Apply for tax relief NZ from the IRD – what you need to know

(Tax relief NZ – 5 minute read)

Times are tough for business owners in NZ. Inflation hasn’t slowed down to an ideal level and the cost of living crisis continues to impact profit margins. This means that some business owners have had to dip into their cash reserves set aside for taxes to make ends meet.

Which means that tax goes unpaid. Fortunately, there are ways you can apply for tax relief.

Installments as tax relief in NZ

If you have an outstanding tax balance, you can pay the amounts through installments.

For example, if you have $10,000 worth of income tax to pay by 7 May 2024, you can set up an installment at any time to pay off the amount. If you setup an installment arrangement before the due date, you can gain the following advantages:

1. Any penalties on late payment is capped at 1% of the outstanding amount
2. Interest will only be charged on the remaining balance of tax outstanding (which is reduced by the installments you have paid)

How to apply for installments in MyIR

First of all, head over to ‘I want to…’

Then scroll down to ‘Payments, refunds and returns’ and select ‘Request an installment arrangement’

You then have to set up a direct debit to your bank account account. Once you’ve done this, you can go to the next screen and look at your overdue debt.

The next page will ask you to agree to a minimum payment amount. If you can’t meet this minimum amount, then you may have to look at applying for tax relief (more on this later!)

Then you need to fill in your installment details:

Note that the ‘Payment Start Date’ needs to be at least 10 days away from the date that you’re applying for the installment.

Once you’ve filled in all the details, you can hit the green ‘calculate’ button to see how your installments schedule and the amount of interest you will get charged.A

All you need to do is make sure you have enough money in your bank account to pay your installments on time!

Applying for a write off as Tax Relief NZ

If you can’t afford to make the minimum payments for installments, this is for you. Life can be challenging. An illness, a death of a loved one or an accident can financially impact you. Fortunately IRD does allow for a full or partial write-off in some cases.

IRD will evaluate each application on a case by case basis. Mainly, they want to see that you’ve exhausted all your options in getting funds to pay your taxes.

What you need before applying for tax relief

Before applying, you should get ready the following items:

1. A 12 month cash flow forecast for your business – assuming the business is still operating
2. A monthly budget of your household expenses
3. At least 3 months worth of bank transaction statements for your personal bank account

Once you have those ready, you can start the application process.

Applying for tax relief NZ

Start by clicking on ‘I want to..’ and scroll down to ‘Registration, Application and Enrolment’ and select ‘Application for relief’:

The next page will tell you the things you will need to complete the application, such as:

1. Number of dependants
2. Significant expenses (loan repayments, medical expenses, rent/mortgage etc.)
3. Money you owe and money owed to you
4. Your housing situation
5. Relevant supporting information (see ‘What you need before applying’ section above)

The next few sections will ask you the following questions:

What events or circumstances are stopping the debt from being repaid?

Here you need to explain why you’re unable to pay the debt. Be honest and transparent about what is happening. For example: Your biggest client went under, you’re sick, your spouse/child is bed-ridden, you had a family emergency, the business is in liquidation, etc.

Why was the outstanding amount not paid on time?

Similar to the first question, but you need to explain why you weren’t setting money aside for taxes. Common answers can include: using money set aside for taxes for living expenses, used the money to pay overheads and staff or the money was loaned to someone or used to purchase an asset. If you have spent the money on poor lifestyle choices (gambling, drugs, alcohol, etc) you should declare that as well, in the interest of transparency.

The next section will ask about your dependents and housing situation:

Then, you will need to declare your ongoing income and expenses:

Next you will be asked if you have funds available to pay off the amount. This allows you to partially pay off what is owed.

You’ll be asked the following question:

What changes have been made to ensure your tax/obligation is paid on time in the future?

You’ll want ot give the IRD the assurance that you will pay your taxes on time in the future. You need to say something like:

‘I have put in a reminder plan with my accountant to make sure that I get reminded to pay on time, all the time’

‘Everytime I incur tax debt, I’ll set up an installment plan to make sure that payment is made’

‘I promise to put aside money for income tax and GST every time a client pays me’

You’ll be then asked if you’ve attempted to get a debt to pay the tax debt. If you answer ‘No’ you’ll need to provide proof of rejection as a supporting document in your application.

Once you click ‘next’, you’ll be on the last page. Upload all attachments that you have. If you want to add additional comments you can do so here. Once everything is uploaded, click ‘next’ and submit your application.

Honesty is the best policy when it comes to taxes

Remember that you need to be as transparent as possible when applying for tax relief. If you’ve successfully applied for tax relief in the past, IRD may not be as lenient with you in the future.

If you get your tax relief application passed, remember to do better in the future! Remember to pay your taxes on time, all the time!

Stay positive!