
our Statement of Intent 2014–18 we said we would redesign our compliance model so it
reflects a more comprehensive range of the factors influencing customer behaviour.
We launched our new compliance model in March 2015. The new model places greater
emphasis on understanding our customers, their lifecycles and perspectives. We want
to give our customers certainty with the least number of interactions. We also want our
customers to be able to get it right first time. We have worked with customers, tax agents,
private providers and other government departments to design solutions that fit tax and
social policy obligations around customers’ needs, and we will continue to do this. The
impacts of changes on customers will also be assessed to ensure we understand how they
influence and affect compliance and the customer experience.
Dealing with non-compliance
The majority of our customers file and pay on time, but New Zealanders need to have
confidence that we take action when people or businesses do not pay. This encourages
compliance and maintains confidence in our tax system. We use a range of tools to identify
areas of non-compliance and evaluate the most appropriate response, including investigations
of the tax affairs of individuals and businesses. We have focused our efforts on specific areas
of non-compliance such as aggressive tax planning, property and the hidden economy and
received further funding in Budget 2015 to expand our investigations activity in these areas.
16
ANNUAL REPORT 2015
At the core of our new
compliance model are the
three factors that form
customer behaviour –
capability, motivation and
opportunity.
Capability is how well customers can
meet their obligations and access their
entitlements. It includes their knowledge
of rules that apply to them, their access to
tools and assistance, and their ability to
understand.
Motivation is about the factors that create
the willingness to comply and then actually
follow through and do it. Motivation includes
both social and personal norms.
Opportunity is about how easy it is for a
customer to comply or not to comply with
their obligations or access their entitlements.
02
If our investigation detects a discrepancy, a difference between the tax position filed by a
taxpayer and the position determined by our investigations, we issue a new assessment and
may charge penalties and interest. This year we identified discrepancies of $1.23 billion. The
overall return on investment for our investigation activity was $7.52:$1 (target $7.00:$1).
Aggressive tax planning
A small number of people try to avoid paying the tax they should, reduce the amount
they should be paying or increase their entitlement to social benefits. They use
inappropriate or unlawful tax structures and this is called aggressive tax planning. We
match information from different sources to identify potential aggressive tax planning
structures and schemes.
Our work to counter aggressive tax planning contributed $336.9 million toward the total
discrepancies result. Of this, $191.1 million came from examining complex finance and trust
losses. This produced a return on investment of $34.10:$1 (target $11.60:$1). We resolved the
last optional convertible notes cases after the settlement with Alesco New Zealand in 2014.
This contributed $64.3 million to this year’s discrepancies. This year we have worked on cases
OUR NEW COMPLIANCE MODEL
>
New Zealand has a voluntary
compliance approach to
tax. This is an environment
dependent on an open,
honest and transparent tax
system where there are high
levels of mutual trust and
understanding between
customers and the revenue
agency.
A thinking tool to help us understand customers better so we can
work pro-actively and tailor approaches to make compliance easier.
EDUCATE
>Customer centred: Customers are at
SI G
Build compliance
right from the start
N
>Behaviour wheel: we consider
Provide
certainty
E
ICE
guide how we work with customers to
build compliance. We apply a mix of
these in different ways, depending on our
role and the customers we work with.
>Activity wheel: whatever our job in
R AT
V
SER
TY
>Principles wheel: five key principles
LEGISLATE
PO
Influence
norms
UNI
TI VATI O N
OP
ANA
LYS
E
facilitating
compliance
CUSTOMER
RT
Make it easy
to comply
and difficult
not to
BO
C
MO
Understand
and involve the
customer and
stakeholders
OUR MODEL FOR
the three factors that form customer
behaviour so we can tailor our
approaches to facilitate compliance.
I LIT Y
LA
AB
AP
L
CO
EN
FO
RC
E
the centre of our thinking surrounded by
context that affects their behaviour.
DE
IR, we have a role in making sure people
pay the taxes and get the entitlements
they should. We use different activities
to facilitate compliance depending on
our customers.
The movable wheels show we use a range of approaches that change
depending on our customers. The more we understand customer
needs and behaviours, the better we can tailor our actions so people
pay the taxes and get the entitlements they should.
ANNUAL REPORT 2015
17
involving the use of mandatory convertible notes, which led to discrepancies of $91.8 million.
Since we received multi-year funding to work on aggressive tax planning in Budget 2012,
we have assessed revenue of $811.1 million. We will use Budget 2015 funding to continue
addressing emerging risks such as high-income individuals, in particular high-income new
immigrants.
Non-compliance in the property sector
We have continued to focus on identifying property speculation, particularly in Auckland
and Christchurch. This focus includes examining residential property sales and new
developments to ensure that speculators and developers are paying the correct amount
of tax. We have found discrepancies during the year of $67.1 million. The return on
investment was $9.97:$1 (target $6.80:$1).
To help clarify the tax position we delivered presentations to different industry groups
on this topic. We aim to educate people about how to deal with GST on a property
and property investment. We will use funding from Budget 2015 to expand customer
education and increase our focus on this sector.
We list notes of decisions
made by the Taxation Review
Authority, the High Court,
Court of Appeal, Privy Council
and the Supreme Court on our
website at www.ird.govt.nz/
technical-tax/case-notes.
Hidden economy
People operate in the hidden economy by intentionally not declaring or accurately
reporting transactions. We focused on higher-risk sectors such as hospitality and
construction. We identified discrepancies of $146 million in the hidden economy. Of
this, $45 million (target $44 million) came from Budget 2010-funded work, a return on
investment of $5.21:$1 (target $5.00:$1). As a last resort we prosecute to recover funds
from taxpayers operating in the hidden economy.
In May and June 2015, we ran an advertising campaign to remind tradespeople to
declare all of their income. The campaign ran in four suburbs in Auckland and included
billboards and posters at construction sites, and advertisements online, on radio, and in
trade publications. The reaction was fast, with tax agents reporting a large number of
calls from people looking to add cash jobs to the information they had submitted to us.
A post-campaign survey with tradies
showed strong unprompted awareness
(42% aware of the campaign) and 65%
awareness after prompting. Of these
tradies, 33% discussed the topic with others
and the main messages recalled were,
“Declare it all” (32%) and “Inland Revenue
will catch those doing cash jobs” (25%).
We also saw good public interest after the
media picked up on our activities.
18
ANNUAL REPORT 2015
02
Clarifying tax law in cases where there are different
interpretations
When interpretation of the law is not clear we provide certainty by providing binding
rulings on specific transactions, public rulings and statements and disputes reviews.
However in some cases we may need to clarify tax law by taking cases to court. The
court will decide on the correct interpretation and create a precedent.
In June 2015, our appeal to the Court of Appeal against Trustpower was successful.
Trustpower had claimed tax deductions on the costs of getting resource consents for
new power generation projects, arguing that these costs were revenue expenses.
We believed these were capital costs and therefore not deductible. In 2013 the High
Court agreed with Trustpower and we appealed this judgement. The Court of Appeal
found that Trustpower’s spending on resource consents was capital expenditure and
that Trustpower was not entitled to the deductions it had claimed.
Trustpower has been granted leave to appeal. Clarifying this question will help us and
our customers have certainty over how these expenses should be dealt with.
Litigation against non-compliance
Over a decade of litigation came closer to conclusion in April 2015 when the High Court
struck out the remaining 77 Trinity tax challenges. This case, a significant tax avoidance
scheme, has been subject to a large number of court proceedings since the Supreme
Court found in Inland Revenue’s favour in the 2008 Ben Nevis case.
Prosecutions
We completed 67 prosecutions for tax evasion or knowledge offences. This compares with
74 last year. The decrease was related to the timing of cases before the courts. At 30 June
2015, 79 such cases were pending. There were 89 cases pending at the same time last year.
Tax law is complicated. We
need to interpret and apply
the law correctly and give our
customers certainty on areas
of tax law.
So we have teams of legal experts spread
across Inland Revenue whose research
and consultation provide us and our
customers with reliable technical advice.
We provide public rulings,
interpretation statements and
interpretation guidelines, which clarify
difficult areas of tax law, give our
customers certainty and help them
comply. We also research and analyse
technical tax issues that come from
private or product ruling applications.
www.ird.govt.nz/technical-tax
ANNUAL REPORT 2015
19
Managing debt
We want people to pay on time to prevent them getting into debt. Our
debt strategy sets out our long-term goals for debt, which are:
• minimise what becomes debt
• maximise what is collected
• deal appropriately with what cannot be collected.
At the end of 2014–15 our total debt2 was almost $6.1 billion, a decrease of
2.5% ($154 million) from the previous year.
Total tax debt was almost $5.2 billion, a decrease of 5.8% ($318 million) since
the same time last year and has returned to the same level it was in 2011.
Size of overdue debt excluding child support (billion) – as at 30 June
2010
2011
2012
2013
2014
2015
Tax debt
$4.826
$5.110
$5.404
$5.342
$5.471
$5.153
Student loan debt
$0.325
$0.412
$0.512
$0.636
$0.769
$0.933
Total debt
$5.151
$5.522
$5.916
$5.978
$6.240
$6.086
Penalties and interest
included
$2.150
$2.359
$2.711
$2.863
$2.999
$2.937
This is the first time in five
years that we have been able
to reduce the total amount
of overdue debt. The total
number of overdue debt
cases has also decreased by
16% (67,000).
Minimising what becomes debt
We contact customers by text, email and letters to remind them that they need to pay
before the key payment dates. We do this to help customers file and pay on time. This
stops them from going into debt and being charged penalties and interest that can
rapidly get out of control. We have taken action quickly when customers go into debt
and have used specific government funding received to target newer debt.
Maximise what is collected
We collected $4.7 billion cash from debt cases over the year. This is compared to
$4.1 billion the previous year, an increase of 14.3%.
We quickly followed up those who did not pay on time. This cleared debts sooner, leading
to 81.7% of new debt cases being closed within six months of opening.
Our work on high-value and older cases is also generating significant cash payments. We
specifically focused on cases over five years old, large dollar-value cases that were over
$1 million and audit-assessed debt. In the 2014–15 year we collected $536 million from
these cases, which was a 37.1% increase on the cash collected from similar cases last year.
At the end of 2014–15, the total value of penalties and interest charged on the overdue
debt was $2.9 billion, a reduction of 2.1% compared to last year.
2
All debt figures up to the child support section on page 21,
exclude child support debt
20
ANNUAL REPORT 2015
02
Deal appropriately with what cannot be collected
New Zealanders expect us to take action against those that do not pay their fair share of
tax. In the most severe cases we will take legal action against people who refuse to pay
their debt. It is rare, but we can ask for people to be arrested if they refuse to pay.
Where necessary we have made decisions over the year to write off debt that would cost
more to collect than the cost of the debt.
Child support debt
Size of overdue child support debt (billion) – as at 30 June
2010
2011
2012
2013
2014
2015
Debt value
$1.990
$2.335
$2.452
$2.781
$3.047
$3.276
Penalties included
$1.430
$1.743
$1.818
$2.109
$2.372
$2.605
Child support debt is $3.3 billion, 79% ($2.6 billion) of which is penalties.
Of the total child support debt, around $827 million is owed by liable parents living in
Australia, and is mostly in the form of penalties. In accordance with our agreement with
the Australian Department of Human Services they collected $50.2 million from these
parents on our behalf. A further $778 million is owed by those living in other parts of the
world. The remaining $1,671 million debt is owed by liable parents living in New Zealand.
For child support, over the last year there were 56 cases where the lack of action by the liable
parent justified Inland Revenue to seek an arrest warrant. We have only been required to execute
one arrest warrant. All other cases were able to be resolved by simply having the possibility of a
warrant being executed. The total debt relating to the 56 cases amounted to $11.7 million.
Budget 2014 provided us with additional funding to help improve child support compliance.
We are beginning to see positive outcomes from our activities in this area, including more
debt cases being closed within 12 months of opening and a reduction in the total number of
debtors at the end of the year. Early work has included an education campaign to new child
support customers on their obligations, particularly taking into account the child support
reform changes, ensuring they understand their obligations to help them get it right from the
start. This initiative aims to progressively increase the amount of debt repaid over a five-year
period with early work resulting in an extra $1.5 million recovered from liable parents.
ANNUAL REPORT 2015
21
Student loan debt
Size of student loan debt (billion) – as at 30 June
2010
2011
2012
2013
2014
2015
$0.325
$0.412
$0.512
$0.636
$0.769
$0.933
We jointly administer student loans with the Ministry of Education and Ministry of Social
Development (MSD), through StudyLink.
As at 30 June 2015, we had 108,300 borrowers with an overdue repayment, a reduction of
1.3% compared to 30 June 2014. Of these, 75% were overseas-based borrowers. The total
overdue amount was $933 million, of which 90.5% was owed by overseas-based borrowers.
Overseas-based borrowers continued to be our focus for the year since they make up such a
large percentage of student loan debt.
In June, our innovative
approach to encourage
overseas-based borrowers
to get in touch with us and
to pay their student loans
was recognised. We won
five gold medals at the
Communications Agencies
Association New Zealand
Beacon Awards.
In November 2010 we began a specific programme of work targeting overseas-based
borrowers who were not meeting their obligations. Cash collected in 2014–15 was $78.6
million, an increase of 47% on the previous year. Since this programme began, we have
collected an extra $200 million from overseas-based borrowers.
Gold: Best Use of Insight
This year we introduced a direct debit option in Australia to continue providing overseasbased borrowers easy payment channels to help encourage them to pay their debt. We
received $39 million of payments through these fee-free payment channels.
Gold: Most Effective
Our approach to reminding people about payment dates is also used for student loans.
In March we sent 53,000 email reminders to overseas-based student loan borrowers to
remind them of their payment obligation on 31 March. We had 7,000 responses to the
email and we sent reminder emails to people we had not heard from or who did not pay
their loan obligation. We had around 5,300 phone calls from overseas-based student loan
borrowers in March – almost twice as many as March last year.
Gold: Best Communication Strategy
Gold: Best Use of Digital
Gold: Social Marketing/Public
Service.
For the campaign which we called
‘Finding the unfindable’ we made a
change to our assumptions on how
to find overseas-based borrowers. We
previously targeted borrowers based
on the locations of overseas-based
borrowers that we knew about. The new
approach:
• advertised to a fairly broad profile
through Facebook and LinkedIn
• continually refined the profile to
find more similar people as people
responded to those adverts
• used that profile to target media and
advertising beyond Facebook and
LinkedIn.
22
ANNUAL REPORT 2015
03
Contributing to
the Government’s
priorities
ANNUAL REPORT 2015
23
We have a responsibility
as a government agency
to contribute to the
Government’s priorities.
These are to:
• responsibly manage the Government’s
finances
• build a more competitive and
productive economy
• deliver Better Public Services within
tight fiscal constraints
• rebuild Canterbury.
We participate in a range of all-ofgovernment activities, collaborate with
other agencies to reduce costs, improve
efficiency and effectiveness.
Along with the Government’s priorities,
we also continued to work on the
Government’s tax policy work programme
which was updated and released by the
Minister of Revenue on 13 March 2015. This
programme focused on three main areas:
• Business Transformation and Better
Public Services
• International tax reform and
contributing to international efforts
to counter base erosion and profit
shifting (BEPS)
• Continuing improvement and
enhancements to tax and social
policy settings to keep the tax system
well maintained.
Responsibly manage the
Government’s finances
Inland Revenue collected $59.7 billion tax revenue and transferred $4.8
billion of KiwiSaver contributions to providers. Total payments for the
year ended 30 June 2015 for social policy entitlements were $3.4 billion.
Social policy entitlements include Working for Families Tax Credits,
KiwiSaver, Paid Parental Leave Payments and Payroll Subsidy. We also
managed a departmental budget of $727 million.
Full finance details are covered in parts eight and nine.
24
ANNUAL REPORT 2015
03
Build a more competitive
and productive economy
Inland Revenue contributed to building a more productive economy
through legislation changes. These changes are designed to ensure New
Zealand is an attractive place to do business. We also want to strengthen
tax rules to ensure overseas companies pay their fair share of tax in New
Zealand. The Government’s tax policy work programme focuses on
improving tax and social policy settings and participating in the global
response to the problem of tax base erosion and profit shifting.
Our work to enhance tax and
social policy settings
An important part of our approach to
the development and review of tax policy
is public consultation. This provides
transparency of our policy-making process
and allows us to listen and respond to New
Zealanders, tax professionals and associations.
During the year we asked for public
feedback on:
• an officials’ issues paper, Related parties
debt remission, released on 24 February
2015. This asked for feedback on
proposed changes to make the tax rules
on this more certain and fairer.
• a discussion document, Simplifying
the tax collection for employee
share schemes, released in April
2015. Public feedback helped
shape proposals introduced in the
Taxation (Transformation: First Phase
Simplification and Other Measures)
Bill in June 2015, which will allow
employers to choose to withhold tax
on an employee’s behalf as part of their
PAYE return.
• detailed design proposals for the new
bright-line test announced in Budget
2015 released on 29 June 2015. The
proposal clarifies whether or not gains
on the sale of residential property
bought and sold within two years
are taxable. Feedback helped shape
legislation planned for introduction in
September 2015.
Legislation
To improve the economic environment
for businesses and New Zealanders we
provided policy analysis and options to
the Government to change legislation. We
focused on three main bills during the year.
The Taxation (Annual Rates for 2015–16,
Research and Development, and Remedial
Matters) Bill introduced on 26 February
2015 contains proposals to reflect the
Government’s Business Growth Agenda
emphasising the importance of innovation
to help grow New Zealand’s economy. The
bill removes some distortions relating to
Research and Development to encourage
businesses to invest in these activities. It also
clarified the GST rules for bodies corporate.
The KiwiSaver HomeStart Bill enacted
on 31 March 2015 implemented part
of the Government’s support package
for first home buyers, allowing eligible
KiwiSaver members to access more of
their KiwiSaver funds to purchase their
first home. It also clarified and corrected
the tax rules for payments made under
the Veterans’ Support Act 2014.
New rules to strengthen the property
tax rules were introduced in the Taxation
(Land Information and Offshore Persons
Information) Bill on 22 June 2015. The
proposed rules will require domestic and
overseas buyers and sellers of property to
provide their IRD number at the time of
the property transfer and the equivalent
tax identification number for people
resident in another country.
ANNUAL REPORT 2015
25
Overseas residents will have to provide
a New Zealand bank account number
to obtain an IRD number for properties
bought on or after 1 October 2015. The IRD
number requirement will not apply to New
Zealand individuals buying or selling their
main home, unless they are selling their
third main home in a two-year period.
International tax reforms and
base erosion and profit shifting
As outlined in our Statement of Intent
2014–18 we are participating in the
Organisation for Economic Co-operation
and Development (OECD) led response
to the global problem of base erosion
and profit shifting, where multinational
organisations take advantage of the
interaction between the tax rules of
different countries to pay little or no tax. We
continue to work on projects to strengthen
domestic rules on international tax.
We continued to work with the OECD
and the G20 forum of countries on
implementing an Automatic Exchange of
Financial Account Information, a global
automatic exchange of information to
counter tax evasion.
Over the year we worked on the taxation
of cross-border purchasing of services and
intangibles, low-value goods and digital
downloads. This work aligns with the
OECD’s draft guidelines to develop rules
to tax consumption fairly.
On 1 January 2015 the Convention on
Mutual Administrative Assistance in Tax
Matters came into effect for New Zealand.
This lets us seek assistance from other tax
authorities to discover evasion and pursue
tax debt overseas.
26
ANNUAL REPORT 2015
An issues paper, NRWT: Related party and
branch lending, which explores options to
clarify the non-resident withholding rules
to help ensure that non-resident investors
pay an appropriate amount of tax, was
released in May 2015.
Our tax treaty negotiations with other
jurisdictions continued, with China
completed in July 2014, Korea in April
2015 and Norway in June 2015.
A new tax treaty between New Zealand
and Canada came into force in June 2015,
replacing the 1980 treaty with a more
modern agreement.
Foreign Account Tax
Compliance Act
As outlined in our Statement of Intent
2014–18, we need to implement legislative
change to help New Zealand’s financial
institutions to meet Foreign Account Tax
Compliance Act (FATCA) obligations. This
legislation requires New Zealand financial
institutions to give United States authorities
details of accounts held by American
citizens, tax residents and others.
In July 2014, New Zealand was granted
more favourable terms from the United
States Government as part of the FATCA
intergovernmental agreement signed
between New Zealand and the United
States. Implementing Inland Revenue’s
obligations set out in the agreement is on
track. We started collecting information
from New Zealand financial institutions
from April 2015. We will start forwarding
the information to the United States
Government’s Internal Revenue Service in
2015–16.
We are making good progress
in working with significant
enterprises and multinational
companies operating in New
Zealand and across different
countries to identify and address
potential risk before noncompliance occurs. Our work
with these taxpayers can result
in advance pricing agreements
(APAs) which represent a
more co-operative approach
to addressing transfer pricing
compliance. We completed 15
APAs this year. This is the best
mechanism to achieve certainty
for multinationals in their
international associated-party
dealings as they involve complex
issues such as restructuring
arrangements and intellectual
property transfers.
03
Deliver Better Public Services
within tight fiscal constraints
We play an important role in
improving services for New
Zealanders and continue to play a
key role in:
• the Better Public Services
programme
• the delivery of the
Government’s ICT Strategy
• all-of-government services
• other cross-agency initiatives.
Our Business Transformation programme,
outlined in part four, contributes to the
Government’s goal of making it easier for
customers to interact with government
and delivering a significant reduction in
the effort of dealing with government.
including eGST, more digital delivery, a myIR
application, online business videos and
simplified Tools for business web pages.
We have continued to focus on the
digitisation of key processes for individuals
and businesses to make it easier to
interact with government. We contribute
to the Result 10 target of “an average of
70% of New Zealanders’ most common
transactions with government will be
completed in a digital environment” with
over 88% of individuals filing their tax
returns electronically and just over 81%
paying individual tax electronically.
The Department of Internal Affairs
(DIA) digitised the process for applying
for an IRD number as part of the birth
registration process and this will also
contribute to this target.
We are working closely with other
government agencies to deliver the
innovative and effective public services
that government and our customers
expect. We are working to link more
of our customer services with those of
other government agencies to provide
a seamless service. More cross-agency
information sharing will be balanced
against the need to protect customer
privacy and the integrity of the tax system.
We are working with the Ministry of Social
Development (MSD) to understand if
it is possible and practical to share one
voice biometric service for customers
interacting with multiple agencies. Initial
results saw 84% of customers saying they
thought sharing one voice identification
service across several government agencies
would be useful, while 51% of customers
surveyed gave consent to their voiceprint
and information being shared with MSD.
In line with Government’s ICT Strategy,
we are also using all-of-government
services where they are available
and where they fit with our Business
Transformation programme.
We have now completed our first year of
running a shared financial management
information system with DIA. As part of
this service we have successfully provided
accounts receivable, accounts payable and
bank reconciliations for both organisations.
We have refined the system during the year
and are working with DIA on enhancing the
system and processes in the future.
Working with the Ministry of Business,
Innovation and Employment (MBIE) and
other participating agencies, we have
helped to develop the Result 9 roadmap
and worked on key initiatives such as the
New Zealand Business Number (NZBN). We
have also delivered products and services
that support Result 9’s intent of improving
interaction with government for businesses
We continue to work with the Property
Management Centre of Expertise (PMCoE)
and to join with other agencies to lease
accommodation, where it makes sense to
do so.3
The Better Public Services
result areas we contribute
to are:
• Result 7: Reduce total crime rate
• Result 9: New Zealand
businesses have a one-stop
online shop for all government
advice and support they need
to run and grow their business
• Result 10: New Zealanders can
complete their transactions
with government easily in a
digital environment.
3
Hosted by MSD, PMCoE leads and assists agencies in
meeting the goals set by Government for the efficient and
effective management of the property owned or leased by 61
government agencies.
ANNUAL REPORT 2015
27
Information sharing
The Government has increasingly
recognised that information is an asset
which, under certain circumstances,
should be shared across government to
support collective outcomes for New
Zealand. We continue to work with
other government agencies to enable
more effective information sharing
between government agencies and with
third parties by helping to simplify the
management and control of agency data.
New Zealanders expect us to responsibly
manage their details and only share
information between agencies when it is
appropriate.
We have Approved Information Sharing
Agreements (AISA) in place with DIA and
New Zealand Police. Reports of sharing that
we have done under these agreements can
be found on pages 154 to 156. Full details
of the agreements are on our website
www.ird.govt.nz/aboutir/agreements.
We contribute to Result 7 through an
AISA with New Zealand Police. This allows
Inland Revenue to share certain personal
information with New Zealand Police for
the purpose of prevention, detection,
investigation or providing evidence of
serious crime. We also participate in the
Whole-of-Government Gangs Action
Plan, a multi-agency approach to reducing
the harm caused by gangs, involving
intelligence gathering and a range of
prevention and enforcement activities.
Over 2014–15, we have continued to enable
more effective information sharing between
government agencies. This has included:
• working on the development of
possible future information sharing
initiatives with MSD and the Accident
Compensation Corporation (ACC)
• working with MBIE and Worksafe to
share information for the enforcement
of employment standards as a result of
changes to workplace legislation
28
ANNUAL REPORT 2015
• participating in cross-agency forums
such as the privacy reform group,
data futures forums, Government
Chief Information Officer information
management groups, and Government
Chief Privacy Officer leadership forums
and working groups.
Our sharing arrangements are supported
by our new Information Management
Strategy. The strategy enables effective
administration of information and helps
us to build and manage our intellectual
property. This will improve information
management capability through collective
ownership of information management
and simplified guidelines supported by fit
for purpose IT capability.
Government Information and
Communication Technology
Strategy
Inland Revenue’s Information and
Communication Technology (ICT) strategy
and roadmaps reflect the Government ICT
Strategy’s focus on using information and
technology to deliver better services to New
Zealanders. By 2017, the aim is to enable
individuals and businesses to connect
with government services through digital
channels, joined-up services and technology
that will function across agencies.
We already use a number of all-ofgovernment services. One example is
Storage as a Service provided through
Datacom New Zealand. This approach
means that we no longer have to physically
manage storage ourselves. By using the
all-of-government data storage service we
have access to more capacity, flexibility and
improved performance at less cost.
Businesses are already
noticing the differences
we are making. The latest
results of the business
reference group survey
looking at effort of dealing
with government and
how government agencies
compare with the private
sector show overall a 16%
reduction in effort with
dealing with government.
For businesses whose most
recent interaction with
government was with
Inland Revenue, the survey
showed there was a 23%
reduction in effort. The key
reasons businesses listed for
the improvement were:
• ease of filing returns led by the
implementation of online GST
filing and increased uptake of
other online services
• ease of contacting Inland
Revenue, with businesses
finding it easy to get through
to services and dealing with
helpful Inland Revenue staff.
03
Contributing to other
all-of-government services
We are involved in other all-of-government
activities. We will continue to work with
other agencies to identify where we could
adopt new and improved processes and
services used elsewhere in the public sector.
Procurement
We are participating in the Government’s
new streamlined procurement rules, which
have changed the way government does
business with suppliers by making agencies’
procurement practices more consistent and
business-friendly. The new rules promote a
value for money approach to procurement,
which means that rather than just getting
the lowest price, we consider total cost of
ownership and other benefits.
We have a long-term strategy to ‘buy not
build’ for our Business Transformation
programme. To make it easier for small
businesses to engage with Inland Revenue,
we developed the Business Transformation
Approved Panel in October 2014, which
covers a number of the professional services
our Business Transformation programme
is likely to need on a recurring basis. This
panel is open and allows suppliers to
register their interest at any time.
Inland Revenue is committed to using
collaborative procurement opportunities
such as all-of-government, collaborative
and syndicated procurement contracts.
We have signed up to a number of these
in the past 12 months and are leading the
syndicated waste management contract.
All-of-government banking
services
The state sector’s banking contract with
Westpac has been in place for more than
20 years. During this time the banking
requirements of government have
changed considerably. We are working
with Treasury and MBIE who are leading
an all-of-government solution to meet
the Government’s current and future
banking needs. This solution will provide
access to economies of scale, better value
for money, process efficiencies and better
interaction for financial payments between
government, business and taxpayers.
ANNUAL REPORT 2015
29
Rebuild Canterbury
Providing joined-up
government services in
Christchurch
We continued to work with the Canterbury
Earthquake Recovery Authority (CERA)
and other agencies in various forums to
support the overall reconstruction effort.
This included planning for the Public Sector
Precinct and exploring opportunities to
co-locate 1,600 public servants from 17
agencies in four new CBD locations from
late 2015. We continue to operate and
learn from co-location in the New Zealand
Government site in Durham Street and
work with other agencies to investigate
opportunities for cross-government
collaboration.
Supporting our people in
Canterbury
We provided additional support
and wellbeing initiatives for our own
Christchurch workforce and other
government agencies supporting the
Government sector in Christchurch.
This included chairing the Public Sector
Organisational Resilience Team and
contributing to the Greater Christchurch
Psychosocial Recovery Committee and
work programme.
30
ANNUAL REPORT 2015
Improving compliance in
Canterbury
We have focused on mitigating and
addressing the compliance risks from
the $40 billion rebuild. This included
working alongside funding distributors,
including all major insurance companies
and government, to gain assurance in
the integrity of their systems and identify
any areas of risk. We have continued our
compliance focus on identified high-risk
sectors, including construction, hospitality
and property. We have also provided
support to the wider community with
educational activities to help customers
get it right from the start.
Inland Revenue research has confirmed
on-time GST filing and payments have
improved in Canterbury since the low
point in the 2011 tax year when the
earthquakes occurred.
While the proportion of Canterbury small
and medium enterprises (SME) in debt
spiked at the time of the earthquakes, it has
improved since then, with Canterbury SMEs
making up a smaller proportion of SMEs in
debt nationally than they did in 2011.
Understanding the impact of adverse
events and the characteristics of the
rebuild workforce
Inland Revenue has
sponsored research projects
to understand the impact
of the earthquakes on
SMEs in Canterbury and
the characteristics of
the Christchurch rebuild
workforce. The research
has provided insight into
SME compliance, debt
and employment and
the compliance issues
associated with the rebuild
workforce. The effect of
the rebuild on SME GST
in different industries
and sectors has also been
evaluated. These insights
are now informing our
initiatives in Canterbury.
04
Business
Transformation
ANNUAL REPORT 2015
31
Business Transformation is a multi-year, multi-stage change programme
that will help us become the modern world-class revenue organisation
that is set out in our vision IR for the future. Over the year we got closer to
realising this vision.
Business Transformation
We are currently managing a range
of tax and social policy products
on an ageing system and business
model. Over the years our role has
expanded from solely collecting tax
in a paper world, to today where
we manage the collection and
payments of tax and a range of other
services like student loans, child
support and KiwiSaver. Adding
these social policy products and
services to 30 year old technology
has resulted in complexity.
Our tax administration needs to catch up
and be fit for 21st century needs.
Technology is rapidly advancing, our
customers’ lives are busier than ever and
businesses want to spend less time on
compliance. New Zealand is becoming
more diverse and customers want and
expect us to interact with them in a
digital world.
Modernising our systems and processes
will also enable the Government to
implement policy more quickly.
The Business Transformation programme
consistently met its milestones and spent
less than its budget throughout the year.
How we are changing
Our Business Transformation programme
is being delivered in four customerfocused stages over eight to 10 years.
32
ANNUAL REPORT 2015
High-level design of the four stages has
been completed and the detailed design
of stage one has begun. We anticipate
that the detailed business case will
be completed and submitted to the
Government for approval by March 2016.
Once approved, implementation of stage
one will begin. We have delivered some
visible, early improvements to our digital
services, including improving myIR and
making improvements to our website.
Cabinet approval and
legislative changes
This year we focused on designing the
foundations for our future revenue system.
The design phase began in January 2015,
and covers high-level design for stages one
to four of the programme, and detailed
design for Stage 1: Enabling secure digital
services. The design and digital services
business case outlining the approach to
design and the funding, was approved by
Cabinet on 17 November 2014.
• proposals to allow earlier tax refunds
on personal tax summaries that meet
the automatic refund threshold
We have a regular programme of
independent quality assurance reviews to
continually check that what we are doing is
the best way to do it. Over the year we had
a Deloitte review and the Gateway Review
in September 2014, KPMG Independent
Quality Assurance and Technical Quality
Assurance completed in December 2014
and a review from the Office of the Auditor
General in April 2015. All were positive and
support the way we are transforming and
the quality of our processes. Results of the
reviews are available on www.ird.govt.nz/
transformation.
Changes proposed in the Taxation
(Transformation: First Phase Simplification
and Other Measures) Bill introduced on
30 June 2015 pave the way for
modernising and simplifying the tax
administration system by removing some
current legislative obstacles.
They include:
• reforming the way we are able to
communicate with our customers by
providing modern rules to support
electronic communication in the same
way as paper communications
• measures to allow us to share certain
information with other agencies when
it makes customers’ lives easier.
Choosing design and core
software partners
We spent most of the year completing
very careful procurement processes to
select partners to help us design the
next stage of Business Transformation
and a software provider to supply the
technological core of our future system.
We chose Accenture and two local
providers to help us with design. External
quality assurance checks found the
04
“The programme has been set up to succeed, and is suitably prepared to begin the design phase,
while being aware of the considerable challenge of sustaining the good progress thus far.”
KPMG Independent Quality Assurance and Technical Quality Assurance review, December 2014
procurement process that we used was
sound and fair.
Accenture joined Inland Revenue in January
2015 and has been helping us with the
high-level design of the four stages of the
Business Transformation programme. We
have developed blueprints outlining our
future system.
In June 2015 we announced Fast Enterprises
(FAST) as our preferred Commercial Offthe-Shelf (COTS) software vendor. COTS
software will form the technological core of
our future system. FAST started working with
us on the detailed design in August 2015.
To help us prepare for the changes, we
have engaged a range of local providers
including Optimation, ThinkPlace,
Assurity Consulting and Tenzing along with
Accenture and FAST.
Stakeholder engagement
A large part of what we are doing is
engaging with stakeholders and seeking
their input on designing New Zealand’s
future tax system.
Discussions continued during the year
with GST and payroll software developers
on options for how they can better
interact with our core systems and reduce
compliance costs for businesses. We also
met and presented to a wide range of
groups including:
• financial services and accounting
industry bodies
• software developers
• industry groups including Federated
Farmers and Business New Zealand
• social service groups such as Age
Concern and Citizens Advice Bureau.
We have set up three key reference groups
to help us.
The Taxpayers’ Simplification Panel was
created to give New Zealanders a voice in
simplifying, modernising and transforming
the way we pay tax.
The Transformation Reference Group
provides us insights and perspectives
from businesses, individuals and the
tax community to inform our Business
Transformation programme. Members have
extensive experience across a broad range of
sectors and represent diverse communities.
Our ICT Reference Group provides an
independent voice and sounding board on
our Business Transformation programme.
It is an opportunity for ICT professionals
to contribute individual perspectives and
experience on the impact of our Business
Transformation programme on business
and the community.
Public consultation
Improving the customer experience
and making it easier and simpler for our
customers will require significant policyrelated work over the life of the Business
Transformation programme.
We ran two significant public
consultations asking New Zealanders
for their feedback on our Business
Transformation and explored options
designed to modernise and simplify the
tax system. The Minister of Revenue
launched both on 31 March 2015.
Making Tax Simpler – A Government Green
paper on Tax Administration set out the
policy direction for modernising and
simplifying the tax administration. This
consultation ran until 29 May 2015.
Making Tax Simpler – A Government
discussion document on Better Digital
Services asked for feedback on approaches
to encourage customers to move to better
digital services and any barriers that
currently prevent them from doing so.
This consultation closed on 5 May 2015.
More than 900 online comments and
over 90 written submissions were received
on the proposals. This was a significantly
higher number of responses than we
expected. Detailed feedback on these
consultations will be published on our
website when it is collated.
ANNUAL REPORT 2015
33
Cabinet confirmed a
programme roadmap
to deliver Business
Transformation in a
number of steps, enabling
the Government to
make investment choices
throughout the life of the
programme:
STAGE 1
Enabling secure digital services – to
enable the majority of customers to
self-manage and reduce businesses’
compliance burden in fulfilling their
PAYE obligations.
STAGE 2
Streamline income and business
tax processes – this will leverage
the foundations delivered in the
previous stage and further reduce
businesses’ compliance burden to
fulfil their tax obligations.
34
ANNUAL REPORT 2015
STAGE 3
Streamline social policy delivery
– this will improve the delivery
of the social policies that Inland
Revenue administers.
STAGE 4
Complete delivery of the future
revenue system – this will include
transitioning any remaining
tax and social policies to a new
platform and decommissioning
technical platforms that are no
longer required.
05
Organisational
health
ANNUAL REPORT 2015
35
It is important that we effectively manage our people, our assets and the
risks to our business so that we can achieve our strategic intentions.
Organisational health
Governance
To ensure our governance system
continues to meet the needs of our
transforming organisation, we introduced
changes to our governance system in
May 2015. The governance system will
ensure robust and timely governance of
our strategy, investment and performance
activities, focusing on transformation, but
also ensuring we are meeting the needs
of today. Membership across the system
is a mix of our Inland Revenue Executive
Leadership Team, senior leaders and
external members where appropriate.
Preparing our people for
change
Changing and streamlining the way we
deliver our services, mainly through
greater use of digital and online services,
will have an impact on our people. As
we move towards greater application of
technology and streamlined processes,
we will make changes to our workforce.
To prepare for this, we are designing
frameworks and systems to help reshape
our organisational capability.
We have updated our workforce strategy
to help us identify what we need to do
to deliver our strategic intentions. This
has supported work on our organisation’s
culture and our leadership strategy.
Change leadership and
capability
Effective change leadership is essential to lead
our people through Business Transformation.
We need leaders to be more agile, adaptable
and open to new ways of working.
36
ANNUAL REPORT 2015
We have revised our leadership framework
and are currently redesigning our leadership
programmes to reflect this.
Our people leadership strategy includes:
• embedding this leadership framework
• renewing our development
programmes for leaders
• encouraging leadership collaboration
• further developing our leadership skill set.
This work aligns with the State Services
leadership strategy and Leadership Success
Profile (LSP). Our leadership framework
identifies those things from the LSP
which are important for us to focus on
at this time and describes some of the
fundamental shifts we are looking for in
our leaders as we progress through our
transformation journey.
In line with the introduction of talent
management across the state sector,
Inland Revenue has implemented a talent
management approach for senior leaders,
to be extended to other leadership levels
in the future.
Culture
Inland Revenue wants productive
and engaged employees, and a work
environment that features strong
leadership, innovation, clear accountability
and sound risk management.
In June 2015, we completed a baseline
culture survey of a sample of 600
employees. This survey was designed to
give us some benchmark measures around
our culture and will help us understand the
shifts we need to make in order to get us to
our desired future culture.
Health and Safety
A range of activities have started to
ensure Inland Revenue is compliant and
has strategies in place that will effectively
transition the organisation to the new
Health and Safety legislation, which comes
into effect 4 April 2016.
We are currently working to bring
our health and safety-related policies,
processes and systems into line with the
requirements of the new legislation. Our
activities include exploring a health and
safety governance reporting structure
that will provide our governance group
with regular information on health and
safety risks and mitigation and ensuring
people including managers and health and
safety committees receive education and
increased visibility of the legislation.
05
OUR PEOPLE PROFILE AS AT JUNE 2014
HEADCOUNT 5788
AVERAGE AGE 42.9 years
OUR PEOPLE PROFILE AS AT JUNE 2015
FTE 5640.89
FULL TIME 91%
PART TIME 9%
PERMANENT 98%
FIXED TERM 2%
HEADCOUNT 5820
FTE 5679.37
FULL TIME 91%
PART TIME 9%
AVERAGE AGE 43.0 years
PERMANENT 98%
FIXED TERM 2%
FEMALE
MALE
FEMALE
MALE
STAFF OVERALL 64%
PEOPLE LEADERS 54%
MANAGERS 46%
STAFF OVERALL 36%
PEOPLE LEADERS 46%
MANAGERS 54%
STAFF OVERALL 64%
PEOPLE LEADERS 55%
MANAGERS 46%
STAFF OVERALL 36%
PEOPLE LEADERS 45%
MANAGERS 54%
!
!
NEW HIRES 743
EXITS 663
UNPLANNED TURNOVER*
ANNUALISED 8.6%
NEW HIRES 737
EXITS 675
UNPLANNED TURNOVER*
ANNUALISED 10%
TOTAL TURNOVER*
ANNUALISED 10%
AVERAGE LENGTH
TOTAL TURNOVER*
ANNUALISED 10.6%
AVERAGE LENGTH
OF SERVICE* 11.1 years
OF SERVICE* 11.3years
*Permanent staff only
ANNUAL REPORT 2015
37
A new multi-union collective
agreement
Three unions represent our employees:
• Public Service Association (PSA)
•Taxpro
• National Union of Public Employees
(NUPE).
All union agreements ran out this year
– PSA and Taxpro in February 2015 and
NUPE in May 2015. A new multi-union
collective agreement was ratified by
PSA and Taxpro members in June 2015,
effective from July 2015. We have been
bargaining with NUPE and reached an
agreement in July 2015.
Non-union members who are in positions
covered by the collective agreements
were offered a change to their terms and
conditions.
SSC Integrity and Conduct
Survey
The most recent State Services Commission
(SSC) Integrity and Conduct Survey
confirmed that we are performing
extremely well, and in some important areas
exceptionally well, compared with other
survey participants, particularly around
integrity, leadership, our processes and the
working environment.
The Commissioner established a working
group with representatives from Inland
Revenue, the PSA and Taxpro to look at
areas from the survey which required
some focus:
• bullying in the workplace
• change management
• visible leadership
• clarity around promotions and
appointments.
The primary focus of recommendations
made by the working group related
to the way Inland Revenue manages
bullying in the workplace. The majority
of changes will occur as a result of work
38
ANNUAL REPORT 2015
currently underway to update our Human
Resources policies and guidance.
Diversity at Inland Revenue
Our diversity and inclusion policy reflects
our commitment to attracting and
retaining a diverse range of people who
bring different perspectives, experiences
and skills. The insight gained in
understanding the facets of diversity gives
us a better appreciation of the challenges
that some of our customers have when
interacting with us. The diversity of
thought and culture also make Inland
Revenue a vibrant place to work.
New Zealand’s population is changing,
with increasing migration and an ageing
population. As we understand these
population changes, we will respond by
developing the capabilities, skills and
organisational culture required to meet
customer needs.
Our staff diversity networks, including
women, Māori and Pacific networks,
continue to support their members and
wider community interests through
regular meetings, mentoring and training
opportunities. They promote cultural
events across Inland Revenue such as Māori
Language Week and various Pacific language
weeks. The positive benefit of diversity
in practice also spreads to our customers
– even in simple things like learning to
pronounce customers’ names correctly.
Tiriti o Waitangi /
Responsiveness to Māori
Inland Revenue’s customer charter sets
out our commitment to work in ways
consistent with the spirit of the Treaty
of Waitangi and that we acknowledge
people’s individual, specific and cultural
needs. During the year, we formalised
a new relationship agreement between
the Public Service Association’s Inland
Revenue’s Māori Rūnanga and our
Responsiveness to Māori team. This
agreement established a new working
Celebrating diversity
An environmental scan
last year showed that
the workforce at the
Penrose Contact Centre
is representative of the
Auckland population.
It found 29% of people
identified as New Zealand
European, 28% Indian,
24% Pacific Islander, 8%
Māori and others were
European, Chinese, Korean
and from the Philippines.
Representatives of the
different cultures meet
regularly to come up with
ideas for events to create
a fun environment and
embrace the diversity of
the teams.
05
group called Te Manu Taupua, which has
a focus on areas of common interest and
concern for our Māori staff.
Security incidents
We are committed to keeping our people
safe. We monitor and record security
incidents and continually assess our
workplaces to ensure that we minimise
risks and concerns so that our staff feel
safe. We review any process after any
incident and will change a process if a
threat profile is changed.
For example, in early April we received
a security threat. The threat was via a
phone call and involved our Tauranga
and Wellington offices. We informed staff
of the threat and we worked quickly to
ensure security was provided to mitigate
the risk and provide a safer environment
for our staff.
Inland Revenue reviewed the
recommendations that came out of the
independent review of MSD’s physical
safety environment following the tragic
shooting of three of their staff members
in Ashburton in September 2014.
We raise security awareness using a
number of communication mechanisms:
• proactive poster campaigns
throughout the year supported by
self-help tools readily available on the
intranet
• mandatory on-line learning modules
• event triggered communication using
our intranet.
Business Continuity Plan
We have continued to review, refine and
exercise our Business Continuity Plans
and Crisis Management arrangements
to ensure that critical processes can
continue to function during and after
business disruptions. The benefit of this
preparation was demonstrated in an
effective organisational response to a fire at
our Auckland contact centre. Full telephone
services were restored within 48 hours.
Risk management
Privacy
Risk management is an important part of
Inland Revenue’s governance and internal
control environment.
We are committed to
ensuring our customers
privacy is protected. Any
personal information
customers do provide to
us will be kept for as long
as necessary to achieve the
purpose we collected it
for. If personal information
becomes part of Inland
Revenue records, we will
retain the information in
accordance with Inland
Revenue policy on retention
of Inland Revenue records.
We ensure Inland Revenue’s approach to
risk management reflects good practice and
supports risk-based decision-making across
all levels of the organisation.
We are continuing to improve our practices
to provide greater clarity to our decisionmaking processes.
We have a mature Enterprise Risk
Management Framework that is used to
identify and manage risk as we:
• deliver our core business
• implement projects and programmes
• consider risks to achievement of our
strategic objectives.
We use the concept of risk champions
embedded within business groups to further
improve our risk management maturity.
We continue to use a Three Lines of
Assurance model to enhance clarity
regarding risks and controls and help
improve the effectiveness of the internal
control environment. Our Internal Audit
plan and use of third party assurance
providers ensures that there is an
appropriate level of independent assurance.
Full details of privacy
breaches are outlined on
page 156.
Our Risk and Assurance Committee meets
formally on a quarterly basis. All members
are independent.
ANNUAL REPORT 2015
39
ENTERPRISE RISK
OUR MITIGATIONS INCLUDE THE FOLLOWING ACTIONS:
We fail to balance all-ofgovernment strategies
effectively with the delivery of
our core business leading to
sub-optimal outcomes
• We will align our long-term planning with the Government’s Better Public Services goals.
We are unable to source
sufficient government funding
to deliver our Business
Transformation programme
• We will participate in all-of-government steering groups to understand and anticipate
impending public sector changes.
• Our four-year and 10-year plans will make a compelling case for the investment we
need to implement changes.
• We will present rigorous, well-considered business cases for government funding that
set out the costs and benefits of proposed spending.
• Our Investment Board will provide strong governance oversight of our Business
Transformation programme investments.
Natural hazards such as
earthquakes disrupt delivery of
critical services
• We will identify and assess potential business impacts and regularly review our
response plans, which include business impact assessments, business continuity plans,
disaster recovery plans and business continuity emergency management procedures.
We don’t have enough
• We will develop and implement strategies to promote workforce capability,
experienced and qualified
employment relations, leadership and workplace culture.
people to deliver the Business
Transformation programme and
other programmes
The expanding availability of
our information in digital form
to others reduces our ability to
control that information
• We will ensure our security policies, procedures and standards are strong and enforced.
• We will develop and monitor information-sharing protocols.
• We will align our protocols with government security and privacy standards.
• We will continue to review staff training and awareness.
• We will continue to assess our security processes and performance.
Individuals and organisations
represent themselves as Inland
Revenue, affecting the integrity
of the tax system
• We will keep our security incident database up to date.
Outdated technology and
unsupported software result
in systems failures that affect
delivery of critical services
• We will continue to invest in stabilising our IT systems.
40
• We will monitor social media and internet sites for signs of security breaches.
• We will respond rapidly to reports of misrepresentation.
• We will develop communications strategies to alert the public to scams.
• We will invest in the upgrade of some key systems and applications.
• We will increasingly buy technology services, rather than buy technology for in-house
operation.
ANNUAL REPORT 2015
05
ENTERPRISE RISK
OUR MITIGATIONS INCLUDE THE FOLLOWING ACTIONS:
Ineffective or incomplete
delivery of the Business
Transformation programme
reduces our ability to meet
government revenue forecasts
• We will continue to work towards reaching our target operating model.
Ineffective or incomplete
delivery of the Business
Transformation programme
reduces our ability to
implement government policy
• We will continue to work towards reaching our target operating model.
Confidence among customers
and stakeholders in our ability
to protect their data as a result
of information-sharing with
government agencies results in
a drop in voluntary compliance
• We will ensure our security policies, procedures and standards are strong.
A downturn in the world’s
economy affects New Zealand’s
ability to fund and deliver
government priorities
• We will continuously identify and monitor changes in overseas economic trends
through research and forecasting.
The changing customer profile
affects voluntary compliance
• We will monitor and report on the effect of changes to the customer base.
We lose the trust and
confidence of stakeholders
by not recognising or
understanding how their
expectations change
• We will continue to work closely with the Ministers’ offices.
• Our governance boards will monitor progress of the Business Transformation
programme.
• Our management will coordinate and report on progress of the Business
Transformation programme.
• Our governance boards will monitor progress of the Business Transformation
programme.
• Our management will coordinate and report on progress of the Business
Transformation programme.
• We will develop and monitor information-sharing protocols.
• We will align our protocols with government security and privacy standards.
• We will continue to review staff training and awareness.
• We will align our security processes with other agencies and continuously monitor
performance.
• We will use research and planning to develop tailored responses to customer base
changes.
• The Executive Leadership Team will engage closely with key stakeholders.
• We will monitor and respond to changes in the integrity of the tax system.
• We will monitor and respond to emerging trends in policy and strategy.
• We will take part in forums with our key stakeholders.
Complex international
transactions affect our ability to
collect revenue
• We are members of the OECD and work with overseas tax administrations to identify
changes to practices.
• We are joint advisors with the Treasury in developing policy and strategies to work on
complex international practices.
ANNUAL REPORT 2015
41
42
ANNUAL REPORT 2015
06
Our performance
ANNUAL REPORT 2015
43
Our outcomes
Inland Revenue contributes to the economic and
social wellbeing of New Zealand by collecting and
distributing money. New Zealanders pay tax to
and may get money from the Government. We are
accountable to the Minister of Revenue.
Inland Revenue’s success is reflected in two outcomes:
• Revenue is available to fund government programmes through
people meeting payment obligations of their own accord.
• People receive payments they are entitled to, enabling them to
participate in society.
In 2014–15 we collected $60.6 billion of revenue to fund
government programmes.
We collected $59.7 billion of this from tax. Direct (or income)
taxation, for example individuals’ income tax or corporate income
tax, accounts for 73.3% of tax revenue. GST accounts for 26.1%.
For full details refer to pages 126 to 127.
$3.5b
from 2013–14
$17.5m
from 2013–14
IND
INTEREST
UNWIND
STUDENT LOANS
$29.4b
TAX REVENUE
$59.7b
$604.2m
OTHER REVENUE
$887.5m
CHILD SUPPORT
$197.0m
GST
$15.6b
OTHER
$3.9b
OTHER
$86.3m
CORP
$10.9b
We also manage or share administration of several social policy entitlements and payments. The key programmes we administer are:
$4.8b KiwiSaver payments transferred to
$1.1b student loan payments collected
scheme providers
$463m child support payments collected
$265m child support entitlements distributed*
$2.4b Working for Families Tax Credits
entitlements distributed
44
ANNUAL REPORT 2015
$180m paid parental leave entitlements distributed
*The balance is collected for the Government as an off-set for custodial families supported through
the benefit system.
06
While we have achieved 91% of our output measure targets for
2014–15, we have not been able to collect all revenue owed. Our
debt book is made up of payments which are overdue, and the
penalties and interest we charge against this debt. At the end of
2014–15 the size of our debt book, excluding debt from student
loans and child support, was $5.2 billion. This is a good result,
representing a 5.8% decrease from 2013–14.
Child support debt reached $3.3 billion by the end of 2014–15, a 7.5%
increase from the previous year. Penalties make up 79.4% of this total.
Student loan debt has also increased, totalling $933 million by the
end of 2014–15. This is a 21.3% increase since the previous year.
Overseas-based borrowers owe 90.5% of this debt.
Size of our debt book excluding child support and student loan debt – as at 30 June
DEBT $BILLION
6
5
4
3
2
1
0
Total debt value including penalties and interest
2010
2011
2012
2013
2014
2015
Penalties and interest
Size of overdue child support debt – as at 30 June
DEBT $BILLION
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Total debt value including penalties
2010
2011
2012
2013
2014
2015
Penalties
Size of overdue student loan debt – as at 30 June
DEBT $BILLION
1.0
0.8
0.6
0.4
0.2
Total debt value including interest
0.0
Overseas-based borrowers
2010
2011
2012
2013
2014
2015
Interest
ANNUAL REPORT 2015
45
Our appropriations
To achieve our outcomes, Government funds us to deliver our services
under the following appropriations:
• Policy Advice
• Services to Inform the Public About Entitlements and Meeting Obligations
• Services to Process Obligations and Entitlements
• Management of Debt and Outstanding Returns
• Taxpayer Audit
• Services to Other Agencies.
To deliver the services for the six appropriations effectively we need to invest in the
renewal, upgrade and replacement of assets. To support the delivery of our services, we
have an additional appropriation for capital expenditure.
See pages 89 to 92 for a full breakdown of:
• departmental expenses and capital expenditure attributed to these appropriations
• non-departmental appropriated expenditure
• non-appropriated expenditure.
We measure and manage our performance against 53 targets within these six
appropriations. The dashboard scores indicate the number of targets we have achieved in
each output class. This reflects the relative impact of each activity on the business. A full
breakdown of our appropriation performance is outlined in part seven.
46
FUNDING
APPROPRIATIONS
OUTPUT MEASURES
Government provides us with
funding to deliver our services
within the scope of each
appropriation.
Appropriations provide a
Minister with the authority from
Parliament to spend public money
or incur expenses or liabilities on
behalf of the Crown.
We measure whether or not we
are achieving what we set out to
achieve in each appropriation
through our output measures
and targets.
ANNUAL REPORT 2015
06
Performance Targets Achieved
1
Policy Advice
2
Services to Inform the Public About
Entitlements and Meeting Obligations
3
Services to Process Obligations
and Entitlements
4
Management of Debt and
Outstanding Returns
5
Taxpayer Audit
6
Services to Other Agencies
Achieved 1 target out of 3
Achieved 15 targets out of 16
Achieved 14 targets out of 15
Achieved 9 targets out of 9
Achieved 8 targets out of 8
Achieved 1 target out of 2
91
%
2014–15
33%
94%
93%
100%
100%
50
%
ANNUAL REPORT 2015
47
Providing value for money
Government expects us to provide the best value for money from public
funds. We have to ensure our services are delivered in a cost-effective
and efficient way. We carefully consider the relationship between our
resources, outputs and impacts to ensure we stay focused on delivering
value for money. Three elements contribute to this:
• Effectiveness—operating in a way that achieves our outcomes
• Efficiency—producing more for the same or less
• Economy—getting and using our resources as economically as possible.
We have made a number of changes to our processes to ensure we
deliver our services in the best way possible within the limits of our
funding, which may not always be visible to our customers.
Effectively managing peak season
Our peak season, when we have very high contact volumes, runs between April and August.
Most of the people who contact us want information about how certain tax and social policy
rules work and apply to them. These high volumes can translate into very long wait times.
To make things easier for our customers, we improved our internal planning processes,
increased use of our online channels and continued to improve our communication with
our customers and our working relationship with tax agents.
We opened the Personal Tax Summary (PTS) annual run to tax intermediaries 28 hours
earlier than last year, allowing us to confirm earlier, the 264,000 returns they filed. Getting
these out sooner relieved pressure on our systems and allowed better service for individual
customers logging into myIR to confirm their PTS. The core PTS annual run was completed
ahead of time and we achieved our target for calls answered within two minutes for the
year. This also resulted in fewer customer calls to manage.
Operational efficiency
Our operational teams have achieved considerable savings in the form of greater
efficiencies in servicing our customers. This has created additional capacity, which has been
reinvested to help us improve performance and deliver additional change effectively, such
as the first phase of the changes to child support.
We use a number of tools to automate basic repetitive tasks that do not need any decisionmaking or real input from our people. This enables our people to focus more on tasks that
require real decision-making or customer engagement, with the overall outcome being that
we can provide an improved and faster service to customers.
We continued to improve processes to ensure we deliver the value for money the
public and Government expects. The efficiencies driven by our operations management
programme in customer-facing areas enabled us to do just over 450,000 hours more work
this year. We estimate that this extra capacity is equivalent to a cost of $12.2 million. Since
the programme started in March 2011, it has produced capacity savings equivalent to $32.5
million, $4.7 million above the target. To achieve further efficiency gains we are taking an
enterprise-wide continuous improvement approach.
We have been developing our continuous improvement capability and while this is focused
on improving our performance to the customer, it is also helping to prepare our people
48
ANNUAL REPORT 2015
Our FIRST database which
holds all tax and social policy
customer information is
three terabytes in size. It is the
single largest Unisys database
of its type in the world.
06
for the transformation of our business. We will extend our continuous improvement
programme across the organisation to a number of our support services in 2015–16.
2
Economy – saving on postage and printing costs
This year we spent $16 million on print and postage. By giving customers access to their
details online, we aim to reduce these costs.
Because more of our customers are filing online we stopped providing prepaid envelopes
for Employer Monthly Schedules (EMS) in November 2014. In 2012–13 the cost to send
envelopes was about $840,000. In 2014–15 the cost was around $200,000 and for the
2015–16 year, it is expected that the annual cost will be reduced to $40,000.
Maintaining our computer systems and infrastructure
While we prepare to make a large investment in a new core system through our Business
Transformation programme we are also investing in our existing systems where it is
sensible to do so. We still need to meet government and customer expectations for
better, smarter and more cost-effective systems and support the stability of our ICT
environment while we transform.
Our ICT Strategy and Roadmaps guide our activities to deliver safe and secure digital
services to our customers. The strategy will drive the future rationalisation, consolidation
and simplification of our ICT environment and is closely linked to our Business
Transformation objectives and the Government’s overall ICT Strategy.
Our mainframe platform houses the core FIRST business systems, all our customers’ data,
including their return, payment, entitlement and transaction activity. In 2012 Cabinet
approved a business case for us to replace the existing platform which was approaching
end of life.
There was considerable risk attached to this move. We spent nearly a year planning and
testing to get this right, which included moving the planned cut-over date from May 2014 to
November 2014 in order to ensure that our peak business periods were not affected.
In May we were ranked
as number two in
CIO Magazine’s top
100 companies and
government agencies
across New Zealand – an
acknowledgement of
the complex technology
planning and support we
provide to collect and
distribute revenue and
social policy payments for
New Zealand.
System back-ups that used
to take six hours are now
completed in three hours.
In November 2014 we successfully transitioned to a new mainframe platform service.
With the new mainframe in place, run by Unisys New Zealand, we can accelerate our
digital growth and support our goal to make it easier and faster for customers to do
business with us.
We have since seen significant performance improvements for both our external
customers submitting their tax returns and accessing our online services and our internal
staff members accessing the system. For example system back-ups that used to take six
hours can now be completed in three hours and the time to complete the annual PTS
run reduced from 27 hours to seven hours and was able to be completed over a weekend.
This meant that intermediaries were able to process refunds much more quickly and
customers received their refund days earlier than previous years.
We continued to update and upgrade our existing systems and infrastructure to ensure
they support a high level of stability and reliability for our customers. Examples include:
• upgrading the underlying ICT environment for our electronic document storage and
retrieval system
• moving our legacy printing platform to XPression
• upgrading the software components and replacing the underlying hardware in our
contact centres and our telephone environment.
ANNUAL REPORT 2015
49
Keeping information safe is a top priority. We are continuing to invest significantly in
information security initiatives so our security policies, procedures and standards are
continually refreshed and enforced. We have implemented technology to assist us to
proactively monitor how we are using cloud-based services, as well as additional tools to
monitor and detect cyber-security threats.
Maintaining our property leasehold portfolio
We actively manage our property portfolio to optimise the use of office space and move
where we can find accommodation for comparable or better rates. We co-locate with
other government agencies where it makes sense to do so.
We continue to work with the Property Management Centre of Expertise (PMCoE). Hosted by
MSD, PMCoE leads and assists agencies in meeting the goals set by Government for the efficient
and effective management of the property owned or leased by 61 government agencies.
For the 2014–15 financial year we reduced our office space usage to 14.1m² per person.
This compares to 15.5m² per person last year. The PMCoE target is to achieve between
12m² and 16m² per person.
EECA five star rating
We are the first agency to
reach five stars in the Energy
Efficiency and Conservation
Authority (EECA) One2Five
energy management rating.
EECA looked at our energy usage
and how well we demonstrate
corporate commitment, targets
and performance indicators,
plans, and accountability to
energy management.
Our five star rating is an
improvement from our four
star rating in November 2013.
How did our customers
rate our performance?
What our customers think is important to us. We aim to make our services
as easy as possible for customers to pay tax and receive their correct
entitlements. We closely monitor customer satisfaction and perception
scores to ensure we are doing a good job. High customer satisfaction
contributes to improved voluntary compliance in the long term.
2014–15
95
%
ONLINE
satisfied
95%
2013–14
2014–15
INDIVIDUALS
94%
94%
BUSINESS
96%
96%
50
ANNUAL REPORT 2015
2014–15
2013–14
85
%
VOICE &
CORRESPONDENCE
satisfied
2013–14
85%
2013–14
2014–15
INDIVIDUALS
81%
81%
BUSINESS
88%
88%
06
Overall customer satisfaction scores have
remained stable in 2014–15, with the
same results for online and voice and
correspondence services as measured in
2013–14. Tax agents showed a statistically
significant change in overall satisfaction for
voice and correspondence services, with
92% satisfied (up 3.4% from 2013–14) and
78% very satisfied (up 13.0% from 2013–14),
which can be attributed to an improvement
in satisfaction with accessibility and
perceived ease of access to our services.
However, due to the weighting of results
based on the sample size of customer groups
surveyed, this does not result in an increase
in Business and Overall satisfaction scores.
Tax revenue is used by government to
pay for services we all use. In 2014–15,
97% of our customers recognised that
paying tax contributes to New Zealand
society. Between 2009–10 and 2014–15,
the proportion of customers who resent
paying tax dropped from 46% to 41%.
For our customers to trust us and believe in
the integrity of the tax system it is important
they believe we do a good job in collecting
taxes and paying entitlements. From 2010–11
to 2012–13, the proportion of customers
who were confident that Inland Revenue did
a good job was stable at 92%. In recent years
this has increased, reaching 94% in 2014–15.
There were also increases in the proportions
of customers who agreed that they accessed
Inland Revenue easily, from 81% in 2012–13
to 87% in 2014–15.
Looking at 4-5 out of 5 ratings, or
customers who were very satisfied,
there were improvements in customers’
perceptions for all indicators in 2014–15
compared to 2013–14. Increases of at least
3 percentage points in the proportions of
customers who rated 4-5 out of 5 were seen
for the following indicators:
• Confidence that Inland Revenue does a
good job
• Inland Revenue can easily be accessed
• Information is treated confidentially
• Inland Revenue treats people fairly
• Inland Revenue makes it easy to get
it right.
Proportions of all customers who agreed (3-5 of 5) that they resent
paying tax: 2009–10 to 2014–15
47%
46%
45%
44%
43%
42%
41%
40%
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
Resent paying tax
Proportions of all customers who agreed (3-5 of 5) that Inland Revenue can easily
be accessed, and that paying tax contributes to NZ society: 2009–10 to 2014–15
100%
95%
90%
85%
80%
75%
70%
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
Paying tax contributes to NZ
Confidence IR does a good job
Easily access IR
ANNUAL REPORT 2015
51
How we compare to
other tax authorities
The OECD compares tax authorities around the world on various measures
every three years. The latest OECD survey published, Tax Administration
2015: Comparative Information on OECD and Other Advanced and Emerging
Economies, compares results from 2013 provided by tax authorities.
We were among a group of 13 revenue bodies reporting IT costs over 15% of total
expenditure. In 2013 our IT expenditure was 18.3% of our total expenditure. The OECD
observed that this group generally performed favourably on performance-related
measures such as e-filing and payment, administrative costs as a percentage of GDP and
average staffing numbers.
Our year-end debt to total revenue collected ratio of 9.2% was the same as the OECD
median and slightly below Australia and Canada. Our cost of collection (85 cents to
collect $100) also compared favourably with other countries, though it is difficult to
compare different countries on this measure as they have different tax rates and there is
no single method for calculating this result.
Our impacts
We want our activities and interventions to improve customer
compliance behaviour. We use 14 impact indicators and four contextual
indicators, grouped under five Impact Statements, to measure our
progress. We have set targets to be achieved by 2017–18, which take into
account our strategic intentions (including transformation goals), our
operating environment (including government priorities), the economy,
our resources and customer expectations.
52
ANNUAL REPORT 2015
06
More customers are
able to self-manage
The behaviour of
non-compliant
customers improves
Our
impacts
More customers
pay and file
information on time
More customers are able to
self-manage
This year we reached our 2018 target of
‘80% or more of customers find it easy
to comply’. We are only 2% away from
achieving our 2018 target of ‘85% or more
of customers are aware of their obligations
and entitlements’.
More customers
register and report
accurate information
when required
More customers
claim their correct
entitlements
More customers register and
report accurate information
when required
The results show improvements in the
accuracy of submitted returns, driven by
lower error rates for individual income tax
returns submitted electronically.
More customers pay and file
information on time
The behaviour of noncompliant customers improves
On-time filing and paying compliance
and customer satisfaction and perception
levels remained high.
We continue to improve our results, collecting
debt quicker and identifying older debt, which
cannot be collected, as uncollectable. The high
level of penalties and interest as a proportion
More customers claim their
correct entitlements
Social policy-related compliance levels
remained stable. This year we achieved
our 2018 target of ‘75% or more of child
support assessments are collected’.
of total debt, and high levels of uncollectable
debt unable to be dealt with are limited by
appropriations for write-off. The end of this
year sees a smaller debt book with less cases on
hand which shows the debt book moving in
the right direction.
Achieving our impact indicator targets will contribute to us achieving our long-term outcomes.
To view the full set of impact indicator results and targets, please see pages 84 to 88.
ANNUAL REPORT 2015
53
Our Outcomes Framework
What we have described earlier is depicted in our Outcomes Framework.
It shows how we organise and use our resources to deliver services
to New Zealanders, provide value for money from public funds, and
contribute to the social and economic wellbeing of New Zealand by
collecting and distributing money.
Our Outcomes Framework
Government
Priorities
Responsibly manage the Government’s finances
Build a more competitive and productive economy
Deliver better public services within tight financial constraints (result areas 9 & 10 – improving interaction with
government, and Result 7 – reducing crime)
Rebuild Canterbury
Value for
Money
Our Outcomes
The goals we are
aiming
to achieve
Revenue is available to fund government programmes
through people meeting
payment obligations of their own accord
We improve
compliance by
ensuring:
Our Outputs
The activities we do
More customers
self-manage
Compliance
improves if:
More customers
register and report
accurate information
when required
Services to inform the
public about entitlement
and meeting obligations
More customers
claim their correct
entitlements
Services to process
obligations and
entitlements
We address noncompliance so:
More customers pay
and file on time
Management of debt and
outstanding returns
The behaviour of
non-compliant
customers improves
Effectiveness
Our Impacts
The difference we
want
to make
People receive payments they are entitled to, enabling
them to
participate in society
Taxpayer audit
Policy Advice
Efficiency
Our Inputs
The way we use our
resources
People
Our Priorities
The key areas we
will direct our effort
and resources to
We retain,
develop and
attract highcalibre people
with the skills
required in the
future – enabling
a culture of
service and
excellence
54
ANNUAL REPORT 2015
Systems
We proactively
influence
voluntary
compliance and
address the
causes of
compliance risk
and threats
through a range
of interventions
We move
customers to
cost-effective
channels while
creating an
environment to
make it easy for
customers to
self-manage
Processes
We improve the
efficiency and
effectiveness of
government
through working
with other
agencies and
private providers
Assets
We use our
information to
make timely
decisions and
build an
intelligence-led
organisation
Our systems
meet current and
future needs
Economy
06
Our Direction
We are reviewing our Outcomes Framework in 2015–16 to ensure it remains fit for
purpose and allows us to tell the clear performance story of how we will continue to
deliver today while achieving our strategic objectives. Our updated framework will
be included in our next Statement of Intent.
The mission, vision and values of IR for the future continue to guide us:
What we are here for
What we want to be
What’s important to
us in how we work
We contribute to the economic and
social wellbeing of New Zealand by
collecting and distributing money
A world-class revenue organisation
recognised for service and excellence
· Trust and integrity
· Valuing people
· Innovating to make a difference
· Working together
IR for the future also required us to change to overcome our challenges and meet our transformation goals.
As our change has become more tangible, we have sharpened our objectives, clarified how we’ll achieve them and what we’ll do
differently. That sharper focus is summarised in Our Change Story - why and how IR is changing.
Strategic objectives
How we’ll do this
1. Grow voluntary compliance by
making it easier for people to get
it right
Link our systems across the
government and
private sector
2. Reduce customer compliance costs
3. Make Government policy changes
faster and more cost-effectively
Designing our future
What we’ll do
Replace our computer system
Become truly digital
Upskill our people and change
the ways we work
Fit revenue processes into
customers’ broader lives
Make more intelligent use of
information
Customer Experience
Intelligence Led
Tailoring
services &
channels
Embedding a
customer-centric
approach
Providing greater
selfmanagement
Taking a
service-centric
approach
Enabling greater
outreach
Future State
Organisation
Being highlyautomated and
event-driven
Supporting Our
People
to Achieve
Enabling a wider
service delivery
ecosystem
Delivering One
Way of
Working
Enterprise Support
Services
Extracting
actionable
insights
Extending the
digital border
Embedding righttime insights
Driving
Enterprise
Excellence
Adopting agile,
responsive
design
Core Tax &
Social Policy
Embracing richer
data sources
Future State
Policy and
Legislation
Organisation
Design
Policy and
Legislation
Providing
seamless
data flows
Enhancing
Enterprise Tools
and Systems
Continuously
learning from
feedback
Enhancing risk
based tolerance
to technology
failure
Streamlining delivery
and operations across
an ecosystem of
trusted partners
Improving
information
security
Rationalising and
consolidating
applications
Providing an agile
and adaptive set
of capabilities
Technology
ANNUAL REPORT 2015
55
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ANNUAL REPORT 2015
07
Measuring our
performance
ANNUAL REPORT 2015
57
Statement of Responsibility
In terms of the Public Finance Act 1989 I am responsible, as Chief
Executive of Inland Revenue, for the preparation of the department’s
financial statements and end of year performance information, and for
the judgements made in them. I am also responsible for the preparation
of the department’s forecast financial statements including the
appropriateness of the underlying assumptions and all other required
disclosures.
I have the responsibility for establishing a system of internal control designed to provide
reasonable assurance as to the integrity and reliability of financial reporting and the
accuracy of our end of year performance information.
In my opinion, these financial statements fairly reflect the financial position and
operations of the department for the year ended 30 June 2015 and the forecast financial
statements reflect the financial position and operations of the department for the year
ending 30 June 2016 based on Government decisions and information as at 28 April 2015.
Naomi Ferguson
Chief Executive and Commissioner of Inland Revenue
29 September 2015
Countersigned by:
Giles Southwell
Chief Financial Officer
29 September 2015
58
ANNUAL REPORT 2015
07
Performance summary
We achieved 48 of our 53 (91%)
output performance targets
this year, an increase of 7.1% on
2013–14 performance. Here is
a summary of our performance
by output class. For full details
on our performance against each
measure refer to pages 62 to 82.
1
2
33
%
1 of 3
2013–14 33% 1 of 3
2012–13 100% 1 of 1
POLICY ADVICE
What is intended to be achieved
This appropriation is intended to provide
policy advice to support decision-making
by Ministers on tax and social policy
matters, to protect and maintain the
integrity of the tax system while ensuring
that our tax system is as simple as possible
and is internationally competitive.
Commentary on our output
performance during 2014–15
Of the three performance measures in
this output class, results for one of them
improved from last year.
During 2014–15 we continued to support
the Government’s priorities through
delivering the Government’s tax policy work
programme. One of the three performance
measures for this output class was achieved.
Aspirational targets were set for the two
performance measures not achieved.
More appropriate targets, benchmarked
against other agencies, were set for these in
2015–16.
94
%
15 of 16
2013–14 88% 14 of 16
2012–13 67% 12 of 18
SERVICES TO INFORM THE PUBLIC
ABOUT ENTITLEMENTS AND
MEETING OBLIGATIONS
What is intended to be achieved
The purpose of this appropriation is to promote
confidence in the tax system, and associated
social policy programmes, by providing services
that help taxpayers and other customers meet
their payment obligations and receive payments
they are entitled to. This appropriation also
provides services to help Ministers fulfil their
responsibilities to Parliament and the New
Zealand public.
Commentary on our output
performance during 2014–15
Of the 16 performance measures in this output
class, results for 13 of them were either the
same or improved from last year.
We have had strong performance this year,
achieving our target of 75.0% of our customers’
calls being answered within two minutes,
9.0% more than in 2013–14. This result was
supported by the fact we answered 96.5% of all
calls, up from 89.5% last year. We have also seen
a 7.8% reduction in total 0800 call volumes as
we successfully promote and encourage uptake
of our online self-service options such as myIR.
Customer satisfaction remains high, with
85.0% of our customers satisfied with the
quality of our services.
ANNUAL REPORT 2015
59
3
4
93
100
%
%
14 of 15
9 of 9
2013–14 93% 14 of 15
2012–13 85% 17 of 20
SERVICES TO PROCESS
OBLIGATIONS AND ENTITLEMENTS
What is intended to be achieved
This appropriation is intended to
contribute to the availability of revenue
to fund government programmes by
ensuring taxpayer and other customer
payments, credit claims, refunds and
entitlements are processed in a timely,
efficient and effective way.
Commentary on our output
performance during 2014–15
Of the 14 performance measures in this
output class comparable to last year, results
for 10 of them were either the same or
improved from last year.
We maintained strong performance across
our core high transactional activities:
returns and payment processing and issuing
refunds and entitlements to customers.
2013–14 73% 8 of 11
2012–13 55% 6 of 11
Peak season planning also enabled us to
maintain strong service levels across all our
transactional channels over the peak season
to end of June 2015. These include priority
areas that help our customers the most,
such as employer monthly schedules (EMS),
income tax and GST refunds, returns and
regular social policy payments.
During the year we also successfully
implemented legislative changes to the
Child Support Programme, maintaining our
high standard of service with over 82% of
applications issued within two weeks.
MANAGEMENT OF DEBT AND
OUTSTANDING RETURNS
What is intended to be achieved
This appropriation is intended to increase funding
available for government programmes through
the collection of revenue owed.
Commentary on our output
performance during 2014–15
Of the eight performance measures in this
output class comparable to the previous year,
results for seven of them were either the same or
improved from last year.
We continued a dedicated focus on overdue
returns between July and December 2014
following the primary 7 July filing date for
income tax returns. This focus helped us achieve
the performance target, to finalise returns
within six months, for the second time since its
introduction and demonstrates the success of
our early intervention approach.
We have reduced the child support debt owed
to custodial parents and contained the growth in
assessment debt for liable parents. We continued
our work with liable parents who live in New
Zealand using outbound calling campaigns,
similar to that successfully applied to tax debt
collection by making contact with liable parents
as early as possible. This has increased our level of
coverage and as a result we have closed a much
higher percentage of cases within 12 months of
opening than ever before.
60
ANNUAL REPORT 2015
07
5
6
100
50
%
8 of 8
1 of 2
2013–14 100% 8 of 8
2012–13 100% 8 of 8
TAXPAYER AUDIT
What is intended to be achieved
This appropriation is intended to ensure
that the revenue base for funding
government programmes is protected
through auditing activities to prevent
non-compliance, and undertaking legal
action where appropriate.
Commentary on our output
performance during 2014–15
Of the eight performance measures in this
output class, results for five of them were
either the same or improved from last year.
We continued to focus our investigations on
areas that present the highest risk. This year,
our return on investment was 7.4% higher
than target, resulting in a total of over
$1.2 billion in discrepancies being assessed.
This year, in our aggressive tax planning area
we identified $336.9 million in discrepancies.
We continued to resolve the remaining
optional and mandatory convertible note
cases that have contributed $156.1 million
of discrepancies. Significant aggressive
tax planning cases provided a further
$180 million.
%
New output class added 2014–15
Our focus on property compliance has
identified $67.1 million in discrepancies.
We have continued to focus on
education and on identifying developer
speculation, particularly in the Auckland
and Christchurch regions to ensure that
speculators and developers are paying the
correct amount of tax.
In the hidden economy area we continued
targeting people who intentionally do not
declare or accurately report transactions.
We have identified $146.0 million in
discrepancies.
Overall satisfaction with how we deal with
customers during an audit has improved
from last year and remains at a high level.
Of customers surveyed, seven out of 10 had
a positive view about their audit activity
experience.
We continue to work on improving
timeliness to complete audits and have
reduced the average completion time in
most categories since last year.
SERVICES TO OTHER AGENCIES
What is intended to be achieved
This appropriation is intended to provide
support services to other government
agencies, such as the provision of a hosted
financial management information system
and shared financial transactional services.
Commentary on our output
performance during 2014–15
These measures are new in 2014–15.
We provide financial support services to
the Department of Internal Affairs and the
New Zealand Productivity Commission.
These shared service arrangements have
been successful, with both agencies rating
us highly.
In reviewing this year’s performance we
have agreed with both agencies a more
appropriate target of 70% for 2015–16.
ANNUAL REPORT 2015
61
Reporting our performance
FOR THE YEAR ENDED 30 JUNE 2015
The following parts provide detailed
reporting on our performance
against our targets. Where a
performance measure is expressed
in terms of a range of characteristics
that the output should meet, the
result is reported as ‘achieved’ or
‘not achieved’ (eg, see Departmental
Output Expense 5).
Comparative performance data
Where appropriate, we have included comparative performance information against the
activity forecasts and performance measures for the previous year (2013–14 actual). We
have not included comparative performance information for new performance measures,
or where there has been a change in the performance measure or measurement
methodology that make the results not comparable. These are indicated by ‘n/a’.
Activity forecasts
Where appropriate, we have included forecasts of expected customer demand for our
services that provide context for our results. Significant variation from the forecast figures
can influence the achievement of the targets set for our performance measures.
Review of 2014–15 output performance measures and targets
As in previous years, we reviewed our output measures before the start of the new
financial year. The purpose of this review was to:
• create or update measures to reflect changes in our business
• remove items that were not true measures of our performance.
Of the 53 measures from 2013–14, we removed two and added two. There are 49
measures comparable with last year. Our performance improved for 29 of these measures
(59%), remained the same for seven measures (14%) and deteriorated for 13 measures
(27%). For seven (54%) of the 13 measures where performance deteriorated, the change
in performance between years was less than 5%.
We have provided comments for:
• key activity forecasts where actual demand was outside the expected range
• performance measures that were not achieved
• performance measures with a positive variance greater than 10%.
Some performance measures are calculated using a sample of the customer population.
We have marked these performance measures with a hash mark (#).
All target and forecast figures in pages 63 to 82 are not subject to audit.
Performance context
Key
More customers are able to
self-manage
More customers register and
report accurate information when
required
More customers claim their
correct entitlements
More customers pay and file
information on time
The behaviour of non-compliant
customers improves
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ANNUAL REPORT 2015
Each appropriation contributes to achieving Inland Revenue’s long-term outcomes:
• Revenue is available to fund government programmes through people meeting
payment obligations of their own accord
• People receive payments they are entitled to, enabling them to participate in society.
We have included information to give context to the performance achieved. For each
output expense we have included a summary of the impacts we believe it contributes
to. Further information about our Outcomes Framework can be found in part six. This
forms part of the overall performance picture and should be read in conjunction with
the activity forecasts and narrative in the other parts of this report. Our non-financial
performance targets for the coming year are also included, and provide context to this
year’s results. Full details of our 2015–16 performance measures and targets can be found
in Performance measures and targets 2015–16 on our website.
07
1
Departmental Output Expense 1: Policy Advice
Description
This appropriation is limited to the provision of advice (including second opinion advice
and contributions to policy advice led by other agencies) to support decision-making by
Ministers on government policy matters.
Contributes to Impact Statements:
Providing policy advice services protects and maintains the integrity of the tax system while
ensuring that our tax system is as simple as possible and is internationally competitive.
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
Crown
8,166
8,051
9,151
9,151
8,000
Other
6
2
2
10
2
8,172
8,053
9,153
9,161
8,002
Annual appropriations
8,118
8,053
9,153
8,128
8,002
Total expenses
8,118
8,053
9,153
8,128
8,002
54
–
–
1,033
–
Revenue
Total revenue
Expenses
Net surplus/(deficit)
Output 1.1 Policy advice in relation to tax and social policy
Description
This output involves:
• advising on all aspects of tax policy and social policy measures that interact with the
tax system
• developing tax and social policy in line with the Generic Tax Policy Process
• drafting tax legislation for introduction in the House of Representatives and assisting
its passage through the House of Representatives
• negotiating and maintaining New Zealand’s network of double tax agreements with
other countries
• forecasting future tax and non-tax Crown revenue receipts and disbursements for the
government
• analysing revenue implications of changes in tax and social policy.
ANNUAL REPORT 2015
63
Performance measures
All targets are unaudited.
Minimum percentage of policy advice papers that meet quality standards
Although we did not achieve our target this year, the result has improved from 73%
in 2013–14 to 83%. The target for 2015–16 is set at 75% to align our target with
other agencies which provide policy advice. Areas identified for improvement will be
implemented next year, including more consistent analysis of the impacts of proposals,
and greater attention to risk and risk management.
Minimum percentage of ministerial satisfaction for policy advice
Performance is assessed by a survey completed by the Minister of Revenue. On
review the appropriate target for this measure has been deemed to be 80%, which is
consistent with other agencies that provide policy advice.
Maximum average cost per hour of producing policy advice outputs
The result for 2014–15 of $132.88 was less than the target set of $150. The target
was based on our best estimate of the cost per hour of providing policy advice. Our
forecast for the year end was revised to a cost per hour of $115, in line with the results
from previous years. However, when the measure was calculated this year less time
was attributed to direct policy work, resulting in the maximum cost per hour being
above our forecast. This measure is still relatively new, and further work is required on
how to more accurately forecast the result.
2
Departmental Output Expense 2: Services to Inform
the Public About Entitlements and Meeting Obligations
Description
The scope of this appropriation is limited to:
• providing information and assistance to customers on the application of the law
• responding to customer enquiries about tax and social support programmes
• adjudication on behalf of the Commissioner on proposed taxpayer assessments
• providing binding rulings and other statements on the interpretation and application
of the law administered by Inland Revenue
• provision of services to Ministers to enable them to discharge their portfolio (other
than policy decision-making responsibilities).
Contributes to Impact Statements:
Providing customers with relevant information and advice, certainty in relation to the application
of the law, and a choice in how they engage with us ensures that customers are aware of and
understand their obligations and entitlements. This means more customers can self-manage.
64
ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 90%
2015–16
Target
73.0%
83.0%
75%
2013–14
Actual
2014–15
Target 95%
2015–16
Target
87.0%
78.3%
80%
2013–14
Actual
2014–15
Target $150
2015–16
Target
$112.62
$132.88
$115
07
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
Crown
265,591
249,846
251,694
251,694
249,297
Other
1,245
1,461
1,461
1,151
1,461
266,836
251,307
253,155
252,845
250,758
Revenue
Total revenue
Expenses
Annual appropriations
248,037
251,307
253,155
245,816
250,758
Total expenses
248,037
251,307
253,155
245,816
250,758
18,799
–
–
7,029
–
Net surplus/(deficit)
Core service costs
AVERAGE COST PER CUSTOMER-INITIATED CONTACT
$31.10
Target*: $40.00
2013–14 $33.00
Cost per contact
2013–14
Actual*
2014–15
Actual*
2014–15
Target*
Telephone
$29.88
$30.41
$36.00
Counter
$64.89
$22.65
$65.00
Correspondence
$37.80
$35.81
$45.00
* These figures are unaudited.
Output 2.1 Information services
Description
This output involves responding to customer enquiries on tax and social support
programmes (including child support and KiwiSaver) through electronic channels,
correspondence, telephone, personal appointments, actively providing advice through
a range of communication approaches delivered in the community and through our
complaints management service.
ANNUAL REPORT 2015
65
Activity forecasts
ACTIVITY FORECASTS
2012–13
Actual
2013–14
Actual
2014–15
Unaudited
forecast
2014–15
Actual
2015–16
Unaudited
forecast
Number of customer
service contacts
6.41m
5.53m
5.70–6.30m
5.69m
5.30–5.80m
Number of self-help
service contacts
17.95m
21.23m^
19.20–
23.20m
22.4–24.8m
21.20m
^Restated
Commentary on demand outside forecast range
Number of customer service contacts
Customer service contacts include calls to our contact centre, over-the-counter
interactions and appointments and correspondence, whether by post or electronic.
We are focused on improving our processing of returns, payments and entitlements,
making it easier for customers to self-manage and reducing unnecessary contacts.
Overall, the number of contacts increased by 3% compared to last year. However, this was
slightly less than forecast.
Number of self-help service contacts
Self-help includes usage of our online account services called myIR and our Interactive
Voice Recognition (IVR) service.
All types of self-help service contacts have increased this year, which reflects our efforts
to encourage customers to use self-service channels. We have seen increasing uptake of
myIR as a result of active promotion, with around 298,000 new myIR registrations during
the year and almost 2.7 million more logons compared to 2013–14. More services are
now available through our IVR system, with 1.5 million customers currently registered
with Voice ID, a key enabler of IVR service uptake.
During the year we identified an issue with the tool that was used to calculate the
number of 2013–14 self-help service contacts. As a result, we have determined the most
appropriate data source for reporting 2014–15 volume and have restated the 2013–14
result to reflect the same approach.
Performance measures
All targets are unaudited.
Minimum percentage of customers who are satisfied with the quality of phone
and correspondence contacts #
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ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 85%
2015–16
Target
85.0%
85.0%
85%
07
Minimum percentage of customers who are satisfied with the quality of online
services #
Minimum percentage of customers confident that Inland Revenue takes
appropriate action to ensure people receive their social support entitlements #
Minimum percentage of attempted calls that we answer
This year we answered 3.24 million calls – a similar number to last year. Overall,
total volumes decreased by 141,000 calls (4%) as our customers continue to shift
to self-service channels (such as myIR) and as we focus on improving the speed
of service across our other contact channels (such as the minimum percentage of
correspondence answered within two weeks). Success with this performance measure
is a lead indicator of our ability to answer calls within two minutes and has flow-on
effects for overall customer experience and satisfaction.
Minimum percentage of telephone calls answered within two minutes
We answered a similar number of calls to last year. We managed our calls more effectively
by improving our call management system to direct calls to staff with the best skill-set, and
by offering options such as a call-back at a time of our customers’ choosing.
Minimum percentage of correspondence answered within two weeks
Maximum average cost of a customer-initiated contact
Although total contacts increased on last year, our continuous improvement initiatives
and decrease in customer call times have reduced the average cost per contact across
the phone, correspondence and over-the-counter channels.
2013–14
Actual
2014–15
Target 90%
2015–16
Target
94.5%
94.9%
90%
2013–14
Actual
2014–15
Target 70%
2015–16
Target
72.5%
70.9%
70%
2013–14
Actual
2014–15
Target 75%
2015–16
Target
89.5%
96.5%
75%
2013–14
Actual
2014–15
Target 75%
2015–16
Target
68.8%
75.0%
75%
2013–14
Actual
2014–15
Target 75%
2015–16
Target
76.0%
80.1%
75%
2013–14
Actual
2014–15
Target $40
2015–16
Target
$32.96
$31.10
$35
ANNUAL REPORT 2015
67
Output 2.2 Adjudication and rulings
Description
This output involves:
Adjudication
• providing a technical review of existing taxation disputes referred to the Adjudication Unit
• issuing an adjudication report (or other formal communication of conclusions) to the
parties concerned
• directing the issuing, where required, of an assessment consistent with the conclusions
of the technical review.
Taxpayer Rulings
• considering applications for and providing binding private and product rulings, and
financial arrangement determinations.
Public Rulings
• preparing and issuing binding public rulings
• developing and publishing non-binding statements on the Commissioner’s view of the
law administered by Inland Revenue eg, interpretation statements and interpretation
guidelines
• considering applications for and providing taxpayer-specific depreciation
determinations
• preparing and publishing depreciation and other determinations eg, livestock
valuations
• considering and responding to technical correspondence.
Commentary on significant positive variances
This year we maintained a strong performance across all areas, reflecting our continuing
focus on delivery and our ability to better forecast and meet customer demand resulting
in more effective scheduling of our work programme. During the period we further
developed the capability to balance work across business units, with a number of
business areas contributing directly to the high quantity of public items finalised during
the period. Our continuous improvement initiatives have contributed to this and the
other positive variances achieved over 2014–15.
Performance measures
All targets are unaudited.
Percentage of all rulings reports, adjudication reports, public items and technical
correspondence or advice that meet the applicable purpose, logic, alternatives,
consultation and practicality standards
68
ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 100%
2015–16
Target
100%
100%
100%
07
Minimum number of published or finalised public items that give the
Commissioner’s interpretation of the law
Minimum percentage of adjudication cases completed within three months of receipt
Minimum percentage of taxpayer ruling applications that have a draft ruling
completed within three months of receipt
Minimum percentage of non-qualifying ruling applications that have a draft
ruling completed within six months of receipt
Minimum percentage of public items (including relevant public consultation),
completed within 18 months of allocation
Minimum percentage of submissions by the applicant on any draft ruling
responded to within one month of receipt
2013–14
Actual
2014–15
Target 25
2015–16
Target
27
40
25
2013–14
Actual
2014–15
Target 90%
2015–16
Target
98.2%
97.2%
90%
2013–14
Actual
2014–15
Target 90%
2015–16
Target
100%
100%
90%
2013–14
Actual
2014–15
Target 90%
2015–16
Target
100%
100%
90%
2013–14
Actual
2014–15
Target 90%
2015–16
Target
92.0%
94.3%
90%
2013–14
Actual
2014–15
Target 90%
2015–16
Target
97.9%
100%
90%
Output 2.3 Government and Executive Services
Description
This output involves all activities associated with ministerial services, including
responding to ministerial correspondence and parliamentary questions. It includes all tax,
child support, student loan, KiwiSaver and family assistance ministerial correspondence
and supply of information.
ANNUAL REPORT 2015
69
Performance measures
All targets are unaudited.
Minimum percentage of ministerial correspondence responded to within 10 days
We received and dealt with more Official Information Act (OIA) requests and
ministerial reports than expected. Although these OIAs and ministerial reports are
not included in the measure, we gave these a higher priority than other ministerial
correspondence in a number of cases.
Percentage of parliamentary questions responded to within required timeframes
3
Departmental Output Expense 3: Services to Process
Obligations and Entitlements
Description
The scope of this appropriation covers:
• registering taxpayers
• making tax assessments
• assessing child support liabilities including providing a readily accessible inexpensive
process for reviewing assessments
• receiving and making payments to customers
• processing applications and payments for social support programmes
• collection of ACC Earners’ levies
• supplying information to other government agencies
• accounting and reporting the collection of Crown revenue.
Contributes to Impact Statements:
Accurate, timely, complete and efficient processing of notices, statements and social policy
entitlements increases customers’ confidence in the tax system. When customers have
confidence in the tax system they are more likely to self-manage their compliance obligations.
70
ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 95%
2015–16
Target
92.7%
87.0%
95%
2013–14
Actual
2014–15
Target 100%
2015–16
Target
100%
100%
100%
07
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
Crown
137,696
119,575
112,510
112,510
104,737
Other
20,590
20,997
20,997
20,652
20,997
158,286
140,572
133,507
133,162
125,734
Revenue
Total revenue
Expenses
Annual appropriations
144,965
140,572
133,507
127,612
125,734
Total expenses
144,965
140,572
133,507
127,612
125,734
13,321
–
–
5,550
–
Net surplus/(deficit)
Core service costs
AVERAGE COST PER RETURN PROCESSED
$3.48
Target*: $5.00
2013–14 $3.95
Cost per return processed
2013–14
Actual*
2014–15
Actual*
2014–15
Target*
Income tax
$4.92
$4.32
$6.50
GST
$1.34
$1.03
$2.00
Employer monthly
schedules
$5.14
$4.56
$7.75
* These figures are unaudited.
Output 3.1 Registrations, applications and processing
Description
This output involves processing all registrations, applications and assessments for the tax
and social policy programmes we administer.
ANNUAL REPORT 2015
71
Activity forecasts
ACTIVITY FORECASTS
2013–14
Actual
2014–15
Unaudited
forecast
2014–15
Actual
2015–16
Unaudited
forecast
Number of tax and social policy
registrations (excluding child support)
received
689,290
690,000–
686,962
650,000–
Number of child support applications
received
53,055^
Number of applications for
administrative review of child support
assessments received
3,838^
4,300–4,700
4,246
4,400–4,900
Number of returns received
9.14m
8.10–8.90m
9,492,265
9.2m–10.2m
Percentage of returns filed
electronically
59.8%
60%
67.4%
68%
Percentage of income tax returns filed
electronically
86.9%
86%
88.8%
90%
Percentage of GST returns filed
electronically
54.9%
55%
64.0%
65%
Number of payments received
8.71m
8.40–9.30m
8,903,610
8.5m–9.5m
Percentage of payments received
electronically
74.2%
75%
82.5%
85%
765,000
44,000–
715,000
51,706
49,000
56,000
^ Restated
Commentary on demand outside forecast range
Number of child support applications received
We have restated the number of child support applications received during 2013–14 after
we corrected an error with our measurement tool that was excluding some application
types from the result. Our result is above the forecast range due to the previous year’s
under-reporting of actual volumes. The forecast range for 2015–16 has been adjusted to
take into account the revised calculation.
Number of applications for administrative review of child support assessments received
We have also restated the 2013–14 volume based on an improvement to the way we
count applications received. We now count applications on the day received, not the day
processed. This resulted in a minor increase.
Filing and paying online
As a result of the success of our strategy to make our digital offering more compelling,
we continue to see significant increases in the proportion of customers who use digital
channels such as myIR to file their returns online and make payments electronically. The
number of customers using these services exceeded our expectations.
72
ANNUAL REPORT 2015
50,000–
07
Performance measures
All targets are unaudited.
Minimum percentage of income tax returns finalised within four weeks
Minimum percentage of GST returns finalised within three weeks
Minimum percentage of employer monthly schedule employee deductions
finalised within four weeks
Minimum percentage of social policy and tax registrations processed within five
working days
During the year, an IT issue led to approximately 77,500 KiwiSaver registrations being
held and not released for processing. This issue has been investigated and resolved
primarily through ensuring issues are escalated appropriately. Excluding this one-off
issue, we achieved a processing result of 88.3% for the year.
Minimum percentage of payments banked on the day of receipt
Minimum percentage of payments correctly processed to customers’ accounts
2013–14
Actual
2014–15
Target 90%
2015–16
Target
94.6%
95.5%
90%
2013–14
Actual
2014–15
Target 95%
2015–16
Target
99.6%
99.2%
95%
2013–14
Actual
2014–15
Target 95%
2015–16
Target
99.7%
99.8%
95%
2013–14
Actual
2014–15
Target 85%
2015–16
Target
89.6%
80.5%
85%
2013–14
Actual
2014–15
Target 99%
2015–16
Target
99.3%
99.4%
99%
2013–14
Actual
2014–15
Target 99.5%
2015–16
Target
99.8%
100%
99.5%
ANNUAL REPORT 2015
73
Maximum average cost of processing income tax returns, GST returns and
employer monthly schedules
Although the total number of returns has increased this year, the cost of processing
each return continues to decline as more of our customers file their returns online. In
2014–15, 67.4% of all returns were filed electronically, compared to 59.8% last year.
2013–14
Actual
2014–15
Target $5
2015–16
Target
$3.95
$3.48
$5
2013–14
Actual
2014–15
Target 98.5%
2015–16
Target
99.4%
99.4%
98.5%
2013–14
Actual
2014–15
Target 85%
2015–16
Target
90.2%
91.5%
85%
2013–14
Actual
2014–15
Target 95%
2015–16
Target
97.8%
97.2%
95%
2013–14
Actual
2014–15
Target 90%
2015–16
Target
96.1%
96.9%
90%
Output 3.2 Statements, notices, refunds and payments
Description
This output involves:
• issuing statements, notices, rebates and refunds
• receiving and banking payments.
It covers all the tax and social policy programmes that we administer.
Performance measures
All targets are unaudited.
Minimum percentage of notices and statements produced without error #
Minimum percentage of Income Tax refunds issued within six weeks
Minimum percentage of GST refunds issued within four weeks
Minimum percentage of tax credit claim payments made within three weeks
74
ANNUAL REPORT 2015
07
Minimum percentage of Working for Families Tax Credit (WfFTC) payments
made on the first regular payment date following an application
Minimum percentage of paid parental leave payments issued to customers on
the first regular pay day following the agreed date of entitlement
2013–14
Actual
2014–15
Target 95%
2015–16
Target
98.9%
99.4%
95%
2013–14
Actual
2014–15
Target 97%
2015–16
Target
98.4%
98.2%
97%
2013–14
Actual
2014–15
Target 80%
2015–16
Target
80.7%
82.0%
80%
2013–14
Actual
2014–15
Target 85%
2015–16
Target
N/A
90.7%
85%
Output 3.3 Child support
Description
This output involves dealing with child support assessments and providing an
administrative process for reviewing child support assessments that is both inexpensive
and readily accessible to custodians and liable parents.
Performance measures
All targets are unaudited.
Minimum percentage of child support assessments issued within two weeks
The changes in child support legislation that took effect on 1 April 2015 required
changes to the systems and processes which form the basis for calculating timeliness.
Performance to 31 March 2015 was 81.6%, and performance in the final quarter from
1 April to 30 June 2015, using the updated systems and processes, was 83.3%. Please
note that an adjusted measurement approach has been used from 1 April 2015 due to
a refreshed data-set being available.
Minimum percentage of child support administrative review decisions issued within
10 weeks
ANNUAL REPORT 2015
75
4
Departmental Output Expense 4: Management of Debt
and Outstanding Returns
Description
The scope of this appropriation covers taking action where returns are outstanding and
where payments are overdue, including providing people with assistance on the actions
they need to take to meet their obligations. This includes collection on behalf of other
agencies and external parties.
Contributes to Impact Statements:
We apply a tailored approach to our interventions based on our Prevent, Assist, Recover
and Enforce model (PARE). This model is designed to take into account past compliance
behaviour together with current circumstances. By attempting to prevent people and
businesses from missing filing and payment dates in the first instance, we are able to be more
effective at following up quickly on those who do not file and pay on time.
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
Crown
134,788
140,297
148,501
148,501
143,207
Other
1,859
2,962
2,962
2,171
2,962
136,647
143,259
151,463
150,672
146,169
Annual appropriations
132,610
143,259
151,463
148,033
146,169
Total expenses
132,610
143,259
151,463
148,033
146,169
4,037
–
–
2,639
–
Revenue
Total revenue
Expenses
Net surplus/(deficit)
Additional funding received from Government for initiatives
Budget-funded
Initiative
2013–14
Unaudited
ROI actual
2014–15
Unaudited
ROI actual
2014–15
Unaudited
ROI target
Early debt
$13.79
$18.91
$8.20
Ageing debt
$11.45
$11.19
$5.50
Unfiled returns
$19.64
$16.40
$4.00
76
ANNUAL REPORT 2015
07
Additional funding for child support aims to progressively increase the amount of debt
repaid over a five year period. The total cash target for this period is $174 million. Work
to date has resulted in an extra $1.5 million recovered from liable parents.
Core service costs
COST OF COLLECTING AN OVERDUE RETURN
Collecting an overdue return
2013–14
Actual*
2014–15
Actual*
2014–15
Target*
$5.60
$9.00
$15.00
* These figures are unaudited.
Output 4.1 Outstanding returns
Description
This output involves all activities associated with collecting outstanding returns,
including taking appropriate follow-up action against taxpayers who do not file a return.
Performance measures
All targets are unaudited.
Maximum percentage growth in outstanding returns
Our collections approach is targeting returns based on risk and assessment value,
regardless of age. There has also been an increased investment in the collection of
outstanding returns through Budget 2014.
Minimum percentage of outstanding returns finalised within six months
Minimum percentage of outstanding employer monthly schedules finalised
within three months
Maximum average cost of finalising an outstanding return
The average cost of finalising outstanding returns increased in 2014–15 due to the
provision of Budget 2014 funding, which enabled us to invest more resource in
targeting the more difficult cases which take longer to resolve. 2014–15 is the second
year where there was a significant positive variance. We have reviewed the target
accordingly, and are increasing it from $15 to $12 for 2015–16.
2013–14
Actual
2014–15
Target 0%
2015–16
Target
(7.1%)
(21.5%)
(2%)
2013–14
Actual
2014–15
Target 65%
2015–16
Target
67.4%
69.9%
65%
2013–14
Actual
2014–15
Target 85%
2015–16
Target
92.0%
92.2%
90%
2013–14
Actual
2014–15
Target $15.00
2015–16
Target
$5.60
$9.00
$12.00
ANNUAL REPORT 2015
77
Output 4.2 Overdue debt
Description
This output covers all activities associated with collecting overdue debt (excluding child
support debt). It involves taking both a preventative focus and appropriate follow-up
action when customers do not pay on time, including providing them with assistance on
how they can get back on track with their payment obligations.
Performance measures
All targets are unaudited.
2013–14
Actual
2014–15
Target 60%
2015–16
Target
52.2%
48.7%
60%
2013–14
Actual
2014–15
Target 80%
2015–16
Target
N/A
81.7%
80%
2013–14
Actual
2014–15
Target 65%
2015–16
Target
73.3%
78.5%
65%
Minimum cash collected for every debt dollar spent
2013–14
Actual
2014–15
Target $40.00
2015–16
Target
This measure is influenced to some degree by large enterprises using extension-of-time
payment provisions, as well as more cash collected from budget-funded initiatives.
$45.95
$48.77
$40.00
Maximum percentage of collectable debt value over two years old
The reduction in aged collectable debt has been achieved by stopping new collectable debt
progressively ageing through our early intervention strategy, and resolving more of our aged
collectable debt as well as addressing older debt which is not collectable. This demonstrates
good progress with our debt strategy to have a newer, more collectable debt book.
Minimum percentage of debt cases resolved within six months
Minimum percentage of debt value resolved for those who did not have a debt at the
start of the year
Our focus on intervening early with new debt has seen an improvement in the result
from last year. This measure is also influenced by the degree to which large enterprise
customers get an extended period of time to make end of year income tax payments.
Output 4.3 Child support debt management
Description
This output involves all activities associated with the recovery of overdue child support
payments. It includes taking appropriate enforcement action against parents who are less
inclined to pay for the support of their children.
78
ANNUAL REPORT 2015
07
Performance measures
All targets are unaudited.
Minimum percentage of NZ paying parent child support debt cases resolved
within 12 months
5
2013–14
Actual
2014–15
Target 75%
2015–16
Target
75.5%
79.5%
75%
Departmental Output Expense 5: Taxpayer Audit
Description
This output is limited to:
• identifying risks to revenue and designing and undertaking audit activities accordingly
• managing litigation of disputed tax cases.
Contributes to Impact Statements:
We use intelligence analysis to target our compliance activities to customers who
are non-compliant or at risk of non-compliance. This creates an environment where
customers expect us to detect non-compliance and are deterred from providing
inaccurate information. It also protects the revenue base and provides certainty to
customers in relation to the application of the law.
We also use our compliance activities to educate customers who are unaware of their
obligations and help them get it right. We only use enforcement action where necessary.
This ensures that the behaviour of non-compliant customers improves. Consequently, more
customers pay and file information on time in the future.
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
Crown
171,597
165,866
176,794
176,794
175,903
Other
434
265
265
326
265
172,031
166,131
177,059
177,120
176,168
Annual appropriations
165,269
166,131
177,059
172,017
176,168
Total expenses
165,269
166,131
177,059
172,017
176,168
6,762
–
–
5,103
–
Revenue
Total revenue
Expenses
Net surplus/(deficit)
ANNUAL REPORT 2015
79
Additional funding received from Government for initiatives
Budget-funded initiative
Hidden Economy
Aggressive Tax Planning
Fraud
2013–14
Unaudited
ROI actual
2014–15
Unaudited
ROI actual
2014–15
Unaudited
ROI target
$5.51
$5.21
$5.00
$62.43
$34.10
$11.60
$3.74
$3.09
$3.10
Output 5.1 Taxpayer audit
Description
This output involves the auditing of taxpayers including individuals, small to medium businesses and larger businesses. It
includes audits of duties and non-residents.
Performance measures
All targets are unaudited.
Minimum percentage of cases completed that are correct, complete, clear and
appropriately referenced #
Minimum percentage of audited customers who are satisfied with their
experience #
This year, we surveyed audited customers once per quarter rather than in previous
years when we have measured customer satisfaction by annual survey. Overall, the
level of customer satisfaction has improved from last year and remains at a high level.
We have increased the target for 2015–16.
Minimum percentage of customers confident that Inland Revenue takes
appropriate action against those who do not comply #
Minimum percentage of audits that result in a material discrepancy
80
ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 90%
2015–16
Target
95.1%
96.6%
90%
2013–14
Actual
2014–15
Target 65%
2015–16
Target
74.4%
76.2%
70%
2013–14
Actual
2014–15
Target 75%
2015–16
Target
77.1%
75.0%
75%
2013–14
Actual
2014–15
Target 75%
2015–16
Target
79.2%
80.3%
75%
07
On average we will complete audits within agreed timeframes:
2013–14
Actual
2014–15
Target Achieved
2015–16
Target
• 4 months for general audits
Achieved
Achieved
Achieved
2013–14
Actual
2014–15
Target 75%
2015–16
Target
79.1%
75.9%
75%
2013–14
Actual
2014–15
Target $7.00
2015–16
Target
$8.00
$7.52
$7.00
2013–14
Actual
2014–15
Target 66%
2015–16
Target
83.3%
83.8%
66%
• 12 months for risk-based audits
• 16 months for evasion and fraud audits
• 28 months for aggressive tax planning audits
Minimum percentage of disputed cases completed within 15 months
Minimum discrepancy identified for every output dollar spent
Output 5.2 Litigation management
Description
This output involves the management of litigation of disputed tax cases, including the
requirement to state the case through to resolution by the courts.
Performance measures
All targets are unaudited.
Minimum percentage of litigation judgements found in favour of the
Commissioner
This achievement reflects a total of 74 judgements for the year, 62 of which were found
fully in the Commissioner’s favour (ie, in relation to all issues). A case will generally
concern multiple issues and this measure requires a win on all issues in a single
judgement. We are confident our interpretation of the law is correct before we take
any case to court and the number of judgements in our favour reflects this. With the
small number of cases, any slight variation in judgements found in the Commissioner’s
favour can alter the percentage achieved significantly.
ANNUAL REPORT 2015
81
6
Departmental Output Expense 6: Services to Other
Agencies
Description
This output is limited to the provision of services by Inland Revenue to other agencies,
where those services are not within the scope of another departmental output expense
appropriation in Vote Revenue.
Contributes to Impact Statements: N/A
Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget
$000
$000
$000
$000
–
–
–
–
–
Revenue
Crown
Other
555
3,060
3,060
2,396
3,060
Total revenue
555
3,060
3,060
2,396
3,060
Annual appropriations
555
3,060
3,060
2,394
3,060
Total expenses
555
3,060
3,060
2,394
3,060
–
–
–
2
–
Expenses
Net surplus/(deficit)
Performance measures
All targets are unaudited.
Minimum percentage of satisfaction of the Department of Internal Affairs for
services provided
This was the first year a measure and target has been set for this appropriation. The
target of 95% was set prior to the completion of a measurement methodology. The
result of 80% satisfaction from the Department of Internal Affairs reflects a high level
of satisfaction with the services provided based on the measurement methodology.
The target for the 2015–16 financial year has been set at 70%.
Minimum percentage of satisfaction of the New Zealand Productivity
Commission for services provided
82
ANNUAL REPORT 2015
2013–14
Actual
2014–15
Target 95%
2015–16
Target
N/A
80.0%
70%
2013–14
Actual
2014–15
Target 95%
2015–16
Target
N/A
98.0%
70%
07
Departmental Capital Expenditure and Capital Injections
Description
The scope of this appropriation is limited to the purchase or development of assets by
and for the use of the Inland Revenue Department, as authorised by section 24(1) of the
Public Finance Act 1989.
Contributes to Impact Statements:
This appropriation is intended to invest in the renewal, upgrade and redesign of assets
that support the delivery of the Department’s services. This includes enhancements to
support child support scheme reform and the commencement of the transformation
programme including detailed design of strategic initiatives and progressing core
foundational and tactical requirements.
Financial performance
For details of departmental capital expenditure incurred against appropriations please
refer to the ‘Statement of Budgeted and Actual Expenses and Capital Expenditure
Incurred Against Appropriations’, in the ‘Departmental capital expenditure’ lines
‘Property, plant and equipment’, ‘Intangible assets’ and ‘Total departmental capital
expenditure’ on page 89.
For details of departmental capital injections please refer to page 90.
Commentary on performance information
Expenditure supports the delivery of our output performance measures in accordance
with our capital asset management priorities.
Deliver infrastructure that will support transformation
Our investment profile changed due to the timing of our investment in business
transformation foundational technology.
Maintain and improve business infrastructure
The assumptions we made around the investment required to maintain and improve our
business infrastructure and the technology needed for us to transform changed during
the year. Our investment profile changed due to the timing of our investment in business
transformation foundational technology.
Performance measures
All targets are unaudited.
2014–15 Target
40%
2014–15 Actual
41%
2015–16 Target
10%
20%
1%
60%
40%
Implement government policy initiatives
58%
Deliver infrastructure that will support transformation
30%
Maintain and improve business infrastructure
ANNUAL REPORT 2015
83
Our impact indicators
Full details of our impact indicators are listed below.
More customers are able to self-manage
Factors that influenced target setting: this impact is key to enabling improved customer compliance and cost-effectiveness in a fiscally
constrained environment. We only include results for the contextual indicator under this impact ‘customer compliance costs are
minimised’ when the data is less than two years old. The survey that this indicator uses was last undertaken in 2009 and results were
included in the 2011 Annual Report.
% of customers who are aware of their
obligations and entitlements increases
83
%
YE June 2015
83% YE June 2014
% of customers who find it easy to
comply increases
82
%
YE June 2015
80% YE June 2014
By June 2018
Increase to
85%
or more
By June 2018
Increase to
80%
or more
More customers register and report accurate information when required
Factors that influenced target setting: this impact is key to improving customer self-management, reducing unneccessary contacts and
improving end-to-end planning.
% of returns filed without errors increases
88
%
July 2014 – March 2015
87% July 2013 – March 2014
84
ANNUAL REPORT 2015
By June 2018
Increase to
88%
or more
07
% of applications submitted without
errors increases
89
%
YE June 2015
99
%
July 2014 – March 2015
99% July 2013 –
March 2014
95.6
Correlation
Employer registrations follow an
appropriate trend
We report on this indicator to provide additional contextual
information. Employers’ correlation is between the number
of employers who register for PAYE and the percentage of the
labour force that is employed (from the Statistics New Zealand
Household Labour Force Survey).
We report on this indicator to provide additional contextual
information. This measure highlights a link between consumers’
spending and the amount of GST assessed, showing the
completeness of information provided by GST customers.
No target has been set because this is an indicator that is beyond
our influence.
90%
%
By June 2018
Maintain at
98%
or more
N/A
(contextual)
YE June 2015
Correlation 98%
YE June 2014
98
Correlation
GST assessed to consumer spending
follows an appropriate trend
Increase to
or more
90% YE June 2014
% of correct student loan deductions
for New Zealand-based borrowers is
maintained
By June 2018
%
N/A
(contextual)
YE March 2015
Correlation 98%
YE March 2014
ANNUAL REPORT 2015
85
More customers claim their correct entitlements
Factors that influenced target setting: the expected impact of the upcoming changes to Working for Families Tax Credits eligibility rules
has been taken into account when assessing our ability to improve accuracy.
% of accurate Working for Families Tax
Credits payments increases
Payments are considered accurate if customers’ total yearly
payments are within 20% of their entitlement. The accuracy of
payments is primarily a reflection of the quality of information
provided to us by our customers.
% of child support assessments collected
increases
67
%
Tax year 2014
67% Tax year 2013
77
%
YE June 2015
75% YE June 2014
35
Correlation
Working for Families registrations follow
an appropriate trend
We report on this indicator to provide more context. Working
for Families Tax Credits correlation is between the number of
customers who receive payments from Inland Revenue and
the number of households with dependent children (from the
Statistics New Zealand Household Labour Force Survey).
Donation rebates claimed follow an
appropriate trend
We report on this indicator to provide more context to gauge if
customers are claiming donation rebates. It looks at the relationship
between donation rebates claimed from Inland Revenue and
donation levels recorded at the Charities Service.
86
ANNUAL REPORT 2015
%
YE July 2015
Tax year 2017
Increase to
70%
or more
By June 2018
Increase to
75%
or more
N/A
(contextual)
Correlation
32% YE June 2014
58
%
Tax year 2014
59% Tax year 2013
N/A
(contextual)
07
More customers pay and file information on time
Factors that influenced target setting: this impact is a key compliance driver and consequently stretch targets are appropriate.
% of returns filed on time is maintained
83
%
Tax year 2014
86
%
Tax year 2014
83%
Tax year 2017
Maintain at
86%
or more
86% Tax year 2013
% of child support assessments paid on
time increases
Maintain at
or more
83% Tax year 2013
% of payments made by customers on
time is maintained
Tax year 2017
67
%
YE June 2015
By June 2018
Increase to
68%
or more
65% YE June 2014
The behaviour of non-compliant customers improves
Factors that influenced target setting: the economic environment is a significant factor in debt performance. Maintaining or making
small improvements will be challenging.
The compliance behaviour of customers
who received an audit intervention
improves
77
%
YE June 2015
86% YE June 2014
By June 2018
Increase to
85%
or more
ANNUAL REPORT 2015
87
% of collectable debt to total debt increases
57
%
YE June 2015
15
%
YE June 2015
5.8
%
YE June 2015
6.8% YE June 2014
88
ANNUAL REPORT 2015
65%
By June 2018
Increase to
13%
or more
13% YE June 2014
% of collectable debt to revenue assessed
decreases
Increase to
or more
62% YE June 2014
% of collectable debt recovered increases
By June 2018
By June 2018
Decrease to
6.0%
or less
07
Appropriation Statements
The following statements report information about the expenses and capital expenditure incurred
against each appropriation administered by Inland Revenue for the year ended 30 June 2015.
STATEMENT OF BUDGETED AND ACTUAL EXPENSES AND CAPITAL EXPENDITURE INCURRED AGAINST APPROPRIATIONS
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Expenditure1
2014–15
Unaudited
budget
2014–15
Expenditure1
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget2
$000
$000
$000
$000
8,118
8,053
9,153
8,128
8,002
Services to inform the public about entitlements and
meeting obligations
248,037
251,307
253,155
245,816
250,758
Services to process obligations and entitlements
144,965
140,572
133,507
127,612
125,734
Management of debt and outstanding returns
132,610
143,259
151,463
148,033
146,169
Taxpayer audit
165,269
166,131
177,059
172,017
176,168
698,999
709,322
724,337
701,606
706,831
Vote: Revenue
Output expenses
Policy advice
Total departmental output expenses
1
Services to other agencies RDA3
555
3,060
3,060
2,394
3,060
699,554
712,382
727,397
704,000
709,891
–
–
–
–
55,000
Administration and use of another departments
appropriations
973
–
244
244
–
Total other expenses
973
–
244
244
55,000
700,527
712,382
727,641
704,244
764,891
Property, plant and equipment
15,564
20,000
4,000
3,678
10,000
Intangible assets
29,127
42,336
29,000
28,710
95,000
Total departmental capital expenditure
44,691
62,336
33,000
32,388
105,000
Total output expenses
Other expenses
Transformation
Total expenditure
Departmental capital expenditure
Excludes remeasurement of ($1,999,000), (2013–14: $641,000).
The Revised Budget figures for 2014–15 are those included in The Supplementary Estimates of Appropriations and Supporting
Information for the year ending 30 June 2015.
3
Revenue-dependent appropriation (RDA). The amount of a RDA is limited to the amount of revenue earned.
1
2
The budget, revised budget and forecast figures have been prepared in accordance with NZ GAAP, using accounting policies that are
consistent with those adopted in preparing the departmental financial statements in part eight.
ANNUAL REPORT 2015
89
Explanations of significant variances against budget are detailed in Note 25 of the departmental financial statements in part eight.
All of the 2014–15 performance information for each appropriation administered by Inland Revenue has been reported within part seven,
Measuring our performance.
STATEMENT OF EXPENSES AND CAPITAL EXPENDITURE INCURRED WITHOUT, OR IN EXCESS OF, APPROPRIATION OR
OTHER AUTHORITY
FOR THE YEAR ENDED 30 JUNE 2015
In the 2014–15 financial year there were no instances of:
• expenses and capital expenditure incurred in excess of appropriation (2013–14: $nil)
• expenses and capital expenditure incurred without appropriation or other authority,
or outside the scope or period of appropriation (2013–14: $nil).
STATEMENT OF DEPARTMENTAL CAPITAL INJECTIONS
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual capital
injections
2014–15
Actual capital
injections
$000
$000
2014–15
Unaudited
revised
budget
$000
5,329
3,572
3,572
Vote: Revenue
Capital injections
Inland Revenue has not received any capital injections during the year without, or in excess of, authority (2013–14: $nil).
90
ANNUAL REPORT 2015
07
STATEMENT OF NON-DEPARTMENTAL APPROPRIATIONS
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
revised
budget7
$000
$000
$000
$000
241,595
267,000
263,000
265,078
276,000
1,835
1,300
1,300
1,298
1,100
1,965,263
1,934,000
1,857,000
1,854,048
1,837,000
In-work tax credit PLA
533,266
494,000
512,000
511,186
529,000
KiwiSaver: Fee subsidy
(11)
–
–
(8)
–
7,294
13,000
13,000
8,413
15,000
KiwiSaver: Kick-start payment
227,772
171,000
231,000
218,364
–
KiwiSaver: Tax credit
569,163
643,000
643,000
629,297
705,000
Vote: Revenue
1
Benefits and other unrequited expenses
Child support payments PLA
Child tax credit PLA
Family tax credit PLA
KiwiSaver: Interest
Minimum family tax credit PLA
14,275
13,000
16,000
15,975
16,000
164,5042
176,000
189,000
180,286
233,000
17,640
19,000
21,000
20,967
31,000
3,129
4,000
4,100
3,945
5,100
(3,952)
–
–
–
–
3,741,773
3,735,300
3,750,400
3,708,849
3,648,200
12
10
20
(1)
10
Environmental restoration account interest PLA
1,636
2,000
2,000
1,634
2,000
Income equalisation interest PLA
7,260
7,000
15,000
3,543
15,000
Total borrowing expenses
8,908
9,010
17,020
5,176
17,010
930,158
–
–
–
–
Paid parental leave payments
Parental tax credit PLA
Payroll subsidy PLA
Research and development tax credit
Total benefits and other unrequited expenses
Borrowing expenses
Adverse event interest PLA
Other expenses
Bad debt write-offs
6
94,902
–
–
–
–
–
1,162,098
1,180,356
860,829
1,179,224
–6
–
–
–
–
41,000
100,000
282,000
152,000
100,000
629,539
668,000
622,844
601,665
646,000
Total other expenses
1,695,599
1,930,098
2,085,200
1,614,494
1,925,224
Total appropriations
5,446,280
5,674,408
5,852,620
5,328,519
5,590,434
Impairment of debt
3
Impairment of debt and debt write-offs4
Impairment of debt relating to child support
Impairment of debt relating to student loans
5
Initial fair value write-down relating to student loans
1
PLA refers to appropriations established under a permanent legislative authority.
2
Historically Inland Revenue had made paid parental leave payments on the basis they had PLA. During 2013–14 it was identified they
did not have PLA. Refer to the Statement of Unappropriated Expenditure for details.
3
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.
ANNUAL REPORT 2015
91
4
Impairment of debt and debt write-offs is a new appropriation combining both bad debt write-offs and impairment of debt, effective
from 1 July 2014.
5
Excludes remeasurement of $117 million (2013–14 ($29) million). Macroeconomic changes are classified as a remeasurement, as
defined in the Public Finance Act 1989. The Schedule of Non-departmental Expenditure includes remeasurement adjustments in
the impairment figure. However, the Statement of Non-departmental Appropriations excludes remeasurement adjustments. The
remeasurement relates to changes in the macroeconomic assumptions used for the valuation of the receivable.
6
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 of the non-departmental
financial schedules in part nine for details.
7
The revised budget figures for 2014–15 are those included in The Supplementary Estimates of Appropriations and Supporting
Information for the year ending 30 June 2015.
All of the non-departmental appropriations administered by the Department are exempt from the requirements to report end-of-year
performance information, under section 15D of the Public Finance Act 1989.
The budget, revised budget and forecast figures have been prepared in accordance with NZ GAAP, using accounting policies that are
consistent with those adopted in preparing the non-departmental financial schedules in part nine.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
STATEMENT OF NON-DEPARTMENTAL UNAPPROPRIATED EXPENDITURE
In the 2014–15 financial year:
• There were no instances of expenditure incurred outside of appropriation (2013–14: $nil).
• There were no instances of expenditure incurred in excess of appropriation (2013–14: $67.689 million).
92
ANNUAL REPORT 2015
08
Departmental
financial statements
ANNUAL REPORT 2015
93
STATEMENT OF COMPREHENSIVE
REVENUE AND EXPENSE
FOR THE YEAR ENDED 30 JUNE 2015
Notes
Revenue
Revenue Crown
Other revenue
1
Total revenue
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
717,838
683,635
685,442
698,650
736,144
25,698
28,747
27,199
26,950
28,747
743,536
712,382
712,641
725,600
764,891
Expenses
Personnel
2
431,986
457,750
467,030
463,668
503,944
Operating
3
194,845
177,191
179,820
176,867
183,745
Depreciation and impairment
4
13,440
16,848
12,708
12,497
12,362
Amortisation and impairment
5
37,925
38,528
31,052
31,032
42,638
Capital charge
6
21,616
22,031
22,031
22,031
22,166
Finance costs
7
74
34
–
148
36
699,886
712,382
712,641
706,243
764,891
43,650
–
–
19,357
–
Total expenses
Net surplus/(deficit) and total comprehensive
revenue and expense
The accompanying accounting policies and notes form part of these financial statements.
Explanations of significant variances against budget are detailed in Note 25.
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ANNUAL REPORT 2015
08
STATEMENT OF CHANGES IN TAXPAYERS’ FUNDS
FOR THE YEAR ENDED 30 JUNE 2015
Notes
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
270,343
43,650
275,393
–
275,393
–
275,392
19,357
277,093
–
(43,651)
–
–
(19,357)
–
Capital injection
5,329
2,336
3,572
3,572
2,480
Capital withdrawal
(279)
–
(1,872)
(1,872)
(34)
275,392
277,729
277,093
277,092
279,539
Balance at start of year
Total comprehensive revenue and expense
Repayment of surplus to the Crown
Balance at end of year
8
2013–14
Actual
2014–15
Unaudited
budget
$000
The accompanying accounting policies and notes form part of these financial statements.
ANNUAL REPORT 2015
95
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015
Notes
Taxpayers' funds
Taxpayers' funds
Total taxpayers' funds
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
275,392
275,392
277,729
277,729
277,093
277,093
277,092
277,092
279,539
279,539
30,643
238,430
16,811
879
286,763
12,000
195,502
15,422
1,000
223,924
12,000
227,558
12,407
851
252,816
20,679
245,557
15,471
873
282,580
12,000
160,342
11,922
800
185,064
834
55,450
107,853
164,137
66
59,176
113,487
172,729
795
46,330
105,449
152,574
328
45,689
105,186
151,203
42
43,968
157,811
201,821
450,900
396,653
405,390
433,783
386,885
Represented by:
Current assets
Cash and cash equivalents
Debtor Crown
Debtors and prepayments
Inventories held for distribution
Total current assets
Non-current assets
Prepayments
Property, plant and equipment
Intangible assets
Total non-current assets
9
10
9
4
5
Total assets
Current liabilities
Creditors and other payables
Surplus payable to the Crown
Employee entitlements
Provision for other liabilities
Derivative financial instruments
Finance leases
Other financial liabilities
Total current liabilities
11
8
12
13
14
15
16
44,303
43,651
47,931
53
1
386
183
136,508
33,200
–
43,815
–
–
274
205
77,494
37,418
–
50,889
53
–
420
271
89,051
37,090
19,357
58,345
90
–
707
275
115,864
33,200
–
36,500
174
–
172
176
70,222
Non-current liabilities
Employee entitlements
Provision for other liabilities
Finance leases
Other financial liabilities
Total non-current liabilities
12
13
15
16
36,626
912
593
869
39,000
39,948
851
12
619
41,430
37,091
1,007
172
976
39,246
38,807
397
487
1,136
40,827
35,700
912
–
512
37,124
Total liabilities
175,508
118,924
128,297
156,691
107,346
Net assets
275,392
277,729
277,093
277,092
279,539
The accompanying accounting policies and notes form part of these financial statements.
Explanations of significant variances against budget are detailed in Note 25.
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ANNUAL REPORT 2015
08
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2015
Notes
Cash flows − operating activities
Receipts from Crown
Receipts from government departments
Receipts from third parties
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
678,163
692,404
696,314
691,523
803,360
1,310
7,572
3,807
3,769
4,630
21,977
21,397
25,659
24,158
24,492
Payments to employees
(432,522)
(458,735)
(463,607)
(451,073)
(519,724)
Payments to suppliers
(184,028)
(180,903)
(181,441)
(180,275)
(185,070)
(21,616)
(22,031)
(22,031)
(22,031)
(22,166)
2,252
(1,779)
(2,773)
(2,215)
(2,550)
65,536
57,925
55,928
63,856
102,972
114
–
–
303
–
Payments for capital charge
Goods and services tax (net)
Net cash flow from operating activities
17
Cash flows − investing activities
Receipts from sale of property, plant and equipment
Purchase of property, plant and equipment
(15,564)
(20,000)
(3,587)
(3,678)
(10,000)
Purchase of intangible assets
(29,102)
(40,008)
(28,647)
(28,710)
(94,998)
Net cash flow from investing activities
(44,552)
(60,008)
(32,234)
(32,085)
(104,998)
5,329
2,336
3,572
3,572
2,480
(41,080)
–
(43,650)
(43,650)
–
(279)
–
(1,872)
(1,872)
(34)
58
(253)
(387)
215
(420)
Net cash flow from financing activities
(35,972)
2,083
(42,337)
(41,735)
2,026
Net (decrease)/increase in cash and cash
equivalents
Opening cash and cash equivalents
(14,988)
–
(18,643)
(9,964)
–
45,631
12,000
30,643
30,643
12,000
30,643
12,000
12,000
20,679
12,000
Cash flows − financing activities
Capital injection
Repayment of surplus
Capital withdrawal
Payments of finance leases
Closing cash and cash equivalents
The accompanying accounting policies and notes form part of these financial statements.
The goods and services tax (GST) (net) component of operating activities reflects the net GST paid to and received from Inland Revenue. The GST
components have been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.
ANNUAL REPORT 2015
97
STATEMENT OF COMMITMENTS
AS AT 30 JUNE 2015
Notes
2013–14
Actual
$000
2014–15
Actual
$000
Capital commitments
IT equipment
372
589
Leasehold improvements
558
150
Intangible assets
2,841
2,284
Total capital commitments
3,771
3,023
32,642
33,805
115,685
114,330
77,667
63,082
225,994
211,217
229,765
214,240
Operating commitment leases as lessee
The future aggregate minimum lease payments to be paid
under non-cancellable accommodation leases:
Not later than one year
Later than one year and not later than five years
Later than five years
Total non-cancellable operating commitments
Total commitments
The accompanying accounting policies and notes form part of these financial statements.
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ANNUAL REPORT 2015
18
08
STATEMENT OF CONTINGENT LIABILITIES
AND CONTINGENT ASSETS
AS AT 30 JUNE 2015
Notes
Contingent liabilities
Legal proceedings and disputes – taxpayer
Personal grievances
Total contingent liabilities
19
2013–14
Actual
$000
2014–15
Actual
$000
843
1,706
30
30
873
1,736
2,867
2,647
2,867
2,647
Contingent assets
Legal proceedings and disputes – taxpayer
Total contingent assets
19
The accompanying accounting policies and notes form part of these financial statements.
ANNUAL REPORT 2015
99
STATEMENT OF ACCOUNTING POLICIES
These financial statements are for the year ended 30
June 2015 and include forecast financial statements
for the year ending 30 June 2016. The statements have
been combined to provide a single view of budget,
actual and forecast information.
References to the financial statements incorporate the financial
statements and the forecast financial statements, unless
otherwise stated.
REPORTING ENTITY
Inland Revenue is a government department as defined
by section 2 of the Public Finance Act (PFA) 1989 and
is domiciled and operates in New Zealand. The relevant
legislation governing Inland Revenue’s operations is the PFA
1989. It is a wholly owned entity of the Crown whose primary
objective is to provide services to the public rather than
making a financial return. Accordingly, Inland Revenue has
designated itself as a Public Benefit Entity (PBE) for financial
reporting purposes.
REPORTING PERIOD
The reporting period for these financial statements is for the
year ended 30 June 2015. The forecast financial statements are
for the year ending 30 June 2016.
The financial statements were authorised for issue by the Chief
Executive of Inland Revenue on 29 September 2015.
STATEMENT OF COMPLIANCE
The financial statements have been prepared in accordance
with the requirements of the PFA 1989, which includes the
requirement to comply with New Zealand generally accepted
accounting practice (NZ GAAP), and Treasury Instructions.
In May 2013, the External Reporting Board issued a new suite
of PBE accounting standards for application by public sector
entities for reporting periods beginning on or after 1 July
2014. Inland Revenue has applied the new suite of Tier 1 PBE
accounting standards in preparing the 30 June 2015 financial
statements.
These financial statements are the first financial statements
presented in accordance with the new Tier 1 PBE accounting
standards. There are no material adjustments arising on
transition to the new Tier 1 PBE accounting standards.
BASIS OF PREPARATION
The financial statements have been prepared on a going
concern basis, and the accounting policies set out below have
been applied consistently to all periods presented in these
financial statements.
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ANNUAL REPORT 2015
These financial statements have been prepared on a historical
cost basis, unless otherwise stated. The accrual basis of
accounting has been used, unless otherwise stated.
These financial statements are presented in New Zealand dollars,
and all values are rounded to the nearest thousand dollars ($000).
The functional currency of Inland Revenue is New Zealand dollars.
STANDARDS ISSUED AND NOT EARLY
ADOPTED
There are no new relevant standards and interpretations issued
this year and Inland Revenue has not early adopted any new
standards and interpretations.
ESTIMATIONS AND JUDGEMENTS
In preparing these financial statements, judgements, estimates
and assumptions have been made concerning the future.
These estimates and their associated assumptions may differ
from the subsequent actual results. Estimates and assumptions
are continually evaluated and are based on experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Revisions
to accounting estimates are recognised in the period the
estimate is revised in if the revision affects only that period, or
in the period of the revision and future periods if the revision
affects both current and future periods.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities within the next financial year are related to
retiring and long-service leave liabilities.
An analysis is provided in Note12 of the exposure in relation
to estimates and uncertainties surrounding retiring and longservice leave liabilities.
Finance leases
Determining whether a lease agreement is a finance lease
or an operating lease requires judgement as to whether the
agreement transfers substantially all the risks and rewards
of ownership to Inland Revenue. Judgement is required on
various aspects that include, but are not limited to, the fair
value of the leased asset, the economic life of the leased asset,
whether or not to include renewal options in the lease term,
and determining an appropriate discount rate to calculate the
present value of the minimum lease payments. Classification as
a finance lease means the asset is recognised in the Statement
of Financial Position as property, plant, and equipment, whereas
with an operating lease no such asset is recognised.
Inland Revenue has exercised its judgement on the appropriate
classification of equipment leases, and has determined that
one of these arrangements included a finance lease.
08
ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results, financial position, and output
statements within part seven, Measuring our performance have
been applied.
Budget and forecast figures
The budget figures for 2014–15 are those included in The
Estimates of Appropriations for the year ending 30 June 2015.
The estimated actual figures for 2014–15 and the forecast
figures for 2015–16 are those included in The Estimates of
Appropriations for the year ending 30 June 2016. The estimated
actual figures represent forecasts submitted to Treasury based
on all Government decisions and assumptions as at 28 April 2015.
It is not intended that the forecast financial statements will be
updated subsequent to presentation.
The budget, estimated actual and forecast figures have been
prepared in accordance with NZ GAAP, using accounting
policies that are consistent with those adopted in preparing
these financial statements.
GST
All items in the financial statements, and appropriation
statements, are stated exclusive of GST, except for debtor
Crown, net debtors and accounts payable, which are stated on
a GST-inclusive basis. Where GST is not recoverable as input
tax, it is recognised as part of the related asset or expense.
The net amount of GST owing to or from Inland Revenue
at balance date, being the difference between output GST
and input GST, is included in creditors and other payables or
debtors and prepayments in the Statement of Financial Position.
The net GST paid to or received from Inland Revenue, including
the GST relating to investing and financing activities, is classified
as an operating cash flow in the Statement of Cash Flows.
Commitments and contingencies are disclosed exclusive of GST.
Income tax
Government departments are exempt from income tax as
public authorities, so accordingly, no charge for income tax has
been provided for.
Acts for the financial year. The amount of revenue recognised
takes into account any amendments to appropriations
approved in the Appropriation (Supplementary Estimates)
Act for the year and certain other unconditional funding
adjustments formally approved prior to balance date.
There are no conditions attached to the funding from the
Crown. However, Inland Revenue can incur expenses only
within the scope and limits of its appropriations.
The fair value of Revenue Crown has been determined to be
equivalent to the funding entitlement.
Other revenue
Other revenue transactions as outlined below are considered
to be exchange transactions.
Sale of services
Sale of services are recognised in the accounting period the
services are provided in, by reference to completion of specific
transactions, assessed on the basis of actual services provided
as a proportion of the total services to be provided.
Revenue from recoveries
Revenue from recoveries is recognised as revenue when earned.
Sub-leases
Rental revenue from sub-leased property is recognised in the
surplus or deficit on a straight-line basis over the term of the
lease.
Insurance proceeds
Insurance claim proceeds are recognised as revenue when
the claim has been accepted by the insurer or when receipt
of the insurance proceeds is considered virtually certain. The
insurance proceeds will be disclosed as a contingent asset if the
receipt is only probable.
Capital charge
The capital charge is recognised as an expense in the period to
which the charge relates.
Foreign currency transactions, hedge
accounting, and hedging activities
Revenue Crown transactions are considered to be nonexchange transactions.
Inland Revenue’s activities expose it primarily to risks
of changes in foreign exchange rates. Foreign currency
transactions (including those for which forward exchange
contracts are held) are translated into New Zealand dollars
using the spot exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
surplus or deficit.
Revenue Crown is measured based on Inland Revenue’s funding
entitlement for the reporting period. The funding entitlement
is established by Parliament when it passes the Appropriation
For certain commitments Inland Revenue uses derivative
financial instruments (primarily, foreign currency forward
exchange contracts) to mitigate its risks associated with
Revenue
Revenue is measured at the fair value of consideration received
or receivable.
Revenue is recognised as follows:
Revenue Crown
ANNUAL REPORT 2015
101
foreign currency fluctuations. The use of financial derivatives is
governed by Inland Revenue’s foreign exchange policy, which
provides written principles on the use of financial derivatives
consistent with Inland Revenue’s risk management strategy.
Inland Revenue does not hold or issue derivative financial
instruments for trading purposes. It also has not adopted
hedge accounting.
Derivative financial instruments
Derivative financial instruments are recognised at fair value on
the date a derivative contract is entered into and subsequently
at fair value at each balance date. They are reported as either
assets or liabilities, depending on whether the derivative is in a
net gain or net loss position, respectively. The fair value gains
or losses on derivatives are recognised in the surplus or deficit.
Foreign currency forward exchange contracts are classified as
derivative financial instruments.
Foreign currency forward exchange contracts are classified as
current if the contract is due for settlement within 12 months
of balance date. Otherwise the full fair value is classified as
non-current.
Debtors and receivables
Accounts receivable and other debtors transactions are
considered to be exchange transactions. Debtor Crown
transactions are considered to be non-exchange transactions.
Debtors and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are recognised initially at fair value plus
transaction costs and subsequently measured at amortised
cost using the effective interest rate method. Debtors and
receivables issued with durations of less than 12 months
are recognised at their nominal value, unless the effect of
discounting is material.
Impairment of receivables
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivable. Significant financial difficulties of the
debtor, probability that the debtor will enter into bankruptcy,
and default in payments are considered indicators that the
debtor is impaired.
The amount of the provision is the difference between the
asset’s carrying amount and the estimated amount expected
to be collected. The carrying amount of the asset is reduced
through the use of an allowance account, and the amount of
the impairment loss is recognised in the surplus or deficit.
Cash and cash equivalents
Cash and cash equivalents include all cash held in the bank
accounts. All cash held in bank accounts is held in on demand
accounts and no interest is payable to Inland Revenue.
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ANNUAL REPORT 2015
Inland Revenue is only permitted to expend its cash and cash
equivalents within the scope and limits of its appropriations.
Inventories held for distribution
Inventories held for distribution comprise forms, booklets and
returns held for distribution to the public at no or nominal
consideration in the ordinary course of operations.
Inventories held for distribution for public benefit purposes
are carried at cost, calculated using the first-in, first-out (FIFO)
cost method, adjusted where applicable for any loss of service
potential. The cost of inventories includes all costs of purchase,
costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. Where
inventories are acquired through a non-exchange transaction,
the cost is deemed to be the fair value at the date of
acquisition.
The carrying amount is recognised as an expense in the period
in which the goods are distributed. The amount of any writedown for the loss of service potential is recognised in the
surplus or deficit in the period the write-down occurs.
Property, plant and equipment
Inland Revenue has operational assets that include IT
equipment, furniture and office equipment, motor vehicles, and
leasehold improvements. The capitalisation thresholds are:
• IT equipment – desktop computers and laptops
all
• IT equipment – other
$2,000 and over
(or $20,000 for bulk purchased IT equipment)
• Furniture and office equipment
$2,000 and over
(or $20,000 for bulk purchased furniture)
• Motor vehicles
$2,000 and over
• Leasehold improvements
$20,000 and over
Property, plant and equipment are shown at historical cost, less
accumulated depreciation and impairment losses. Historical
cost is the value of consideration given to acquire or create the
asset and any directly attributable costs of bringing the asset to
working condition for its intended use.
Additions
The cost of an item of property, plant and equipment is
recognised as an asset if it is probable that future economic
benefits or service potential associated with the item will flow
to Inland Revenue and the cost of the item can be measured
reliably. In most instances, an item of property, plant and
equipment is recognised at its cost. Where an asset is acquired
through a non-exchange transaction, it is recognised at fair
value as at the date of acquisition.
08
Subsequent costs
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits or service potential
associated with the item will flow to Inland Revenue and the
cost of the item can be measured reliably. All repairs and
maintenance are recognised in the surplus or deficit during the
financial period in which they are incurred.
Depreciation
Depreciation is provided on a straight-line basis on all property,
plant and equipment, other than assets under construction.
The rate of depreciation will write off the cost of the asset to
the estimated residual value over the useful life of the asset.
The useful life of major classes of assets have been estimated as
follows:
• IT equipment 3 to 6 years
• Furniture and office equipment 5 to 7 years
• Motor vehicles 5 to 7 years
• Leasehold improvements up to 10 years
All property, plant and equipment other than motor vehicles are
assumed to have no residual value. Motor vehicles are assumed to
have a 20% residual value.
The cost of leasehold improvements is capitalised and
depreciated over the unexpired period of the lease, or the
estimated remaining useful life of the improvements, whichever
is shorter, up to a maximum of 10 years.
Assets under construction are recognised at cost less
impairment and are not depreciated. The total cost of a capital
project is transferred to the appropriate asset class on its
completion and then depreciated.
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance date.
Disposals
There are two types of internally generated intangible assets:
computer software developed and business processes.
The cost of computer software developed comprises direct
labour, material purchased and an appropriate portion of
relevant overheads. These costs are directly associated with the
development of identifiable and unique software controlled by
Inland Revenue, and will generate future economic benefits.
Expenditure on development activities where research
findings are applied to a plan or design for new or substantially
improved business processes, is capitalised if the business
process is technically and commercially feasible and Inland
Revenue has sufficient resources to complete development.
Other development expenditure as part of a new or improved
business process is recognised in the surplus or deficit as an
expense as incurred.
Expenditure incurred on research of an internally generated
intangible asset is expensed when it is incurred. Where the
research phase cannot be distinguished from the development
phase, the expenditure is expensed when it is incurred.
Costs associated with maintaining internally generated
computer software are recognised as an expense when
incurred. Costs of configuring and customising Commercial
Off-the-Shelf (COTS) software are capitalised.
Costs associated with ongoing development and maintenance
of Inland Revenue’s existing websites are recognised as an
expense in the surplus or deficit when incurred.
Staff training costs are recognised as an expense in the surplus
or deficit when incurred.
b) Software licences
Intangible assets acquired by Inland Revenue such as
computer software licences are stated at cost less accumulated
amortisation and impairment losses. Acquired computer
software licences are capitalised on the basis of costs incurred
to acquire and bring to use the specific software.
Gains and losses on disposals are determined by comparing
proceeds with the carrying amount. These are recognised on a
net basis in the surplus or deficit.
Costs associated with maintaining computer software licences
are recognised as an expense when incurred.
Intangible assets
The capitalisation thresholds for intangible assets are:
Inland Revenue has intangible assets in the form of internally
generated intangible assets and software licenses.
• Internally generated intangible assets $50,000 and over
Additions
Subsequent cost
Intangible assets are initially recorded at cost. Inland Revenue
only has intangible assets with finite useful lives. The two
main categories are: internally generated intangible assets and
software licences.
The cost of intangible assets with finite lives is subsequently
recorded at cost less any amortisation and impairment losses.
a) Internally generated intangible assets
The cost of internally generated intangible assets represents
expenditure incurred in the development phase of the asset only.
• Software licences
$5,000 and over
Amortisation
The carrying value of an intangible asset with a finite life is
amortised on a straight-line basis over its estimated useful
life. Amortisation begins when the asset is available for use
and ceases at the date that the asset is de-recognised. The
amortisation charge for each period is recognised in the
surplus or deficit.
ANNUAL REPORT 2015
103
The useful lives of major classes of intangible assets have been
estimated as follows:
• Internally generated intangible assets
5 to 10 years
• Software licences 5 to 10 years
Assets under construction are recognised at cost less
impairment and are not amortised. The total cost of a capital
project is transferred to the appropriate asset class on its
completion and then amortised.
De-recognition
The gain or loss arising from the de-recognition of an intangible
asset is recognised in the surplus or deficit when the asset is
de-recognised.
Impairment of non-cash generating property,
plant and equipment and intangible assets
Inland Revenue does not hold any cash generating assets.
Assets are considered cash generating where their primary
objective is to generate a commercial return.
Property, plant and equipment and intangible assets that have
a finite useful life are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. Property, plant and equipment and
intangible assets including assets under construction are also
reviewed annually for impairment at each balance date.
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable service amount.
The recoverable service amount is the higher of an asset’s fair
value less costs to sell and value in use.
Value in use is the present value of the asset’s remaining
service potential. Value in use is determined based on either
a depreciated replacement cost approach, restoration cost
approach, or a service units approach. The most appropriate
approach used depends on the nature of the impairment and
the availability of information.
If an asset’s carrying amount exceeds its recoverable service
amount, the asset is considered to be impaired and is written
down to the recoverable service amount. The impairment loss
is recognised in the surplus or deficit.
The reversal of an impairment loss is also recognised in the
surplus or deficit.
Financial liabilities
Financial liabilities measured at amortised cost are recognised
initially at fair value less transaction costs and subsequently
measured at amortised cost using the effective interest rate
method. Included in this category are creditors and other
payables, finance leases and leasing incentives. Financial
liabilities entered into with durations of less than 12 months
are recognised at their nominal value, unless the effect of
discounting is material. Creditors and other payables are
recognised at their nominal value as the effect of discounting is
immaterial.
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ANNUAL REPORT 2015
Leases
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards of ownership of an asset, whether or
not title is eventually transferred. A lease is classified as an
operating lease if it does not transfer substantially all the risks
and rewards incidental to the ownership of an asset.
Operating leases
Rentals payable under operating leases are recognised as an
expense on a straight-line basis over the term of the relevant
lease. Lease incentives received as an incentive to enter into an
operating lease are also recognised evenly over the term of the
lease as a reduction in the rental expense.
Contractual arrangements considered to be operating leases
have been recognised during the reporting period.
Finance leases
At the commencement of the lease term, finance leases are
recognised as assets and liabilities in the Statement of Financial
Position at the lower of the fair value of the leased item or the
present value of the minimum lease payments.
The finance charge is charged to the surplus or deficit over
the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
The amount recognised as an asset is depreciated over its
useful life. If there is no certainty as to whether Inland Revenue
will obtain ownership at the end of the lease term, the asset
is fully depreciated over the shorter of the lease term and its
useful life.
Contractual arrangements considered to be finance leases have
been recognised during the reporting period.
Employee entitlements
Short-term entitlements
Employee entitlements that Inland Revenue expects to be
settled within 12 months of balance date are measured at
nominal values based on accrued entitlements at current rates
of pay. These include salaries and wages accrued up to balance
date, annual leave and time off in lieu earned up to but not yet
taken at balance date, retiring, long-service leave and sick leave
entitlements expected to be settled within 12 months.
Inland Revenue recognises a liability for sick leave to the
extent that absences in the coming year are expected to be
greater than the sick leave entitlements earned in the coming
year. The amount is calculated based on the unused sick leave
entitlement that can be carried forward at balance date, to the
extent that Inland Revenue anticipates it will be used by staff
to cover those future absences.
Inland Revenue recognises a liability and an expense for
bonuses where it is contractually obliged to pay them, or where
a past practice has created a constructive obligation and a
reliable estimate of the obligation can be made.
08
Long-term entitlements
Employee entitlements that are payable beyond 12 months
such as long-service leave and retiring leave have been
calculated on an actuarial basis.
The actuarial calculations for long-service leave and retiring
leave liabilities are based on:
• Employee contractual entitlements
• Years of service accrued to balance date and years remaining
to entitlement
• Present value of the estimated future cash outflows using an
applicable discount rate and salary inflation rate.
Sick leave, annual leave, and vested long-service leave are
classified as a current liability. Non-vested long-service leave and
retiring leave liabilities expected to be settled within 12 months
of balance date are classified as a current liability. All other
employee entitlements are classified as a non-current liability.
the provision due to the passage of time is recognised as an
interest expense and is included in finance costs.
A provision for onerous contracts is recognised when the
expected benefits or service potential to be derived from a
contract are lower than the unavoidable cost of meeting the
obligations under the contract.
The provision is measured at the present value of the lower
of the expected cost of terminating the contract and the
expected net costs of continuing with the contract.
Taxpayers’ funds
This is the Crown’s net investment in Inland Revenue. It is
measured as the difference between total assets and total
liabilities. Taxpayers’ funds are disaggregated and classified into
a number of components:
• Capital injection
• Capital withdrawal
Superannuation schemes
• Repayment of surplus to the Crown.
Obligations for contributions to the Inland Revenue
Superannuation Scheme, State Sector Retirement Savings
Scheme, KiwiSaver, and the Government Superannuation Fund
are accounted for as defined contribution schemes and are
recognised as an expense in the surplus or deficit as they are
incurred.
Statement of Cash Flows
Termination benefits
Termination benefits are payable when an employee’s
employment contract is terminated before their normal
retirement or when an employee accepts voluntary
redundancy in exchange for these benefits. Inland Revenue
recognises the expenditure in the surplus or deficit when it is
demonstrably committed to either terminate the employment
of current employees, according to a detailed formal plan
without the possibility of withdrawal, or as a result of an offer
for voluntary redundancy.
Termination benefits to be settled within 12 months are
reported at the amount expected to be paid, otherwise they are
reported as the present value of the estimated future cash outflows.
Provisions
Inland Revenue recognises a provision for future expenditure
of uncertain amounts or timing where there is a present
obligation (either legal or constructive) as a result of a past
event, and it is probable that expenditure will be required to
settle the obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are not recognised for net
deficits from future operating activities.
Provisions are recorded at the best estimate of the expenditure
required to settle the obligation. Provisions to be settled
beyond 12 months are recorded at their present value and are
discounted using market yields on government bonds at balance
date with terms to maturity that match, as closely as possible,
the estimated timing of the future cash flows. The increase in
Cash and cash equivalents mean cash balances in bank
accounts.
Operating activities include cash received from all revenue
sources of Inland Revenue, and cash payments made for the
supply of goods and services.
Investing activities are those activities relating to the acquisition
and disposal of non-current assets.
Financing activities comprise capital injections by, or repayment
of capital to, the Crown.
Commitments
Expenses and liabilities yet to be incurred on non-cancellable
contracts that have been entered into on or before balance
date are disclosed as commitments to the extent that they
are unperformed obligations. Information on non-cancellable
capital and lease commitments is reported in the Statement
of Commitments. Cancellable capital commitments that
have penalty or exit costs explicit in the agreement on
exercising that option to cancel are reported in the Statement
of Commitments at the lower of the remaining contractual
commitment and the value of those penalty or exit costs (i.e.
the minimum future payments).
Contingent liabilities and assets
Contingent liabilities and assets are recorded in the Statement
of Contingent Liabilities and Contingent Assets at the point
at which the contingency is evident. Contingent liabilities
are disclosed if the possibility that they will crystallise is not
remote. Contingent assets are disclosed if it is probable that
the benefits will be realised. Insurance claim proceeds are
disclosed as a contingent asset if the receipt of the insurance
proceeds is probable.
ANNUAL REPORT 2015
105
Cost allocations
Forecast policies
Inland Revenue uses an integrated cost allocation process to
derive the cost of its outputs. This process involves the initial
costing of business processes followed by the full costing of
outputs.
The forecasts have been compiled on the basis of existing
government policies and ministerial expectations at the time
the statements were finalised and reflect all government
decisions and circumstances as at 28 April 2015. It is not
intended that the forecast financial statements will be updated
subsequent to presentation. The main assumptions are as
follows:
Business processes represent Inland Revenue’s key functional
activities. These business processes are used to capture direct
costs.
Direct personnel costs are charged to business processes based
on actual hours and standard activity rates. Other related
direct costs including depreciation, are allocated to business
processes based on planned hours or relevant activity drivers.
Premises lease costs are charged to business processes based on
headcount or relevant activities.
Other indirect costs and corporate overheads that cannot be
attributed directly to a business process are apportioned to
outputs based on planned business process activity allocation
to outputs.
There have been no material changes in cost allocation policies
since the date of the last audited financial statements.
• The Department’s main activities will remain substantially the
same as for the previous year.
• Operating costs are based on historical experience. The
general historical pattern is expected to continue.
• Estimated year-end information for 2014–15 is used as the
opening position for the 2015–16 forecasts.
Variations to forecast
The actual financial results for the forecast period covered
are likely to vary from the information presented in these
forecasts. Factors that may lead to a material difference
between information in these forecast financial statements and
the actual reported results include:
Comparatives
• Changes to the budget through initiatives approved by
Cabinet
Certain comparative information has been reclassified, where
required, to conform with the current year’s presentation.
• Technical adjustments to the budget including transfers
between financial years
CHANGES IN ACCOUNTING POLICIES
• The timing of expenditure relating to significant programmes
and projects.
For the preparation of the Department’s financial statements,
forecast financial statements and output statements within
part seven, Measuring our performance as at 30 June 2015
there have been no changes in accounting policies and cost
allocation policies since the date of the last audited financial
statements. All policies have been applied on a basis consistent
with the previous year.
FORECAST FINANCIAL STATEMENTS
The forecast financial statements have been prepared in
accordance with the PFA 1989.
The purpose of the forecast financial statements is to facilitate
Parliament’s consideration of appropriations for, and planned
performance of, the department. These forecast financial
statements may not be appropriate for other purposes.
The forecast financial statements have been prepared in
accordance with the accounting policies detailed above.
Additional accounting policies relating to the forecasts are set
out below.
The forecast financial statements comply with NZ GAAP
and have been prepared in accordance with PBE Financial
Reporting Standard 42 Prospective Financial Statements.
The forecast financial statements are not subject to audit.
106
ANNUAL REPORT 2015
Any changes to budgets during 2015–16 will be incorporated
into The Supplementary Estimates of Appropriations for the year
ending 30 June 2016.
08
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: OTHER REVENUE
2013–14
Actual
2014–15
Actual
$000
2014–15
Unaudited
budget
$000
$000
2015–16
Unaudited
forecast
$000
20,500
20,500
20,500
20,500
555
3,060
2,396
3,060
Court costs recovery
2,081
2,828
2,124
2,828
Revenue from rulings
1,061
1,088
865
1,088
475
1,100
794
1,257
1,009
–
244
–
13
170
13
13
Net gains on disposal of property, plant and equipment
1
–
1
–
Insurance proceeds
Other
–
3
–
1
1
12
–
1
25,698
28,747
26,950
28,747
2013–14
Actual
2014–15
Actual
$000
2014–15
Unaudited
budget
$000
$000
2015–16
Unaudited
forecast
$000
371,178
395,310
388,272
409,770
Contractors and temporary staff
37,489
39,926
45,328
70,203
Employer contributions to defined contribution plans
11,745
11,952
12,181
12,790
242
3,000
5,109
3,000
Terminating benefits
1,926
2,051
1,995
2,106
ACC levies
1,536
1,714
1,653
2,036
Annual leave
1,114
759
1,585
1,589
Accident Compensation Corporation (ACC) – agency fees
Support services to other government agencies
Rental revenue from sub-leases
Services on behalf of other government agencies
Supply of information to other agencies
Total other revenue
NOTE 2: PERSONNEL
Salaries and wages
Retiring, long-service and sick leave
Bonuses
Other
Total personnel
258
275
223
235
6,498
431,986
2,763
457,750
7,322
463,668
2,215
503,944
ANNUAL REPORT 2015
107
NOTE 3: OPERATING
2013–14
Actual
2014–15
Actual
$000
2014–15
Unaudited
budget
$000
$000
2015–16
Unaudited
forecast
$000
Information technology costs
50,545
50,312
52,093
55,556
Accommodation lease rentals
31,471
33,280
32,315
34,355
Printing and postage
17,943
18,623
16,304
17,122
Communication
15,845
15,404
14,025
14,136
Consultants
23,348
13,763
10,513
12,051
Travel and transport
9,027
7,905
9,198
9,305
Premises costs
9,505
8,120
8,109
8,868
Staff development
6,882
6,860
7,689
7,934
Legal expenses
8,568
8,642
6,404
6,937
Office supplies
3,604
3,435
3,963
4,189
Bank fees
3,400
3,241
2,849
2,953
Advertising and publicity
1,881
2,086
2,035
2,109
Equipment maintenance
1,780
1,297
1,734
1,789
Audit fees for audit of the financial statements
1,033
1,100
1,033
1,100
Disbursements for audit of the financial statements
20
–
46
–
Fees to Audit NZ for other services
30
–
–
–
Net loss on disposal of property, plant and equipment
87
8
639
–
478
–
344
–
Inc/(Dec) in provision for onerous leases
–
–
488
(52)
Inc/(Dec) in provision for debt impairment
8
9
9
3
2,310
106
135
121
10
–
6
–
7,070
3,000
6,936
5,269
194,845
177,191
176,867
183,745
Net loss on disposal of intangible assets
Realised foreign exchange losses
Bad debts written off
Other operating expenses
Total operating
108
ANNUAL REPORT 2015
08
NOTE 4: PROPERTY, PLANT AND EQUIPMENT BY CATEGORY
$000
$000
30,724
596
–
–
(4)
31,316
4,595
236
–
–
(1,120)
3,711
62,011
938
(684)
1,362
(3,573)
60,054
1,406
48
–
(1,347)
–
107
155,407
3,939
(684)
15
(10,026)
148,651
47,232
4,399
1
–
–
(4,812)
46,820
23,528
2,188
(9)
–
–
(1)
25,706
1,508
477
–
–
–
(735)
1,250
27,689
5,413
–
–
–
(3,936)
29,166
–
–
–
20
–
–
20
99,957
12,477
(8)
20
–
(9,484)
102,962
6,643
5,610
2,461
30,888
87
45,689
6,558
4,251
2,293
30,769
97
43,968
Cost
Balance as at 1 July 2013
Additions by purchase
Other movements1
Transfers between category
Disposals
Balance as at 30 June 2014
65,621
4,935
–
25
(13,910)
56,671
29,298
1,437
–
–
(11)
30,724
4,904
–
–
–
(309)
4,595
53,003
8,388
(175)
3,905
(3,110)
62,011
4,334
184
–
(3,112)
–
1,406
157,160
14,944
(175)
818
(17,340)
155,407
Accumulated depreciation and
impairment losses
Balance as at 1 July 2013
Depreciation charge – expensed
Depreciation charge – capitalised 2
Impairment losses
Transfers between category
Disposals
Balance as at 30 June 2014
54,952
6,100
12
–
–
(13,832)
47,232
21,190
2,638
11
(300)
–
(11)
23,528
1,123
547
–
–
–
(162)
1,508
26,343
4,455
–
–
–
(3,109)
27,689
–
–
–
–
–
–
–
103,608
13,740
23
(300)
–
(17,114)
99,957
9,439
7,196
3,087
34,322
1,406
55,450
$000
Furniture
and office
equipment
$000
Cost
Balance as at 1 July 2014
Additions by purchase
Other movements1
Transfers between category
Disposals
Balance as at 30 June 2015
56,671
2,121
–
–
(5,329)
53,463
Accumulated depreciation and
impairment losses
Balance as at 1 July 2014
Depreciation charge – expensed
Depreciation charge – capitalised2
Impairment losses
Transfers between category
Disposals
Balance as at 30 June 2015
Carrying amount as at 30 June 2015
Unaudited forecast carrying amount at
30 June 2016
Carrying amount as at 30 June 2014
Motor
Leasehold
vehicles improvements
Total
Assets under
construction
– leasehold
$000
IT equipment
$000
There is no restriction over the title of Inland Revenue’s property, plant and equipment, nor is any property, plant and equipment
pledged as security for liabilities.
1
This relates to the addition/reduction of lease make-good costs on leased buildings.
2
The depreciation charge for existing assets that are used in the development of intangible assets.
Finance leases – Inland Revenue has entered into an agreement for the provision of telecommunications services that includes
embedded finance leases. The net carrying amount of these finance leases within the IT equipment category is $1,117,000 (2013–14:
$935,000).
ANNUAL REPORT 2015
109
NOTE 5: INTANGIBLE ASSETS BY CATEGORY
Cost
Balance as at 1 July 2014
Additions by purchase
Internally
generated
intangible
assets
$000
Software
licences
Assets under
construction
– intangibles
Total
$000
$000
$000
478,867
125,803
30,027
634,697
–
5,984
–
5,984
Additions internally developed
11,058
–
11,704
22,762
Transfers between category
21,715
–
(21,730)
(15)
(1,100)
(17,222)
(146)
(18,468)
Balance as at 30 June 2015
Disposals
510,540
114,565
19,855
644,960
Accumulated amortisation and
impairment losses
Balance as at 1 July 2014
413,151
107,450
6,243
526,844
Amortisation charge – expensed
22,227
7,422
–
29,649
17
–
–
17
Amortisation charge – capitalised 1
Impairment losses
Transfers between category
Disposals
Balance as at 30 June 2015
Carrying amount as at 30 June 2015
Unaudited forecast carrying amount at 30
June 2016
–
–
1,383
1,383
2,519
–
(2,519)
–
(1,100)
(17,019)
–
(18,119)
436,814
97,853
5,107
539,774
73,726
16,712
14,748
105,186
80,612
25,073
52,126
157,811
465,001
124,343
26,517
615,861
–
5,445
–
5,445
Cost
Balance as at 1 July 2013
Additions by purchase
Additions internally developed
Transfers between category
Disposals
6,826
–
17,706
24,532
13,009
369
(14,196)
(818)
(5,969)
(4,354)
–
(10,323)
Balance as at 30 June 2014
478,867
125,803
30,027
634,697
Accumulated amortisation and
impairment losses
Balance as at 1 July 2013
391,152
102,989
4,594
498,735
Amortisation charge – expensed
27,938
8,338
–
36,276
32
–
–
32
Amortisation charge – capitalised 1
Impairment losses
–
–
1,649
1,649
Transfers between category
–
–
–
–
Disposals
Balance as at 30 June 2014
Carrying amount as at 30 June 2014
(5,971)
(3,877)
–
(9,848)
413,151
107,450
6,243
526,844
65,716
18,353
23,784
107,853
There is no restriction over the title of Inland Revenue’s intangible assets, nor are any intangible assets pledged as security for
liabilities.
1
Refers to the amortisation charge for existing assets that are utilised in the development of intangible assets.
110
ANNUAL REPORT 2015
08
Internally generated intangible assets include the following items and carrying amounts: FIRST technology environment $30,378,000,
Child Support Reform $22,490,000, student loans $19,478,000, KiwiSaver $1,380,000 (2013–14: FIRST technology environment
$35,922,000, student loans $25,207,000, KiwiSaver $4,587,000). The amortisation period for these intangible assets ranges from 5–10 years.
Software licences include the following items and carrying amounts: FIRST technology environment $15,884,000, KiwiSaver
$669,000, Child Support Reform $159,000 (2013–14: FIRST technology environment $17,379,000, KiwiSaver $974,000). The
amortisation period for these intangible assets ranges from 5–10 years.
NOTE 6: CAPITAL CHARGE
Inland Revenue pays a capital charge to the Crown on taxpayers’ funds as at 30 June and 31 December each year. The capital charge
rate for the year ended 30 June 2015 was 8.0% per annum (2013–14: 8.0%, forecast 2015–16: 8.0%).
NOTE 7: FINANCE COSTS
2013–14
Actual
$000
2014–15
Actual
$000
Interest on finance leases
74
148
Total finance costs
74
148
2013–14
Actual
$000
2014–15
Actual
$000
Net surplus/(deficit)
Add unrealised losses/(gains) in relation to forward foreign exchange contracts
43,650
1
19,357
–
Total surplus payable to the Crown
43,651
19,357
NOTE 8: SURPLUS PAYABLE TO THE CROWN
ANNUAL REPORT 2015
111
NOTE 9: DEBTORS AND PREPAYMENTS
2013–14
Actual
$000
2014–15
Actual
$000
5,098
4,368
Less provision for impairment
(8)
(14)
Other debtors
474
232
Current assets – exchange transactions
Debtors
Accounts receivable
5,564
4,586
Prepayments
11,247
10,885
Total current assets
16,811
15,471
Net debtors
Non-current assets – exchange transactions
Prepayments
834
328
Total non-current assets
834
328
17,645
15,799
Total debtors and prepayments – exchange transactions
Given their short-term nature, the carrying value of accounts receivable and other debtors approximates their fair value.
Overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below:
Gross debtors
actual
$000
Impairment
actual
$000
Net debtors
actual
$000
2014–15
Not past due
4,339
–
4,339
Past due 1 to 30 days
55
–
55
Past due 31 to 60 days
63
–
63
Past due 61 to 90 days
27
–
27
116
4,600
(14)
(14)
102
4,586
Not past due
3,061
–
3,061
Past due 1 to 30 days
Past due > 90 days
Total
2013–14
2,107
–
2,107
Past due 31 to 60 days
299
–
299
Past due 61 to 90 days
26
–
26
79
5,572
(8)
(8)
71
5,564
Past due > 90 days
Total
The provision for impairment has been calculated based on expected losses for Inland Revenue’s debtors. Expected losses have been
determined based on a review of each debtor.
Movements in the provision for impairment are as follows:
2013–14
Actual
$000
2014–15
Actual
$000
Opening balance
(9)
(8)
Additional provisions made during the year
(8)
(9)
–
–
9
(8)
3
(14)
Unused amounts reversed
Receivables written off during the year
Closing balance
112
ANNUAL REPORT 2015
08
NOTE 10: INVENTORIES HELD FOR EXTERNAL DISTRIBUTION
Inventories comprise forms, booklets and returns held for external distribution. The carrying amount of inventories held for
distribution that are measured at cost as at 30 June 2015 amounted to $873,000 (2013–14: $879,000).
The write-down of inventories held for distribution amounted to $179,000 (2013–14: $331,000). There have been no reversals of writedowns. The carrying amount of inventories held for distribution included the write-down of $179,000.
No inventories are pledged as security for liabilities.
NOTE 11: CREDITORS AND OTHER PAYABLES
2013–14
Actual
$000
2014–15
Actual
$000
9,164
6,483
23,816
32,980
21,501
27,984
GST payable
Total creditors and other payables – non-exchange transactions
11,323
11,323
9,106
9,106
Total creditors and other payables
44,303
37,090
Creditors and other payables – exchange transactions
Accounts payable
Accrued expenses – other
Total creditors and other payables – exchange transactions
Creditors and other payables – non-exchange transactions
Creditors and other payables are normally settled on 30-day terms, therefore the carrying value of creditors and other payables
approximates their fair value.
ANNUAL REPORT 2015
113
NOTE 12: EMPLOYEE ENTITLEMENTS
2013–14
Actual
$000
2014–15
Actual
$000
Annual leave
25,139
26,332
Accrued salaries and wages
Current liabilities – exchange transactions
14,180
22,542
Retiring leave
1,539
1,801
Long-service leave
1,007
1,348
Sick leave
1,138
1,140
886
941
10
43,899
3
54,107
4,032
4,032
4,238
4,238
47,931
58,345
Retiring leave
28,971
30,764
Long-service leave
Total non-current liabilities – exchange transactions
7,655
36,626
8,043
38,807
Total non-current liabilities
36,626
38,807
Total employee entitlements
84,557
97,152
Terminating benefits
Time off in lieu
Total current liabilities – exchange transactions
Current liabilities – non-exchange transactions
PAYE payable
Total current liabilities – non-exchange transactions
Total current liabilities
Non-current liabilities – exchange transactions
The present value of retiring and long-service leave obligations depend on a number of factors that are determined on an actuarial
basis by an independent actuary using a number of assumptions. Two key assumptions used in calculating these liabilities are the
discount rate and salary inflation. Any changes in these assumptions will impact on the carrying amount of the liabilities.
The discount rates used by the independent actuary for the retiring and long-service leave valuations are based on Treasury published
forward rates at 30 June 2015. The forward rates are derived from New Zealand government bonds. The long-term salary inflation
assumption is based on Treasury published rates at 30 June 2015 and after obtaining advice from the independent actuary. The longterm salary inflation assumption used was 3.0% (2013–14: 3.5%).
In 2014–15 there was a general decrease in Treasury published forward discount rates. The impact of the forward discount rate movement
was to increase the carrying amounts of the retiring leave liability by $1,578,000 and the long-service leave liability by $421,000.
The following table provides a sensitivity analysis for the key assumptions:
Discount rate
– 1.0%
+ 1.0%
$000
$000
Retiring leave
Long-service leave
Salary inflation
– 1.0%
+ 1.0%
$000
$000
1,776
(1,589)
(1,722)
1,895
489
(432)
(474)
527
2013–14
Actual
$000
2014–15
Actual
$000
Movements in the provision for terminating benefits are as follows:
Opening balance
2,410
886
Additional provisions made
1,907
1,995
(3,431)
(1,940)
–
–
886
941
Amounts used
Unused amounts reversed
Closing balance
The closing 2014–15 provision is expected to be fully utilised in the 2015–16 year.
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NOTE 13: PROVISION FOR OTHER LIABILITIES
2013–14
Actual
$000
2014–15
Actual
$000
–
90
53
53
–
90
–
397
Lease make-good
Total non-current liabilities
912
912
–
397
Total provision for other liabilities
965
487
Onerous
contracts
$000
Lease
make-good
$000
Total
–
965
965
487
–
487
Amounts used
–
(15)
(15)
Unused amounts reversed
–
(668)
(668)
–
487
(282)
–
(282)
487
Balance at 1 July 2013
–
1,895
1,895
Additional provisions made
–
803
803
Amounts used
–
–
–
Unused amounts reversed
–
(999)
(999)
Discount unwind
Balance at 30 June 2014
–
–
(734)
965
(734)
965
Current liabilities
Onerous contracts
Lease make-good
Total current liabilities
Non-current liabilities
Onerous contracts
Movements for each class of provision are as follows:
Balance at 1 July 2014
Additional provisions made
Discount unwind
Balance at 30 June 2015
$000
Onerous contracts
The provision for onerous contracts arises from non-cancellable accommodation leases where the unavoidable costs of meeting the
lease contract exceed the economic benefits to be received from it. Inland Revenue currently leases one property that includes some
residual floor space which is not currently being utilised. The residual floor space is available for sub-lease but there is no certainty that
the space can be sub-let due to it being part of one floor. The potential cost of a floor reconfiguration may outweigh the benefit of a
new sub-leasing agreement. The lease is due to expire in December 2020.
Lease make-good
As a result of changes in lease arrangements Inland Revenue no longer has any lease make-good obligations at 30 June 2015. In
2013–14 and prior years as a condition of some of its leasing arrangements, Inland Revenue was required at the expiry of the lease
term to make-good any damage caused to the premises and remove any fixtures and fittings it had installed.
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NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS
To hedge its currency risk, Inland Revenue enters into foreign currency forward exchange contracts with the New Zealand Debt
Management Office (NZDMO).
The notional principal amount of outstanding forward exchange contract derivatives as at 30 June 2015 was NZ $nil (2013–14:
NZ $95,146). The prior year contracts consisted of the purchase of US $82,720 and the unrealised loss on the forward exchange
contract derivative was NZ $728 at 30 June 2014.
The fair value of forward exchange contracts entered into during the financial year was determined by reference to published price
quotations in an active market.
NOTE 15: FINANCE LEASES
2013–14
Actual
$000
2014–15
Actual
$000
Not later than one year
456
788
Later than one year and not later than five years
637
513
Later than five years
Total minimum lease payments
–
1,093
–
1,301
Future finance charges
Present value of minimum lease payments
(114)
979
(107)
1,194
Not later than one year
386
707
Later than one year and not later than five years
593
487
–
–
979
1,194
Current
386
707
Non-current
593
487
Total finance leases
979
1,194
Total minimum lease payments payable
Present value of minimum lease payments payable
Later than five years
Total present value of minimum lease payments
Represented by:
Inland Revenue has entered into an agreement for the provision of telecommunications services that includes embedded finance
leases. The leased items are included within the net carrying amount of IT equipment (refer Note 4).
Inland Revenue has no rights of renewal and no option to purchase the assets at the end of the lease term.
There are no restrictions placed on Inland Revenue by any of the finance leasing arrangements.
Finance lease liabilities are effectively secured, as the rights to the leased assets reverts to the lessor in the event of default in
payment.
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NOTE 16: OTHER FINANCIAL LIABILITIES
2013–14
Actual
$000
2014–15
Actual
$000
183
183
275
275
869
869
1,136
1,136
1,052
1,411
2013–14
Actual
$000
2014–15
Actual
$000
43,650
19,357
Depreciation and impairment
13,440
12,497
Amortisation and impairment
37,925
31,032
(2)
(1)
51,363
43,528
Current liabilities
Leasing incentives
Total current liabilities
Non-current liabilities
Leasing incentives
Total non-current liabilities
Total other financial liabilities
NOTE 17: RECONCILIATION OF NET SURPLUS/(DEFICIT) TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Net surplus/(deficit)
Add/(less) non-cash items
Net (gains)/losses on derivative financial instruments
Total non-cash items
Add items classified as investing or financing activities
86
638
Net loss/(gain) on disposal of intangible assets
Net loss/(gain) on disposal of property, plant and equipment
478
344
Total items classified as investing or financing activities
564
982
(39,675)
(7,127)
1,455
1,846
Add/(less) working capital movements
(Inc)/Dec in debtor Crown
Dec/(Inc) in debtors and prepayments
Dec/(Inc) in inventories held for distribution
485
6
(Dec)/Inc in creditors and other payables
8,917
(7,212)
Inc/(Dec) in provision for employee benefits
(536)
12,595
(Dec)/Inc in provision for other liabilities
(930)
(478)
243
359
Net movements in working capital items
(30,041)
(11)
Net cash inflow from operating activities
65,536
63,856
Inc/(Dec) in other financial liabilities
ANNUAL REPORT 2015
117
NOTE 18: COMMITMENTS
Capital commitments
Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and
equipment and intangible assets that have not been paid for or recognised as a liability at balance date.
Operating commitments
Operating commitments for non-cancellable accommodation leases relate to Inland Revenue’s long-term leases on its premises at
many locations throughout New Zealand. The annual lease payments are reviewed regularly, and the amounts disclosed as future
commitments are based on current rental rates. These commitments also include office space vacated by Inland Revenue as a result
of organisational restructuring and sub-leasing. Provision has been made in the financial statements for the expected net expenses
for the duration of these leases.
The total minimum future sub-lease payments expected to be received under non-cancellable sub-leases at balance date is
$13,632,426 (2013–14: $12,294,537). The increase is mainly due to an upcoming establishment of a co-located building in Tauranga
with another government agency. The co-location is expected to take place in the 2016–17 financial year.
Inland Revenue’s non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no
restrictions placed on Inland Revenue by any of its leasing arrangements.
NOTE 19: CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Contingent liabilities
Legal proceedings and disputes – taxpayer
This contingent liability relates to potential claims against Inland Revenue for court costs associated with tax disputes and other
legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue (tax) under
dispute is recognised as a non-departmental contingency (refer to part nine, Schedule of Non-departmental Contingent Liabilities
and Contingent Assets).
The expected value of the contingent liability is calculated using an outcome probability model that weighs the total potential
liability against outcome probabilities.
The contingent liability as at 2014–15 (excluding court costs recoverable) was $1,706,058 (2013–14: $843,283).
Legal proceedings and disputes – departmental
This contingent liability relates to disputes such as claims made by departmental suppliers.
Personal grievances
Personal grievances represent amounts claimed by employees for alleged breaches of contract against Inland Revenue.
Contingent assets
Legal proceedings and disputes – taxpayer
This contingent asset relates to potential court costs recoverable by Inland Revenue for court costs associated with tax disputes
and other legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue
(tax) under dispute is recognised as a non-departmental contingency (refer to part nine, Schedule of Non-departmental Contingent
Liabilities and Contingent Assets).
The expected value of the contingent asset is calculated using an outcome probability model that weighs the total potential court
costs recoverable against outcome probabilities.
The contingent asset as at 2014–15 was $2,646,669 (2013–14: $2,867,162).
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NOTE 20: RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
Inland Revenue is a wholly owned entity of the Crown. The government significantly influences the role of Inland Revenue as
well as being its major source of revenue.
Related party disclosures have not been made for transactions with related parties that are within a normal supplier or client/
recipient relationship on terms and conditions no more or less favourable than those that it is reasonable to expect that Inland
Revenue would have adopted in dealing with the party at arm’s length in the same circumstances. Further, transactions with
other government agencies (for example, government departments and Crown entities) are not disclosed as related party
transactions when they are consistent with the normal operating arrangements between government agencies and undertaken
on the normal terms and conditions for such transactions.
Inland Revenue has no related party transactions that are required to be disclosed in 2014–15 (2013–14: $nil).
Remuneration to key management personnel
The remuneration of key management personnel during the year was as follows:
2013–14
Actual
2014–15
Actual
$3,334,000
$3,526,000
10
10
Leadership team, including the Chief Executive
Remuneration and other benefits
Full-time equivalents
Key management personnel comprise the Minister of Revenue, the Commissioner, five Deputy Commissioners, Chief Tax
Counsel, Chief Financial Officer, Chief Technology Officer, Chief People Officer and those formally acting in those positions
during the financial year. The Commissioner’s remuneration is determined and paid by the State Services Commission.
The above key management personnel disclosure excludes the Minister of Revenue. The Minister’s remuneration and other
benefits are set out by the remuneration authority, are not received only for his role as a member of key management personnel
of Inland Revenue and are not paid by Inland Revenue.
ANNUAL REPORT 2015
119
NOTE 21: FINANCIAL INSTRUMENTS – CATEGORIES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial assets and financial liabilities in each of the financial instrument categories are as follows:
Notes
Debtors and receivables
Cash and cash equivalents
Debtor Crown
Net debtors
9
Total debtors and receivables
2013–14
Actual
$000
2014–15
Actual
$000
30,643
20,679
238,430
245,557
5,564
4,586
274,637
270,822
1
–
1
–
Fair value through surplus or deficit
Derivative financial instrument liabilities
14
Total fair value through surplus or deficit
Financial liabilities measured at amortised cost
Creditors and other payables
11
32,980
27,984
Finance lease liabilities
15
979
1,194
Other financial liabilities
16
1,052
1,411
35,011
30,589
Total financial liabilities measured at amortised cost
NOTE 22: FINANCIAL INSTRUMENTS – FAIR VALUE HIERARCHY DISCLOSURES
For those instruments recognised at fair value in the Statement of Financial Position, fair values are determined according to the
following hierarchy:
• Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.
• Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models
where all significant inputs are observable.
• Valuation techniques with significant non-observable inputs (level 3) – Financial instruments valued using models where one or
more significant inputs are not observable.
The following table analyses the basis of the valuation of classes of financial instruments measured at fair value in the Statement of
Financial Position.
Quoted market
price
$000
Valuation Technique
Observable Significant non inputs observable inputs
$000
$000
Total
$000
2014–15
Financial liabilities
Foreign exchange derivatives
–
–
–
–
–
1
–
1
2013–14
Financial liabilities
Foreign exchange derivatives
There were no transfers between the different levels of the fair value hierarchy.
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NOTE 23: FINANCIAL INSTRUMENTS – FINANCIAL INSTRUMENT RISKS
Inland Revenue’s activities expose it to a variety of financial instrument risks, including market risk, credit risk, and liquidity risk.
Inland Revenue has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure
from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.
Market risk
Currency risk
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates
is called currency risk.
Because Inland Revenue purchases fixed assets and services from overseas suppliers it is exposed to currency risk arising from
various currency exposures, primarily for the United States and Australian dollars. Currency risk arises from future purchases of
fixed assets and services which are denominated in a foreign currency.
Inland Revenue has policies in place to manage the risks associated with financial instruments and, being risk averse, seeks to
minimise exposure from its treasury activities.
Under its foreign exchange policy, Inland Revenue enters into foreign currency forward exchange contracts to manage foreign
exchange exposures when single foreign exchange transactions exceed NZ $100,000, or the transaction exposure for an individual
currency exceeds NZ $100,000. This policy has been approved by Treasury and is in line with the requirements of Treasury’s
Guidelines for the Management of Crown and Departmental Foreign Exchange Exposure.
Interest rate risk
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument
will fluctuate, due to changes in market interest rates.
Inland Revenue has no interest-bearing financial instruments so it has no exposure to interest rate risk.
Credit risk
The risk that a third party will default on its obligations to Inland Revenue, causing a loss to be incurred is called credit risk. In the
normal course of its business, credit risk from debtors and receivables is concentrated with the Crown and other government agencies.
The carrying amount of financial assets recognised in the Statement of Financial Position best represents Inland Revenue’s maximum
exposure to credit risk at balance date.
Inland Revenue does not require any collateral, security, or other credit enhancements to support financial instruments with financial
institutions that it deals with, because these entities have high credit ratings. Westpac is Inland Revenue’s main bank and has a
Standard and Poor’s credit rating of AA–. Inland Revenue enters into foreign currency transactions with the NZDMO (Standard and
Poor’s credit rating of AA). For its other financial instruments, Inland Revenue does not have significant concentrations of credit risk.
The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated is not
material.
Liquidity risk
Liquidity risk is the risk that Inland Revenue will encounter difficulty raising liquid funds to meet commitments as they fall due.
As all but an insignificant proportion of funds come from the New Zealand Government and cash is drawn down on a fortnightly
basis, Inland Revenue does not have significant liquidity risk. In meeting its liquidity requirements, Inland Revenue closely monitors
its forecast cash requirements with expected cash drawdowns from the NZDMO. Inland Revenue maintains a target level of
available cash to meet liquidity requirements.
ANNUAL REPORT 2015
121
Contractual maturity analysis of financial liabilities, excluding derivatives
The table below analyses Inland Revenue’s financial liabilities that will be settled, based on the remaining period at balance date to
the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
Notes
2014–15
Creditors and other payables
11
Carrying
amount
$000
Contractual
cash flows
$000
Up to 1 year
1 to 5 years
Over 5 years
Total
$000
$000
$000
$000
27,984
27,984
27,984
–
–
27,984
Finance lease liabilities
15
1,194
1,093
456
637
–
1,093
Other financial liabilities
16
1,411
1,144
275
604
265
1,144
30,589
30,221
28,715
1,241
265
30,221
Closing balance
2013–14
Creditors and other payables
11
32,980
32,980
32,980
–
–
32,980
Finance lease liabilities
15
979
1,028
441
587
–
1,028
Other financial liabilities
16
1,052
861
183
489
189
861
35,011
34,869
33,604
1,076
189
34,869
Closing balance
Contractual maturity analysis of derivative financial instrument liabilities
The table below analyses Inland Revenue’s forward exchange contract derivatives into relevant maturity groupings based on the
remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
Notes
2014–15
Gross settled forward foreign
exchange contracts
–Outflow
14
–Inflow
Liability Asset carrying
carrying
amount
amount
$000
$000
Contractual
cash flows
NZD
$000
Less than 6
months
NZD
$000
6–12
months
NZD
$000
1–2 years
NZD
$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
2013–14
Gross settled forward foreign
exchange contracts
–Outflow
–Inflow
14
–
–
95
95
–
–
–
–
–
–
–
–
1
–
95
95
–
–
The following provides a sensitivity analysis for the key assumptions:
At 30 June 2015, if the NZ dollar had strengthened by 5% against the US dollar, with all other variables held constant, the surplus
for the year would have been $1,083 (2013–14: $4,769) higher. At 30 June 2015, if the NZ dollar had weakened by 5% against the
US dollar, with all other variables held constant, the surplus for the year would have been $1,198 (2013–14: $5,271) lower. This
movement is attributable to the translation of US dollar-denominated creditors.
At 30 June 2015, if the NZ dollar had strengthened by 5% against the Australian dollar, with all other variables held constant, the
surplus for the year would have been $16,131 (2013–14: $8,232) higher. At 30 June 2015, if the NZ dollar had weakened by 5%
against the Australian dollar, with all other variables held constant, the surplus for the year would have been $17,829 (2013–14:
$9,098) lower. This movement is attributable to the translation of Australian dollar-denominated creditors.
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NOTE 24: CAPITAL MANAGEMENT
Inland Revenue’s capital is its taxpayers’ funds, which is made up of general funds. Taxpayers’ funds is represented by net assets.
Inland Revenue manages its revenues, expenses, assets, liabilities and general financial dealings prudently. Inland Revenue’s
taxpayers’ funds are largely managed as a by-product of managing revenue, expenses, assets, liabilities, and compliance with the
Government Budget processes, Treasury Instructions and the Public Finance Act 1989.
The objective of managing Inland Revenue’s taxpayers’ funds is to ensure that it effectively achieves its strategic direction, while
remaining a going concern.
NOTE 25: EXPLANATION OF MAJOR VARIANCES AGAINST BUDGET
The following major budget variances occurred between the 2014–15 actuals and the 2014–15 budget. The budget figures for
2014–15 are those included in The Estimates of Appropriations for the year ending 30 June 2015.
Notes
2014–15
Unaudited
budget
$000
2014–15
Actual
Variance
Variance
$000
$000
%
(a)
683,635
698,650
(15,015)
(2%)
(b)
457,750
463,668
(5,918)
(1%)
Statement of Comprehensive Revenue and Expense
Revenue
Revenue Crown
Expenses
Personnel
Depreciation and impairment
(c)
16,848
12,497
4,351
26%
Amortisation and impairment
(d)
38,528
31,032
7,496
19%
Cash and cash equivalents
(e)
12,000
20,679
(8,679)
(72%)
Debtor Crown
(f)
195,502
245,557
(50,055)
(26%)
Statement of Financial Position
Current assets
Non-current assets
Property, plant and equipment
(g)
59,176
45,689
13,487
23%
Intangible assets
(h)
113,487
105,186
8,301
7%
Creditors and other payables
(i)
33,200
37,090
(3,890)
(12%)
Employee entitlements
(j)
43,815
58,345
(14,530)
(33%)
Current liabilities
Statement of Comprehensive Revenue and Expense
(a) Revenue Crown was higher than budget by $15,015,000 (2%). The increase was mainly due to additional funding of
$32,000,000 received for the business transformation programme. This was offset by an expense transfer of ($13,000,000)
from 2014–15 to 2017–18 and 2018–19 for depreciation to align with the proposed timing of capital expenditure for the
business transformation programme.
(b) Personnel expenses were higher than budget by $5,918,000 (1%). The variance in expenditure was mainly due to the
additional funding received for the business transformation programme and a contract settlement payment.
(c) Depreciation and impairment was lower than budget by $4,351,000 (26%). The variance was due to lower spending on
existing equipment and infrastructure, which reflects decisions to hold capital funding in reserves to contribute to future
business transformation programme capital expenditure.
(d) Amortisation and impairment was lower than budget by $7,496,000 (19%). This variance was due to lower spending on
existing systems and software, which reflects decisions to hold capital funding in reserves to contribute to future business
transformation programme capital expenditure.
ANNUAL REPORT 2015
123
Statement of Financial Position
(e) Cash and cash equivalents were higher than budget by $8,679,000 (72%). This was due to holding cash for salaries and
wages that were paid on 1 July 2015.
(f) Debtor Crown was higher than budget by $50,055,000 (26%). This variance was mainly due to $13,487,000 of
underspending in property, plant and equipment, $8,301,000 of underspending in intangible assets, and the net surplus
for 2014–15 of $19,357,000 that will be repaid to the Crown.
(g)&(h) Non-current assets were lower than budget by $21,788,000 (13%). The variance in non-current assets mainly reflects a
reduction in the capital expenditure during the year. Capital expenditure on existing systems and infrastructure has
been reduced, with capital funding held in reserves to contribute to future business transformation programme capital
expenditure.
(i) Creditors and other payables were higher than budget by $3,890,000 (12%). This was due to the timing of trade payables
and a higher than forecast GST liability.
(j) Employee entitlements were higher than budget by $14,530,000 (33%). This was mainly due to a contract settlement
payment and macroeconomic changes in the actuarial valuations for retiring and long-service leave in 2014–15.
NOTE 26: EVENTS AFTER BALANCE DATE
No events have occurred between the balance date and date of signing these financial statements that materially affect the actual
results within these financial statements.
124
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Non-departmental
financial schedules
ANNUAL REPORT 2015
125
SCHEDULE OF NON-DEPARTMENTAL REVENUE
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
Source deductions
23,125,625
24,484,000
24,449,000
24,663,899
25,651,000
Other persons
5,246,993
Direct taxation
Income tax
Individuals
Refunds
2
5,428,000
5,661,000
5,848,242
5,584,000
(1,515,058)2
(1,395,000)
(1,517,000)
(1,595,041)
(1,696,000)
Fringe benefit tax
488,535
512,000
519,000
514,071
540,000
Total individuals
27,346,095
29,029,000
29,112,000
29,431,171
30,079,000
10,617,384
10,686,000
10,900,000
10,526,789
11,096,000
(192,338)
(207,000)
(152,000)
(142,608)
(148,000)
427,714
481,000
486,000
470,073
506,000
Corporate tax
Gross companies tax
Refunds
Non-resident withholding tax
Foreign-source dividend withholding payments
Total corporate tax
8,213
2,000
(2,000)
(3,438)
2,000
10,860,973
10,962,000
11,232,000
10,850,816
11,456,000
1,643,787
2,007,000
1,777,000
1,829,835
2,094,000
445,867
495,000
523,000
542,527
537,000
1,077,974
1,209,000
1,130,000
1,113,918
1,175,000
(70)
–
–
87
–
3,167,558
3,711,000
3,430,000
3,486,367
3,806,000
41,374,626
43,702,000
43,774,000
43,768,354
45,341,000
Other direct income tax
Resident withholding tax on interest income
Resident withholding tax on dividend income
Employer superannuation contribution tax
Gift duties
Total other direct income tax
Total direct taxation
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SCHEDULE OF NON-DEPARTMENTAL REVENUE
(CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
$000
$000
2014–15
Unaudited
estimated
actual
$000
2014–15
Actual
2015–16
Unaudited
forecast
$000
$000
Indirect taxation
Goods and services tax
Gross goods and services tax
Refunds
Total goods and services tax
25,751,108
27,946,000
26,878,000
26,566,080
28,378,000
(11,191,411)
(11,632,000)
(11,312,000)
(10,954,126)
(11,949,000)
14,559,697
16,314,000
15,566,000
15,611,954
16,429,000
2,464
–
–
312
–
Other indirect taxation
Cheque duties1
Approved issuer levy
90,522
90,000
93,000
100,075
92,000
266,814
267,000
262,000
264,364
270,000
2,709
5,000
5,000
2,480
5,000
362,509
362,000
360,000
367,231
367,000
Total indirect taxation
14,922,206
16,676,000
15,926,000
15,979,185
16,796,000
Total taxation
56,296,832
60,378,000
59,700,000
59,747,539
62,137,000
Child support
204,6742
229,620
187,350
196,985
200,250
Interest unwind – student loans
579,318
601,000
596,000
604,175
605,000
86,059
92,000
76,000
86,341
78,000
870,051
922,620
859,350
887,501
883,250
57,166,883
61,300,620
60,559,350
60,635,040
63,020,250
Gaming duties
Other indirect taxation
Total other indirect taxation
Other revenue
Other revenue
Total other revenue
Total operating revenue
1
Cheque duties were abolished from 1 July 2014.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
ANNUAL REPORT 2015
127
SCHEDULE OF NON-DEPARTMENTAL EXPENDITURE
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
1,835
1,300
1,300
1,298
1,100
1,965,263
1,934,000
1,857,000
1,854,048
1,837,000
533,266
494,000
512,000
511,186
529,000
Benefits and other unrequited expenses
Child tax credit
Family tax credit
In-work tax credit
KiwiSaver: Fee subsidy
(11)
–
–
(8)
–
7,294
13,000
13,000
8,413
15,000
KiwiSaver: Kick-start payment
227,772
171,000
226,000
218,364
–
KiwiSaver: Tax credit
569,163
643,000
643,000
629,297
705,000
14,275
13,000
16,000
15,975
16,000
164,504
176,000
184,000
180,286
233,000
17,640
19,000
21,000
20,967
31,000
KiwiSaver: Interest
Minimum family tax credit
Paid parental leave payments
Parental tax credit
Payroll subsidy
Research and development tax credit
Total benefits and other unrequited expenses
3,129
4,000
4,100
3,945
5,100
(3,952)
–
–
–
–
3,500,178
3,468,300
3,477,400
3,443,771
3,372,200
12
10
20
(1)
10
1,636
2,000
2,000
1,634
2,000
Borrowing expenses
Adverse event interest
Environmental restoration account interest
Income equalisation interest
7,260
7,000
15,000
3,543
15,000
Total borrowing expenses
8,908
9,010
17,020
5,176
17,010
1,025,0602
1,162,098
875,972
860,829
1,179,224
–2
–
–
–
–
Other expenses
Impairment of debt and debt write-offs1
Impairment of debt relating to child support
Impairment of debt relating to student loans
12,000
100,000
253,000
269,000
100,000
629,539
668,000
606,000
601,665
646,000
Total other expenses
1,666,599
1,930,098
1,734,972
1,731,494
1,925,224
Total expenditure
5,175,685
5,407,408
5,229,392
5,180,441
5,314,434
Initial fair value write-down relating to student loans
1
Impairment of debt and debt write-offs relates to general tax, Working for Families Tax Credits and KiwiSaver debt.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
128
ANNUAL REPORT 2015
09
SCHEDULE OF NON-DEPARTMENTAL ASSETS
AS AT 30 JUNE 2015
Notes
Current assets
Cash and cash equivalents
Receivables
Receivables – child support
Receivables – other
Student loans
Total current assets
Non-current assets
Receivables
Receivables – child support
Student loans
Total non-current assets
Total assets
1
1
2
3
1
2
3
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
2,489,327
8,228,2411
10,899
111,065
1,193,000
12,032,532
1,355,000
7,775,600
13,720
128,352
1,219,000
10,491,672
1,200,000
7,971,600
10,899
128,352
1,161,000
10,471,851
1,768,113
7,511,685
12,001
97,120
1,122,000
10,510,919
1,075,000
8,437,000
10,899
133,352
1,251,000
10,907,251
467,400
64,506
7,522,829
8,054,735
438,400
72,325
7,804,993
8,315,718
467,400
71,506
7,717,476
8,256,382
441,300
67,037
7,742,382
8,250,719
467,400
77,166
7,919,536
8,464,102
20,087,267
18,807,390
18,728,233
18,761,638
19,371,353
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
ANNUAL REPORT 2015
129
SCHEDULE OF NON-DEPARTMENTAL LIABILITIES
AS AT 30 JUNE 2015
Notes
Current liabilities
Payables and provisions
Child support
Refundables and payables
Unclaimed monies
Total current liabilities
Non-current liabilities
Reserve schemes
Total non-current liabilities
Total liabilities
1
4
5
6
2013–14
Actual
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
$000
37,359
4,489,2451
13,818
4,540,422
30,096
4,404,794
12,475
4,447,365
37,359
4,381,975
13,818
4,433,152
42,752
4,311,622
14,859
4,369,233
37,359
4,749,799
13,818
4,800,976
245,937
245,937
294,968
294,968
429,437
429,437
339,279
339,279
362,437
362,437
4,786,359
4,742,333
4,862,589
4,708,512
5,163,413
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
130
ANNUAL REPORT 2015
09
SCHEDULE OF NON-DEPARTMENTAL
MOVEMENTS BETWEEN DEPARTMENTS
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
$000
$000
2014–15
Unaudited
estimated
actual
$000
$000
$000
Opening balance
14,956,5441
14,568,802
15,300,908
15,300,908
13,865,644
Net result from operating activities
51,991,1982
55,893,212
55,329,958
55,454,599
57,705,816
1,521,537
1,597,153
1,539,647
1,528,794
1,594,060
(53,168,371)
(58,014,490)
(58,519,420)
(58,231,175)
(58,967,990)
–
20,380
214,551
–
10,410
15,300,908
14,065,057
13,865,644
14,053,126
14,207,940
Asset transfer between departments – Ministry of
Social Development – student loans
New Zealand Debt Management Office
Other
Closing balance
1
2014–15
Unaudited
budget
2014–15
Actual
2015–16
Unaudited
forecast
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
This number is restated due to the flow-on effect from the Schedule of Non-departmental Revenue and the Schedule of Nondepartmental Expenditure on the transition to the new PBE accounting standards. Refer to Note 9 for details.
2
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
ANNUAL REPORT 2015
131
SCHEDULE OF NON-DEPARTMENTAL
COMMITMENTS
AS AT 30 JUNE 2015
Inland Revenue, on behalf of the Crown, has no non-cancellable capital or lease commitments (2013–14: $nil).
SCHEDULE OF NON-DEPARTMENTAL
CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
AS AT 30 JUNE 2015
Notes
2013–14
Actual
$000
2014–15
Actual
$000
Legal proceedings and disputes – assessed
7
535,388
148,178
Unclaimed monies
5
Quantifiable contingent liabilities
Total quantifiable contingent liabilities
111,804
120,221
647,192
268,399
Quantifiable contingent assets
Disputes – non-assessed
Total quantifiable contingent assets
7
89,798
103,323
89,798
103,323
There were no non-quantifiable contingent liabilities and contingent assets for the year ended 30 June 2015 (2013–14: $nil).
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
132
ANNUAL REPORT 2015
09
SCHEDULE OF NON-DEPARTMENTAL TRUST
MONEY
FOR THE YEAR ENDED 30 JUNE 2015
2013–14
Actual
$000
2014–15
Contributions
$000
2014–15
Distributions
$000
2014–15
Actual
$000
17,394
260,880
(262,075)
16,199
397
12,546
(12,504)
439
17,791
273,426
(274,579)
16,638
KiwiSaver returned transactions trust account
44
102
–
146
Total KiwiSaver
44
102
–
146
17,835
273,528
(274,579)
16,784
Child support
Child support trust account
Reciprocal child support agreement trust account
Total child support
KiwiSaver
Total trust money
The child support trust accounts were established in accordance with sections 139 and 140 of the Child Support Act 1991. Inland
Revenue administers these trust accounts for amounts collected from liable parents and the subsequent child support payments
that are paid to the custodial parents.
The KiwiSaver trust account was established in accordance with section 74(4) of the KiwiSaver Act 2006. Inland Revenue
administers this account to hold money deposited with the Crown from KiwiSaver scheme providers, primarily for refunds and
payments made in error, pending the completion of the financial transaction.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.
ANNUAL REPORT 2015
133
STATEMENT OF ACCOUNTING POLICIES
These financial schedules are for the year ended 30
June 2015 and include forecast financial schedules for
the year ending 30 June 2016. The schedules have been
combined to provide a single view of actual, budget and
forecast information.
References to the financial schedules incorporate the financial
schedules and forecast financial schedules, unless otherwise
stated.
REPORTING ENTITY
These non-departmental financial schedules present financial
information on public funds managed by Inland Revenue on
behalf of the Crown.
These non-departmental balances are consolidated into the
Financial Statements of the Government of New Zealand for
the Year Ended 30 June 2015. For a full understanding of the
Crown’s financial position, results of operations, and cash flows
for the year, refer to the Financial Statements of the Government
of New Zealand for the Year Ended 30 June 2015.
CRITICAL ACCOUNTING ESTIMATES
The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of
receivables and payables within the next financial year are
referred to below:
Income tax
Income tax is recognised on an accruals basis in the period the
taxable event occurs. It is deemed to accrue evenly over the
period to which it relates.
Where income tax returns have not been filed for the relevant
period, accrued income tax revenue receivable or payable
has been estimated based on current provisional assessments
or prior year terminal assessments. The outcome of income
tax revenue and refunds is not known with certainty until
income tax returns for the period have been filed. This occurs
sometime after the publication of the annual report, usually in
the next accounting period.
REPORTING PERIOD
The measurement of the income tax accruals requires
significant estimates where terminal tax assessments are not
yet available for the period. Key features of the estimation used
are as follows:
The reporting period for these financial schedules is for the
year ended 30 June 2015. The forecast financial schedules are
for the year ending 30 June 2016.
• Where taxpayers subject to the provisional tax regime
have not yet filed a terminal tax assessment for the period,
provisional tax assessments are accrued.
The financial schedules were authorised for issue by the Chief
Executive of Inland Revenue on 29 September 2015.
• Where taxpayers have made payments to Inland Revenue
but have not submitted a provisional tax assessment for the
period, their credit balance is accrued as revenue. Payments
into the tax pool are not captured by this approach.
BASIS OF PREPARATION
The accounting policies set out below have been applied
consistently to all periods presented in these financial schedules.
These financial schedules have been prepared on a historical
cost basis, unless otherwise stated. The accrual basis of
accounting has been used, unless otherwise stated.
These financial schedules are presented in New Zealand dollars,
and all values are rounded to the nearest thousand dollars
($000). The functional currency of Inland Revenue is New
Zealand dollars.
These financial schedules are the first prepared in accordance
with the new Tier 1 Public Benefit Entity (PBE) accounting
standards. The material adjustments arising on transition are
explained in Note 9.
There are no other new relevant standards and interpretations
issued this year and Inland Revenue has not early adopted any
new standards and interpretations.
134
ANNUAL REPORT 2015
• For individual taxpayers not subject to provisional tax,
an estimate is made of the tax revenues receivable and
refundable based on prior year returns adjusted for current
year experience. This is a new estimate for 2014–15.
• For company taxpayers not subject to provisional tax for the
current year, revenue is recognised on an assessment basis,
i.e. no estimate of tax revenue is accrued in the period of the
taxable event. This is because a reliable estimate cannot be
made in the period of the taxable event.
Other critical accounting estimates
Material estimates and assumptions impact on receivables,
student loan debt and refundables and payables. See Notes 1, 3
and 4 for more information on these.
ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results and financial position, have
been applied.
09
Budget and forecast figures
The budget figures for 2014–15 are those included in The
Estimates of Appropriations for the year ending 30 June 2015.
The estimated actual figures for 2014–15 and the forecast
figures for 2015–16 are those included in The Estimates of
Appropriations for the year ending 30 June 2016. The estimated
actual figures represent forecasts submitted to the Treasury
based on all Government decisions and assumptions as at
28 April 2015.
The budget, estimated actual and forecast figures have been
prepared in accordance with NZ GAAP, using accounting
policies that are consistent with those adopted in preparing
these financial schedules.
Revenue
life of the financial asset to that asset’s net carrying amount.
Effective interest rates are assigned to new lending each year on
a ‘year of lending’ basis.
Expenses
Expenses are recognised in the period to which they relate.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in
transit and funds held in bank accounts administered by Inland
Revenue.
Receivables
Receivables include taxes and Working for Families Tax Credits
(and any penalties and interest associated with these activities)
and exclude student loans and child support debt.
The payment of tax in itself, does not entitle a taxpayer to an
equivalent value of services or benefits, because there is no
direct relationship between paying tax and receiving Crown
services and transfers, that is, tax revenue is a non-exchange
transaction.
Receivables are initially assessed at nominal value, that is, the
receivable reflects the amount of tax owed or Working for
Families Tax Credits payable. The nominal value of receivables at
recognition does not materially differ from their fair value at that
point, taking into consideration the effects of uncollectability
and discounting of future cashflows to present value.
Tax revenue is recognised when a taxable event has occurred,
the tax revenue can be reliably measured and it is probable
that economic benefits will flow to the Crown. The taxable
event is defined as follows:
Receivables are subsequently adjusted for penalties and interest
as they are charged, and tested for impairment annually.
Interest and penalties charged on receivables are presented as
revenue in the Schedule of Non-departmental Revenue.
Operating revenue
Tax type
Taxable activity
Income tax
The earning of assessable income
during the taxation period by the
taxpayer.
Goods and services tax
The purchase or sale of taxable
goods and services during the
taxation period.
The New Zealand tax system is predicated on self-assessment
where taxpayers are expected to understand the tax laws and
comply with them. This has an impact on the completeness
of tax revenues when taxpayers fail to comply with tax
laws, for example, if they do not report all of their income.
Inland Revenue has implemented systems and controls in
order to detect and correct situations where taxpayers are
not complying with the various acts it administers. These
systems and controls include performing audits of taxpayer
records where determined necessary by Inland Revenue.
Such procedures cannot be expected to identify all sources
of unreported income or other cases of non-compliance with
tax laws. Inland Revenue is unable to estimate the amount of
unreported tax.
Interest unwind – student loans
Interest unwind on student loans is accrued using the effective
interest rate method. The effective interest rate exactly
discounts estimated future cash receipts through the expected
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that the asset is impaired.
Impairment movements are recognised in the Schedule of Nondepartmental Expenditure. Impairment losses can be reversed
where there is evidence that the impaired value of the asset has
increased.
Financial models have been constructed for Inland Revenue to
calculate the impairment of Crown debt. These models apply
a number of assumptions on future repayment behaviour as
well as economic assumptions such as the discount rate and
inflation.
Receivables – child support
Child support receivables consist of penalties applied when
a non-custodial parent is in default. These receivables are
initially recognised at fair value and are assessed annually for
impairment.
Financial instruments
Financial assets
Student loans
Student loans are designated as loans and receivables
under PBE IPSAS 29 Financial Instruments: Recognition and
Measurement. Student loans are recognised initially at fair
value, plus transaction costs, and subsequently measured at
amortised cost using the effective interest rate method, and
adjusted for impairment movements. Fair value on initial
recognition of student loans is determined by projecting
ANNUAL REPORT 2015
135
forward expected repayments and discounting them back at an
appropriate discount rate. The difference between the amount
lent and the fair value on initial recognition is expensed on
initial recognition. The subsequent measurement at amortised
cost is determined using the effective interest rate calculated
at initial recognition. This rate is used to spread the Crown’s
interest income across the life of the loan and determines the
loan’s carrying value at each reporting date.
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivables. Impairment losses are incurred if, and
only if, there is objective evidence of impairment as a result of
one or more events that occurred after the initial recognition
of the loan and a loss event has an impact on the estimated
future cash flows of the loan that can be reliably measured.
The amount of the provision is the difference between the
asset’s carrying amount and estimated impaired value. The
impairment losses are recognised in the Schedule of Nondepartmental Expenditure.
Impairment losses can be reversed where there is evidence that
the impaired value of the financial asset has increased.
Actuarial models have been constructed by a third party to
calculate the impairment of student loan debt. Refer to Note 3
for more information on this model.
Financial liabilities
Financial liabilities entered into with a duration of less than 12
months are recognised at their nominal value, unless the effect
of discounting is material.
Contingent liabilities and assets
Contingent liabilities and assets are recorded in the Schedule of
Non-departmental Contingent Liabilities and Contingent Assets
at the point at which the contingency is evident. Contingent
liabilities are disclosed if the possibility that they will crystallise
is not remote. Contingent assets are disclosed if it is probable
that the benefits will be realised.
Comparatives
When presentation or classification of items in the financial
schedules is amended or accounting policies are changed,
comparative figures have been restated to ensure consistency
with the current period, unless it is impracticable to do so.
Note 9 shows the adjustments to comparatives arising on
transition to the new PBE accounting standards.
FORECAST FINANCIAL SCHEDULES
The forecast financial schedules have been prepared in
accordance with the Public Finance Act 1989.
The purpose of the forecast financial schedules is to facilitate
Parliament’s consideration of appropriations for, and planned
performance of, the department. These forecast financial
schedules may not be appropriate for other purposes.
136
ANNUAL REPORT 2015
The forecast financial schedules have been prepared in
accordance with the accounting policies detailed above.
Additional accounting policies relating to the forecasts are set
out below.
The forecast financial schedules comply with NZ GAAP
and have been prepared in accordance with PBE IPSAS 42
Prospective Financial Statements.
The forecast financial schedules are not subject to audit.
Forecast policies
The forecasts have been compiled on the basis of existing
government policies and ministerial expectations at the
time the schedules were finalised and reflect all government
decisions and circumstances as at 28 April 2015.
The key assumptions in the preparation of the forecasts
include:
• Tax revenue: tax policy changes enacted and announced by
the Government will take place as planned and will affect tax
revenue and receipts as calculated and agreed between Inland
Revenue and the Treasury.
• Student loans: the carrying value of student loans is based on
a valuation model adapted to reflect current student loans
policy. As such, the carrying value over the forecast period is
sensitive to changes in a number of underlying assumptions,
including future income levels, repayment behaviour and
macroeconomic factors such as inflation and discount
rates used to determine the effective interest rate for new
borrowers. Any change in these assumptions would affect the
present fiscal forecast.
For other key fiscal forecast assumptions, refer to the Budget
Economic and Fiscal Update 2015.
Variations to forecast
The actual financial results for the forecast period covered are
likely to vary from the information presented in these forecasts.
Factors that may lead to a material difference between
information in these forecast financial schedules and the actual
reported results include:
• Changes to the Budget through initiatives or legislation
approved by Cabinet
• Macroeconomics impacting revenue, expenditure and debt
levels
• The timing of taxpayer’s filing and payment of returns
• The timing of taxpayer refund and credit claims
• Outcomes of the disputes process including litigation.
Any changes to budgets during 2015–16 will be incorporated
into The Supplementary Estimates of Appropriations for the year
ending 30 June 2016.
09
NOTES TO THE FINANCIAL SCHEDULES
NOTE 1: RECEIVABLES
Receivables include taxes and Working for Families Tax Credits and exclude student loans and child support debt.
The recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical
debt data, deducting an estimate of service costs and then discounting using an appropriate rate. If the recoverable amount of
the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the
recoverable amount is more, the carrying amount is increased.
Tax pooling funds held in Crown bank accounts have been netted off against receivables. These funds have been deposited
by a commercial intermediary and allow taxpayers to pool tax payments to reduce their use-of-money-interest exposure.
Underpayments and overpayments are offset within the same pool. We estimate that the majority of pooling funds relate to
income accruals already included in not yet due receivables.
2013–14
Actual
$000
2014–15
Actual
$000
Gross receivables
13,162,0762
12,145,147
Impairment receivables
2
(4,466,435)
(4,192,162)
8,695,641
7,952,985
8,228,2412
7,511,685
Receivables
Carrying value receivables
Current and non-current apportionment
Receivables – current
Receivables – non-current
Carrying value receivables
467,400
441,300
8,695,641
7,952,985
7,691,3702
6,992,052
Ageing profile of receivables – gross
Not due
Past due1
Less than 6 months
930,766
974,747
6 – 12 months
389,436
336,826
1 – 2 years
719,193
679,751
Greater than 2 years
3,431,311
3,161,771
Total past due
5,470,706
5,153,095
13,162,076
12,145,147
42%
42%
Opening balance
4,371,533
4,466,435
Total receivables – gross
% Past due
Receivables – impairment
Impairment losses recognised
1,025,060
2
860,829
Amounts written off as uncollectable
(930,158)
(1,135,102)
Closing balance
4,466,435
4,192,162
1
Figures are based on debt elements (a specific tax type and time period for which a debt is due). They are not comparable with
the figures in the Additional Information section, which are based on debt cases (one debt case can have one or more debt
elements) and also include overdue student loan debt.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
Receivables are classified as past due when any outstanding revenue is not paid by the taxpayer’s due date. Due dates will vary,
depending on the type of revenue outstanding (e.g. income tax, GST, KiwiSaver) and the taxpayer’s balance date. Past due debt
includes debt collected under instalment, debt under dispute, default assessments and debts of taxpayers who are bankrupt,
ANNUAL REPORT 2015
137
in receivership or in liquidation. Inland Revenue has debt management policies and procedures in place to actively manage the
collection of past due debt.
Not due receivables comprise estimations for taxation where the tax has been earned but is not yet overdue.
The estimated recoverable amount of this portfolio and significant assumptions underpinning the valuation are:
1
2013–14
2014–15
Recoverable amount of receivables not due ($000)
7,648,373
1
6,954,717
Recoverable amount of receivables past due ($000)
1,047,268
998,268
Use-of-money-interest rate
8.40%
9.21%
Discount rate
6.00%
6.00%
Impact on the recoverable amount of a 2% increase in discount rate ($000)
(21,000)
(20,000)
Impact on the recoverable amount of a 2% decrease in discount rate ($000)
22,000
21,000
This number is restated due to the transition to the new PBE accounting standards.
The fair value of receivables is not materially different from the carrying value.
Credit risk
In determining the recoverability of receivables Inland Revenue uses information about the extent to which the taxpayer is
contesting the assessment and experience of the outcomes of such disputes, from lateness of payment and other information
obtained from credit collection actions taken.
Under the Tax Administration Act 1994 Inland Revenue has broad powers to ensure that people meet their obligations. Part 10 of
the Act sets out the powers of the Commissioner to recover unpaid tax.
The Crown does not hold any collateral or any other credit enhancements over receivables which are past due.
Receivables are widely dispersed over a number of taxpayers and as a result the Crown does not have any material individual
concentrations of credit risk.
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NOTE 2: RECEIVABLES – CHILD SUPPORT
The Crown collects monies from liable parents and remits this to custodial parents. The child support receivable represents
penalties which have been incurred as a result of the under-payment of the debt, and in the main, relates to penalties imposed on
liable parents who default on their payments.
Child support penalties grow exponentially due to their compounding nature. The recovery of debt is challenging and 97% of child
support debt is written down at initial recognition as it is not expected to be collected. There are limited provisions under child
support legislation to remit penalties. The non-recoverability of penalties has been allowed for in the initial fair value write-down
figure. At year end the fair value of the outstanding debt is also tested for impairment.
The concentration of credit risk is limited and this is not a risk that is actively managed. The Crown does not hold any collateral or
other credit enhancements over these receivables.
2013–14
Actual
$000
2014–15
Actual
$000
Receivables – child support
Gross receivables
2,372,026
2,605,488
(2,296,621)
(2,526,450)
75,405
79,038
Receivables – current
10,899
12,001
Receivables – non-current
64,506
67,037
Carrying value receivables
75,405
79,038
–
–
267,192
240,285
Impairment receivables
Total receivables – child support
Current and non-current apportionment
Ageing profile of receivables – gross
Not due
Past due
Less than 12 months
1 – 2 years
296,558
267,192
Greater than 2 years
1,808,276
2,098,011
Total past due
2,372,026
2,605,488
Total receivables – gross
2,372,026
2,605,488
100%
100%
2,041,986
2,296,621
350,991
338,070
–
–
(96,356)
(108,241)
–
–
2,296,621
2,526,450
% Past due
Impairment of receivables – child support
Opening balance
Initial write-down to fair value1
Impairment losses recognised during the year
Amounts written off as uncollectable
Impairment losses reversed
Closing balance
1
This is to comply with the new PBE accounting standards. Refer to Note 9 for details.
ANNUAL REPORT 2015
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NOTE 3: STUDENT LOANS
Student loans are initially issued by StudyLink (Ministry of Social Development). The loans and any associated transactions are
transferred to Inland Revenue on a daily basis. Inland Revenue holds the total nominal debt and carrying value of the scheme. The
initial capital lending of student loans is administered under Vote Social Development. The initial fair value write-down expense on
new capital lending, and any subsequent impairment, is administered under Vote Revenue.
Opening carrying value
Repayments
2013–14
Actual
$000
2014–15
Actual
$000
8,288,177
8,715,829
(1,031,664)
(1,113,751)
Borrowings transferred from Ministry of Social Development
1,521,537
1,528,794
Fair value write-down on new borrowings
(629,539)
(601,665)
Impairment
(12,000)
(269,000)
Interest unwind
579,318
604,175
8,715,829
8,864,382
1,193,000
1,122,000
Closing carrying value student loans
Current and non-current apportionment
Student loans – current
Student loans – non-current
7,522,829
7,742,382
Carrying value student loans
8,715,829
8,864,382
Opening nominal value
13,562,221
14,235,007
1,521,537
1,528,794
(1,031,664)
(1,113,751)
150,925
141,345
Administration and establishment fees
21,794
22,365
Penalties
48,894
58,394
(24,500)
(34,831)
Borrowings transferred from Ministry of Social Development
Repayments
Interest on overseas based borrowers
Death and bankruptcies
Voluntary repayment bonus
Closing nominal value
(14,200)
(295)
14,235,007
14,837,028
Student loan valuation model
The student loan valuation model reflects current student loan policy and macroeconomic assumptions. As such, the book
value is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and
macroeconomic factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers. For
these reasons, the valuation has a high degree of inherent uncertainty, and there is a significant risk of material adjustment to the
carrying value in future accounting periods.
Most of the data upon which the modelling depends is collated by Statistics New Zealand from Inland Revenue, Ministry of
Education and Ministry of Social Development. That data covers borrowings, repayments, income, educational factors and socioeconomic factors. It is current up to 31 March 2014. Some supplementary data from Inland Revenue and Customs, about loan
transactions and borrowers’ cross-border movements for the period up to 31 March 2015 are also factored into the modelling.
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The significant assumptions behind the carrying value and fair value are:
2013–14
2014–15
Carrying value ($000)
8,715,829
8,864,382
Effective interest rate
7.06%
7.00%
Carrying value
Interest rate applied to loans for overseas borrowers
5.1% – 6.2%
4.5% – 6.2%
Consumer price index
1.8% – 2.5%
0.3% – 2.5%
Future salary inflation
2.8% – 3.5%
2.3% – 3.5%
2013–14
2014–15
8,924,000
9,267,000
6.62%
6.20%
Impact on fair value of a 1% increase in discount rate ($000)
(448,000)
(492,000)
Impact on fair value of a 1% decrease in discount rate ($000)
501,000
554,000
Fair value
Fair value ($000)
Discount rate
Fair value is the amount for which the loan book could be exchanged between knowledgeable, willing parties in an arm’s-length
transaction as at 30 June 2015. It is determined by discounting the future cash flows at an appropriate discount rate.
Fair values will differ from carrying values due to changes in market interest rates, as the carrying value is not adjusted for such
changes whereas the fair value was calculated on a discount rate that was current at 30 June 2015. At that date, the fair value
was calculated on a discount rate of 5.66% which excludes expenses whereas a weighted average discount rate of 7.00% including
expenses was used for the carrying value. For reference, the representative discount rate for fair value including an allowance for
expenses is 6.20%.
The Student Loan Scheme Annual Report 2014/15 contains more information on the student loan scheme.
Impairment of student loans in 2014–15 totalled $269 million. This impairment is mainly due to data and modelling changes.
Extensive modelling enhancements were made to the income sub-models. The changes focussed on better reflecting the poorer
employment prospects arising after the Global Financial Crisis for those with lower qualifications. Macroeconomic changes
contributed to the impairment expense as well. All of the economic assumptions have fallen significantly since the previous
valuation. Actual repayments were lower than forecast. To reflect expected improvements in employment rates and repayment
compliance, an adjustment was made to reverse some of the modelling impairment loss.
In 2013–14 the impairment of student loans totalled $12 million. This was driven by lower than expected incomes and repayments
as well as changes to macroeconomic assumptions for income recovery and earnings inflation.
The valuation data is still very sensitive to changes in certain areas as can be seen from the sources of impairment set out below:
2013–14
Actual
$000
2014–15
Actual
$000
Sources of impairment
Policy and legislative changes
53,000
–
Experience variance
(2,000)
(40,000)
Macroeconomic changes
Remaining model and data changes
Adjustments for expected improvements
Total sources of impairment
29,000
(117,000)
(92,000)
(262,000)
–
150,000
(12,000)
(269,000)
Credit risk
Credit risk is the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid, causing
the scheme to incur a loss.
The student loan scheme does not require borrowers to provide any collateral or security to support advances made. As the total
sum advanced is widely dispersed over a large number of borrowers, the student loan scheme does not have any material individual
concentrations of credit risk.
ANNUAL REPORT 2015
141
The credit risk is reduced by collection of compulsory repayments through the tax system.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in interest rates. Changes could
impact on the Government’s return on loans advanced. The interest rate and the interest write-off provisions attached to student
loans are set by the Government.
NOTE 4: REFUNDABLES AND PAYABLES
Refundables and payables are recognised at their nominal value as they are due within 12 months. The nominal value is considered
to approximate their fair value.
Taxes refundable represent refunds due to taxpayers. Refunds are issued to taxpayers once account and refund reviews are
complete.
KiwiSaver payable
2013–14
Actual
$000
2014–15
Actual
$000
943,133
917,020
6,659
7,894
Paid parental leave payable
1
Taxes refundable
3,539,453
1
3,386,708
Total refundables and payables
4,489,245
4,311,622
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
NOTE 5: UNCLAIMED MONIES
Under the Unclaimed Money Act 1971, entities (e.g. financial institutions, insurance companies) hand over money not claimed
after six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.
NOTE 6: RESERVE SCHEMES
2013–14
Actual
$000
Adverse event income equalisation
Environmental restoration
2014–15
Actual
$000
2
133
54,927
54,926
Income equalisation
191,008
284,220
Total reserve schemes
245,937
339,279
The adverse event income equalisation scheme operates in addition to the income equalisation scheme. Deposits earn interest at
a rate of 6.5% per annum from the date of receipt until the deposit is refunded. Deposits can be withdrawn immediately, but are
transferred to the main income equalisation account if not withdrawn within 12 months of the deposit.
The environmental restoration account allows businesses to set aside money to cover restoration costs for monitoring, avoiding,
remedying or mitigating the detrimental environmental effects which may occur in later years. Interest is calculated at a rate of 3%
per annum and is payable from the day after the deposit is made until the day before a refund is made. Refunds will be made when
the environmental restoration costs are incurred.
The income equalisation scheme allows taxpayers in the farming, fishing and forestry industries to make payments during the year
by way of income equalisation deposits. Interest paid at a rate of 3% per annum will apply where a deposit is left in the scheme for
a period of 12 months or more.
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NOTE 7: CONTINGENCIES
Contingent liabilities
Legal proceedings and disputes – assessed
Contingent liabilities arise if a legal case is still not resolved at the end of the disputes process, Inland Revenue will issue an
amended assessment to the taxpayer and recognise revenue. The taxpayer is then able to file proceedings with the Taxation
Review Authority or the High Court disputing the assessment. These are recorded in the Schedule of Non-departmental Contingent
Liabilities and Contingent Assets as legal proceedings and disputes – assessed. The contingent liability is the maximum liability
Inland Revenue has in respect of these cases.
Unclaimed monies
Unclaimed monies are repaid to the entitled owner on proof of identification. Based on trends from prior years, the estimated likely
amount of unclaimed monies that will be paid out is recorded as a liability in the Schedule of Non-departmental Liabilities and the
remainder is recorded as a contingent liability in the Schedule of Non-departmental Contingent Liabilities and Contingent Assets.
Contingent assets
Disputes – non-assessed
Contingent assets arise as part of the tax dispute process, for example, when Inland Revenue has advised a taxpayer of a proposed
adjustment to their tax assessment through a notice of proposed adjustment (NOPA). At this point there has been no amended
assessment issued and no revenue has been recognised so these adjustments are recorded in the Schedule of Non-departmental
Contingent Liabilities and Contingent Assets as disputes – non-assessed. The taxpayer has the right to dispute this adjustment and a
disputes resolution process is entered into. Inland Revenue quantifies a contingent asset based on the likely cash collectable for the
disputes process based on experience and similar prior cases, net of losses carried forward.
Contingent assets can also arise where the taxpayer has not filed an assessment but Inland Revenue believes they are liable for
tax. In this situation Inland Revenue will issue an assessment. Where the taxpayer chooses to dispute the Inland Revenue initiated
assessment, the assessment is not recognised as revenue and a contingent asset is recorded in the Schedule of Non-departmental
Contingent Liabilities and Contingent Assets. The value of the asset is based on the likely collectable portion of the default assessment,
net of losses carried forward.
NOTE 8: COLLECTION OF EARNER LEVIES
Inland Revenue collects these levies on behalf of the Accident Compensation Corporation and passes the monies directly to them.
The levies are not recognised as revenue or expenditure on the non-departmental schedules.
2013–14
Actual
$000
2014–15
Actual
$000
Earner levy
1,546,101
1,443,343
Total collection of earner levy
1,546,101
1,443,343
ANNUAL REPORT 2015
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NOTE 9: ADJUSTMENTS ON TRANSITION TO THE NEW PBE ACCOUNTING STANDARDS
Inland Revenue has adjusted the comparative year non-departmental schedules for the year ended 30 June 2014 arising from
transition to the new PBE accounting standards. The adjustments are shown in the table below:
Notes
NZ IFRS
(PBE)
2013–14
$000
Adjustment PBE accounting
standards
2013–14
$000
$000
Schedule of Non-departmental Revenue
Income tax
Individuals
Other persons
Refunds
5,216,335
30,658
5,246,993
(1,573,264)
58,206
(1,515,058)
459,309
(254,635)
204,674
Other revenue
Child support
Schedule of Non-departmental Expenditure &
Statement of Non-departmental Appropriations
Other expenses
95,257
(355)
94,902
254,635
(254,635)
–
1
7,568,681
659,560
8,228,241
4
3,630,784
858,461
4,489,245
15,244,664
(288,120)
14,956,544
Impairment of debt1
Impairment of debt relating to child support
Schedule of Non-departmental Assets
Current assets
Receivables
Schedule of Non-departmental Liabilities
Current liabilities
Payables and provisions
Refundables and payables
Schedule of Non-departmental Movements between Departments
Opening balance
1
This restated number is part of the Impairment of debt and debt write-offs figure in the Schedule of Non-departmental Expenditure
and is also shown in the Statement of Non-departmental Appropriations in part 7, Measuring our performance.
Measurement of child support penalties revenue and associated impairment
Under NZ IFRS (PBE), child support penalty revenue was recognised at the amount of penalty imposed (nominal value), with an
allowance for impairment recognised as expenditure. Under the new PBE accounting standards, child support penalty revenue is
recognised at fair value on initial recognition. The fair value incorporates uncollectability and discounting. The effect of this change
is to reduce child support penalty revenue and child support impairment expense. Therefore, the impact of this transition change
on the net result from operating activities is $nil.
Measurement of income tax for other persons and refunds
This year we have included a new accrual in the non-departmental financial schedules for income tax (other persons) for
non-provisional taxpayers including those who received personal tax summaries. Previously income tax revenue for these taxpayers
was only recognised when the terminal assessments were filed. The effect of this change is to increase both receivables and
refundables and payables. However, the impact of this transition change on the net result from operating activities is not material.
NOTE 10: EVENTS AFTER BALANCE DATE
No events have occurred between the balance date and the date of signing these financial schedules that materially affect the
actual results within these financial schedules.
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Audit Report
ANNUAL REPORT 2015
145
INDEPENDENT AUDITOR’S REPORT
To the readers of Inland Revenue’s annual report for the year ended 30 June 2015
The Auditor-General is the auditor of Inland Revenue (the Department). The Auditor-General has appointed me, Ajay Sharma, using the
staff and resources of Audit New Zealand, to carry out the audit on her behalf of:
• the financial statements of the Department on pages 94 to 124, that comprise the statement of financial position, statement of
commitments, statement of contingent liabilities and contingent assets as at 30 June 2015, the statement of comprehensive revenue
and expense, statement of changes in taxpayers’ funds, and statement of cash flows for the year ended on that date and the notes to
the financial statements that include accounting policies and other explanatory information;
• the performance information prepared by the Department for the year ended 30 June 2015 on pages 59 to 88;
• the statements of expenses and capital expenditure of the Department for the year ended 30 June 2015 on pages 89 to 92; and
• the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 126 to 144 that
comprise:
• the schedules of assets, liabilities, contingent liabilities and assets, commitments, expenditure, revenue, and movements between
departments for the year ended 30 June 2015;
• the schedule of trust monies for the year ended 30 June 2015; and
• the notes to the schedules that include accounting policies and other explanatory information.
Opinion
In our opinion:
• the financial statements of the Department:
• present fairly, in all material respects:
• its financial position as at 30 June 2015; and
• its financial performance and cash flows for the year ended on that date;
• comply with generally accepted accounting practice in New Zealand and have been prepared in accordance with Public Benefit
Entity Reporting Standards.
• the performance information of the Department:
• presents fairly, in all material respects, for the year ended 30 June 2015:
• what has been achieved with the appropriation; and
• the actual expenses or capital expenditure incurred compared with the appropriated or forecast expenses or capital
expenditure;
• complies with generally accepted accounting practice in New Zealand.
• the statements of expenses and capital expenditure of the Department on pages 89 to 92 are presented fairly, in all material respects,
in accordance with the requirements of section 45A of the Public Finance Act 1989.
• the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 126 to 144
present fairly, in all material respects, in accordance with the Treasury Instructions:
• the assets, liabilities, contingent liabilities and assets, commitments, expenditure, revenue, and movements between departments
for the year ended 30 June 2015; and
• the schedule of trust monies for the year ended 30 June 2015.
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ANNUAL REPORT 2015
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Our audit was completed on 29 September 2015. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Chief Executive and our
responsibilities, and we explain our independence.
Basis of opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International
Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out
our audit to obtain reasonable assurance about whether the information we audited is free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence
readers’ overall understanding of the information we audited. If we had found material misstatements that were not corrected, we
would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the information we
audited. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the
information we audited, whether due to fraud or error. In making those risk assessments, we consider internal control relevant
to the Department’s preparation of the information we audited in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control.
An audit also involves evaluating:
• the appropriateness of accounting policies used and whether they have been consistently applied;
• the reasonableness of the significant accounting estimates and judgements made by the Chief Executive;
• the appropriateness of the reported performance information within the Department’s framework for reporting performance;
• the adequacy of the disclosures in the information we audited; and
• the overall presentation of the information we audited.
We did not examine every transaction, nor do we guarantee complete accuracy of the information we audited. Also, we did not
evaluate the security and controls over the electronic publication of the information we audited.
We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Responsibilities of the Chief Executive
The Chief Executive is responsible for preparing:
• financial statements that present fairly the Department’s financial position, financial performance, and its cash flows, and that
comply with generally accepted accounting practice in New Zealand.
• performance information that presents fairly what has been achieved with each appropriation, the expenditure incurred
as compared with expenditure expected to be incurred, and that complies with generally accepted accounting practice in
New Zealand.
• statements of expenses and capital expenditure of the Department, that are presented fairly, in accordance with the
requirements of the Public Finance Act 1989.
• schedules of non-departmental activities, in accordance with the Treasury Instructions, that present fairly those activities
managed by the Department on behalf of the Crown.
The Chief Executive’s responsibilities arise from the Public Finance Act 1989.
The Chief Executive is responsible for such internal control as is determined is necessary to ensure that the annual report is free
from material misstatement, whether due to fraud or error. The Chief Executive is also responsible for the publication of the annual
report, whether in printed or electronic form.
ANNUAL REPORT 2015
147
Responsibilities of the Auditor
We are responsible for expressing an independent opinion on the information we are required to audit, and reporting that opinion to you
based on our audit. Our responsibility arises from the Public Audit Act 2001.
Independence
When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence
requirements of the External Reporting Board.
Other than the audit, we have no relationship with or interests in the Department.
Ajay Sharma
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand
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Additional
information
ANNUAL REPORT 2015
149
CUSTOMER SATISFACTION
TABLE 1: CUSTOMER SATISFACTION WITH OUR VOICE AND CORRESPONDENCE CHANNELS
Overall satisfaction
Customer group
National results
Individuals (overall)
2013–14
Satisfied
Very
satisfied
85%
81%
68%
64%
2014–15
Satisfied
85%
81%
Very
satisfied
68%
62%
Working for Families Tax Credits
87%
72%
85%
68%
Child support
74%
54%
71%
48%
KiwiSaver (employees)
88%
76%
87%
75%
Student loan
79%
58%
86%
66%
Business (overall)
88%
71%
88%
72%
Small and medium enterprises
90%
73%
89%
73%
Large enterprises
86%
70%
87%
68%
Tax agents
89%
69%
92%
78%*
Not for profits
84%
70%
84%
68%
General public
87%
65%
87%
67%
* Statistically significant difference at 95% confidence level between 2013–14 and 2014–15
TABLE 2: CUSTOMER SATISFACTION WITH OUR ONLINE SERVICES
Overall satisfaction
Customer group
2013–14
Satisfied
Very
satisfied
2014–15
Satisfied
Very
satisfied
National results
Individuals (overall)
95%
94%
77%
75%
95%
94%
79%
78%
Working for Families Tax Credits
93%
75%
96%
80%
Child support
93%
72%
94%
80%
KiwiSaver (employees)
95%
79%
93%
76%
Student loan
93%
71%
93%
72%
No social policy
94%
78%
95%
80%
Business (overall)
96%
79%
96%
81%
Small and medium enterprises
95%
78%
96%
81%
Large enterprises
98%
84%
96%
83%
Tax agents
97%
77%
95%
78%
Not for profits
95%
78%
96%
80%
There is no statistically significant difference at the 95% confidence level between 2013–14 and 2014–15 for different customer groups.
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ANNUAL REPORT 2015
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TABLE 3: CUSTOMER PERCEPTIONS OF THE TAX SYSTEM
2013–14
Agree
Strongly
agree
Confidence Inland Revenue does a good job
93%
67%
2014–15
Agree
Strongly
agree
94%
71%
Overall fairness
82%
53%
82%
56%
Overall operational effectiveness
82%
55%
83%
57%
Easily accessed
83%
64%
87%
69%
Making it easy to get it right
79%
45%
80%
49%
Appropriate action against non-compliance
79%
54%
79%
55%
Paying tax contributes to New Zealand
96%
86%
97%
88%
ANNUAL REPORT 2015
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DEBT TABLES
TABLE 4: COMPOSITION OF OUR DEBT PORTFOLIO AT 30 JUNE ($ MILLIONS)
Debt type
2011
2012
2013
2014
2015
One-year
change
One-year
change (%)
Debt under instalments
$1,146.6
$1,176.3
$1,230.2
$1,228.2
$1,085.4
($142.8)
(11.6%)
Other collectable debt
$2,663.5
$2,582.7
$2,561.5
$2,621.6
$2,367.0
($254.6)
(9.7%)
Tax Collectable debt*
$3,810.2
$3,759.0
$3,791.7
$3,849.8
$3,452.4
($397.4)
(10.3%)
Tax Non-Collectable debt**
$1,711.9
$2,157.4
$2,186.4
$2,390.3
$2,633.8
$243.4
10.2%
Total Debt
$5,522.1
$5,916.4
$5,978.2
$6,240.1
$6,086.1
($154.0)
(2.5%)
$275.1
$320.8
$371.8
$406.6
$334.8
($71.8)
(17.7%)
WfFTC
GST
$1,908.5
$1,947.2
$1,873.9
$1,775.5
$1,527.5
($248.0)
(14.0%)
Income tax
$2,207.8
$2,372.4
$2,365.7
$2,519.6
$2,653.0
$133.5
5.3%
KiwiSaver
$19.8
$21.5
$22.5
$33.3
$29.4
($4.0)
(11.9%)
Other tax
$76.6
$100.1
$121.6
$121.8
$115.9
($5.9)
(4.9%)
$622.6
$642.1
$586.8
$613.9
$492.4
($121.4)
(19.8%)
PAYE
$411.7
$512.3
$635.9
$769.4
$933.0
$163.6
21.3%
Total
Student loan
$5,522.1
$5,916.4
$5,978.2
$6,240.1
$6,086.1
($154.0)
(2.5%)
Tax Penalties & Interest
$2,359.0
$2,711.3
$2,862.6
$2,998.5
$2,936.7
($61.9)
(2.1%)
Penalties and Interest %
42.7%
45.8%
47.9%
48.1%
48.3%
389,947
408,605
436,298
435,360
367,864
(67,496)
(15.5%)
7.2%
7.1%
1.0%
4.4%
(2.5%)
Customers in debt (total cases)
Annual debt change (%)
Notes
* Collectable debt: debt cases where the assessment value is overdue and collections activity is in progress. This activity includes
instalment arrangements, deduction notices, cases linked to legal actions and other manual or automatic actions.
**Non-Collectable debt: debt cases where the assessed value is pending or in dispute and we are unable to proceed with collection
activity at present. This includes cases:
• linked to investigations
• linked to objections
• pending write-off action
• with limited or no collection activity due to insolvency.
TABLE 5: AGE OF DEBT AT 30 JUNE ($ MILLIONS)
Tax debt by age
2011
2012
2013
2014
2015
One-year
change
One-year
change (%)
<1 year
$1,377.7
$1,254.7
$1,245.5
$1,298.9
$1,333.4
$34.5
2.7%
1–2 year
$1,387.7
$1,079.1
$901.9
$936.7
$809.1
($127.6)
(13.6%)
2–5 year
$1,787.7
$2,310.9
$2,304.8
$2,204.6
$1,928.3
($276.4)
(12.5%)
5–10 year
$653.9
$793.5
$992.4
$1,126.5
$1,170.4
$43.9
3.9%
10 year+
$315.1
$478.1
$533.6
$673.4
$845.0
$171.6
25.5%
$5,522.1
$5,916.4
$5,978.2
$6,240.1
$6,086.1
($154.0)
(2.5%)
Total
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CORE SERVICES COSTS
We track the cost of providing our core services, such as answering telephone queries and processing tax returns. Table six compares
those costs with targets and the previous year’s results. We are encouraging people and businesses to do as much as they can online to
lower the number of phone calls and items of correspondence we receive.
TABLE 6: COST INDICATORS
Indicator
2013–14
Actual
2014–15
Actual
2014–15
Target
Cost per telephone contact
$29.88
$30.41
$36.00
Cost per correspondence contact
$37.80
$35.81
$45.00
Cost per counter contact
$64.89
$22.65
$65.00
Average cost per customer initiated contact
$33.00
$31.10
$40.00
Cost per income tax return processed
$4.92
$4.32
$6.50
Cost per GST return processed
$1.34
$1.03
$2.00
Cost per employer monthly schedule processed
$5.14
$4.56
$7.75
Average cost per return processed
$3.95
$3.48
$5.00
Cost of collecting an overdue return
$5.60
$9.00
$15.00
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INFORMATION SHARING WITH THE
DEPARTMENT OF INTERNAL AFFAIRS
Under information sharing regulations, Inland Revenue must report annually, in respect of this approved information sharing agreement,
on actions taken during each financial year.
TABLE 7: INFORMATION SHARING WITH THE DEPARTMENT OF INTERNAL AFFAIRS
FOR THE YEAR ENDED 30 JUNE 2015
Description
Total
Contact records received from DIA
520,457
Contact records not matched to a corresponding Inland Revenue record for:
• overseas-based child support debtors
• overseas-based child support non-debtors who do not appear to have up to date contact information
• overseas-based student loan defaulters
Contact records matched to corresponding Inland Revenue records for:
• overseas-based child support debtors
• overseas-based child support non-debtors who do not appear to have up to date contact information
• overseas-based student loan defaulters
On-going programme operating costs
509,733
Individuals successfully contacted2 using contact records matched to:
• overseas-based child support debtors
• overseas-based child support non-debtors who do not appear to have up to date contact information
• overseas-based student loan defaulters
Payments received from individuals as a result of successful contact with:
• overseas-based child support debtors (299 payments)
• overseas-based student loan defaulters (1,790 payments)
Percentage of individuals who have addressed3 their debt as a result of being successfully contacted by Inland Revenue:
• overseas-based child support debtors (429)
• overseas-based student loan defaulters (2005)
2,255
256
8,387
$1,728 1
1,067
159
2,486
$452,000
$4 million
19%
24%
In July 2014 an amendment was made to the information sharing agreement allowing us to contact overseas-based student loan
borrowers who are not in default, but whose contact information appears to be out of date. This amendment took effect operationally
from August 2014.
In July 2015, the operation of this information sharing agreement was reviewed. It assessed the adequacy of controls in place and in
particular, to ensure compliance with section 11 of the most current Approved Information Sharing Agreement (AISA). The review
confirmed that we are operating in accordance with the terms and conditions of the AISA and the Memorandum of Understanding (MOU).
A copy of the AISA is available to view on our website.
Approximate annual incidental administrative charge.
We have made attempts to contact 10,724 matched individuals, 3,712 have passed our three point identity verification process.
3
Individual no longer has payments overdue or has a payment arrangement with us.
1
2
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INFORMATION SHARING WITH
NEW ZEALAND POLICE
Our AISA with New Zealand Police sets out key activities that we need to report on each year in our Annual Report.
Under sections 96S(1)(b), 96T and 96U of the Privacy Act 1993, and clause 9 of the Privacy Regulations 1993, the Privacy Commissioner
has specified the following reporting in respect of the AISA for:
• supply of information for the purpose of prevention, detection, investigation or providing evidence of serious crime.
A copy of the AISA is available to view on our website.
TABLE 8: INFORMATION SHARED
Description
Total
Number of requests for information made by New Zealand Police to Inland Revenue
93
Number of responses with information provided by Inland Revenue to New Zealand Police
93
Number of occasions Inland Revenue proactively provided information to New Zealand Police
1
COSTS
The sharing agreement with New Zealand Police cost an estimated $3,658 since it started in November 2014 until 30 June 2015.
An additional one off cost of $5,444 in the year ended 30 June 2015, which was the cost to set up the systems and processes so we could
share information with New Zealand Police.
BENEFITS
Under the agreement we need to report if the information provided by Inland Revenue has been used in a case with a resolution of:
• No offence
• Prosecution
• Warning
• Diversion
• Youth case action
We are unable to provide a breakdown of the number of times information has resulted in the above as prosecutions are currently before
the courts and yet to be decided. Some investigations have not been completed and charges are yet to be laid.
Of the 93 responses provided by Inland Revenue to New Zealand Police, 19 cases or prosecutions are currently being pursued. These
prosecutions include a total of 112 charges. Around 21% of requests for information and responses have resulted in prosecution action to date.
Warning, diversion and youth case action do not apply as the AISA focuses on serious offending and these possible resolutions are for
lower level offending which fall below the serious crime threshold.
New Zealand Police indicated 100% of the information provided by Inland Revenue is used in their investigations although this
information does not always result in a prosecution. Where Inland Revenue proactively provided information to New Zealand Police it
was for an investigation.
ASSURANCE
Under the agreement we are required to report if an audit or other assurance process has been undertaken during the year.
There has been no external audit of the referral process or referrals made during this period. Internally, all requests for information
received from New Zealand Police are subject to review by our Senior Solicitor Legal Technical Services. All 93 requests were reviewed by
our Legal Technical Services since the agreement began in November 2014. There were no issues identified in proposed responses.
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One proactive release of information by Inland Revenue to New Zealand Police was reviewed by a Senior Solicitor and also by the
Manager Legal Technical Services. The information was considered appropriate for release within the intent of AISA.
AMENDMENTS
Under the agreement we need to report details of any amendments made to the agreement since the Order in Council came into force.
The original agreement was amended on 16 March 2015 to clarify that Inland Revenue may share with New Zealand Police both current
and previous personal information held, and added that information about liabilities can be shared.
The amendment also permits that, in addition to using SEEMail to share personal information, Inland Revenue may share personal
information with New Zealand Police by other means, for example by permitting New Zealand Police to physically access Inland Revenue
premises to examine, copy and/or remove personal information and reasonable steps will be taken by the parties to maintain security
during this process.
PRIVACY BREACHES
Inland Revenue processes more than 25 million transactions and pieces of correspondence every year. When dealing with that volume
and level of information, occasionally mistakes will occur. Of the breaches identified for the 2014–15 year no individual was harmed by
the incident.
We take privacy very seriously and reporting incidents that may amount to a privacy breach are encouraged. This has resulted in
reporting incidents that do not involve personal information, but are still important to be aware of. Inland Revenue recognises the
importance of protecting information and reporting incidents identifies where processes can be strengthened or more awareness is
required.
In the 2014–15 financial year 323 incidents were reported to our Incident Management team and of those a potential 223 incidents
involved personal information. This compares to 287 in 2013–14. The remainder either involved entity information or were not
considered a breach at all. For example generic forms being sent to the wrong address so no personal information was involved.
Further analysis of the incidents found that 214 were actual privacy breaches where personal information was inadvertently disclosed, or
an address was not accurate. This is compared to 241 for 2013–14. Sending information to the wrong address including postal, email or
fax accounted for 35% of incidents. These are logged as a privacy breach as they indicate address information is not accurate, although do
not necessarily also result in information being disclosed. Of the incidents, 43% involved the disclosure of information.
Only eight per cent of breaches were considered to be potentially significant in that more than 10 individuals were affected or the
information disclosed was considered to be sensitive. However, none of the breaches recorded resulted in harm or adverse consequences
to any individual.
The main cause of breaches is through staff error when manually handling correspondence. Each incident is investigated and we look at
how to reduce staff errors by a continuous improvement focus which includes reviewing handling processes, educating staff and regular
performance reporting.
TABLE 9: INSTANCES OF PRIVACY BREACHES INVOLVING PERSONAL INFORMATION
Detail
Number of affected people
Certificates for resident withholding tax on interest were detached from a return and
sent to the incorrect person
KiwiSaver information was sent to the wrong provider
49
Two incidents when tax agent email addresses were visible (rather than being blind carbon copied)
110
Mail merge email system failure resulted in incorrect information being sent to the wrong customers
132
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11
PROPERTY INFORMATION
TABLE 10: PROPERTY ACCOMMODATION AREAS
AS AT 30 JUNE
Total
Accommodation area m2
Other area m
(1)
2
Total area leased m2
(1)
(2)
101,678
2013
IR Use
100,072
Colocations
and
subleases
1,606
Total
93,439
2014
IR Use
Colocations
and
subleases
91,644
1,795
Total
94,713
2015
IR Use
87,680
Colocations
and
subleases
7,033 (2)
927
927
–
1,113
1,113
–
1,697
1,697
–
102,605
100,999
1,606
94,552
92,757
1,795
96,410
89,377
7,033
Other area includes storage and atrium area.
2014–15 leased area includes 5,237m2 subleased to other parties in 110 Featherston Street.
TABLE 11: ADDITIONAL PROPERTY ACCOMMODATION INFORMATION
AS AT 30 JUNE
2013
IR Use
2014
IR Use
2015
IR Use
Vacant accommodation m²
1003
–
339
Vacant m² as a % of total m²
0.99%
0.00%
0.38%
Average space per person m²
16.93
15.62
14.44
$5,411
$5,490
$5,427
$761
$791
$700
$6,172
$6,281
$6,127
5,910
5,867
6,050
Total rental per year per person
Utility costs per person
Total occupancy cost per person
Headcount
Notes:
• Results quoted here are based on total space used by Inland Revenue (excluding co-located space), including front of house, and counts each
employee, including part-timers and registered contractors, as one person (headcount). This aligns with the methodology PMCoE will be
using in the future.
• Results for previous years are re-stated using the same methodology. • Average space per person differs from that quoted on page 50 and reported to the PMCoE as those results exclude front of house space and
include the space occupied by our co-location partners and their people.
ANNUAL REPORT 2015
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TABLE 12: HISTORICAL EXPENDITURE ON CONSULTANTS AND CONTRACTORS
2012–13
Actual
2013–14
Actual
2014–15
Actual
52,907
59,191
55,643
% of total operating expenditure
8.1%
8.5%
7.9%
% of total capital and operating expenditure
7.5%
7.9%
7.5%
2012–13
Actual
$000
2013–14
Actual
$000
2014–15
Actual
$000
Information technology
17,882
20,481
20,597
Specialist advice and project management
HR and change management services
29,151
778
31,436
2,225
28,205
2,332
Total expenditure on consultants and contractors ($000)
TABLE 13: EXPENDITURE ON CONSULTANTS AND CONTRACTORS
Tax issues
669
1,179
1,340
Property
2,074
2,023
1,258
Research
1,113
1,325
880
Communications
343
123
654
Other
897
399
377
Total
52,907
59,191
55,643
EVALUATING OUR WORK PROGRAMMES
We measure our effectiveness through evaluating our work programmes and contributions to revenue and social policy outcomes. The
findings help to inform government policy decisions and continuous improvement processes. We completed and commenced evaluations for four key programmes. The final stage of the KiwiSaver evaluation that began in 2007, involved publishing reports on the impact of KiwiSaver on savings
behaviour and impact on living standards in retirement. We began the first stage of a multi-year evaluation of the impact of Child Support Reforms by collecting baseline information that will be
used as the basis of comparing future findings. We also completed the design of evaluations of Inland Revenue’s debt strategy and of the
programme to reduce participation in the hidden economy.
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DELEGATION OF AUTHORITY
In accordance with section 41(2C) of the State Sector Act 1988 we need to report when the Commissioner delegates their authority.
During the year the Commissioner of Inland Revenue delegated her authority to Hon. Todd McClay, Minister of Revenue for the purpose
of signing the OECD’s Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. This was
done at a ceremony held in Paris on 3 June 2015.
The agreement was signed by Ministers from the countries involved at a ceremony held in the margins of this year’s OECD Ministerial
Council Meeting.
Signing the agreement is a necessary step in New Zealand’s implementation of the new global Standard for Automatic Exchange of
Financial Account Information in Tax Matters which is generally referred to as AEOI. It required agreement by the competent authorities in
the jurisdictions involved.
New Zealand’s tax treaties all designate the Commissioner as the New Zealand competent authority. Accordingly, it was necessary for the
Commissioner to delegate her authority for the Minister to sign the agreement.
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ANNUAL REPORT 2015
ird.govt.nz