Tax Debt Write off
A standard practice statement issued by IRD explains their approach towards tax debt write-offs. Although this practice statement was issued in 2018, it continues to remain relevant today as many businesses seek help for tax debt releif. As we all know, all taxpayers are required to fulfill their tax liability in full and on time. However, in some instances, this isn’t possible and, on a case-by-case basis, the commissioner of IRD may be able to provide relief.
So when is it appropriate to apply for relief for tax debt write-offs?
In Standard Practice Statement 18/04, IRD highlight specific situations where it is appropriate to apply for relief. These include but are not limited to; hardship/ inability to make payment, bankruptcy/liquidation, or events/emergency occurring outside the control of the taxpayer.
Tax Debt Relief for Serious Hardship
In the situation of serious hardships, S 176 of the TAA 1994, provides the option for the commissioner to not recover pending payment. In the circumstance where it places the taxpayer in serious hardship. In order to determine whether there is actually financial hardship, the commissioner will consider whether after making the payment, the taxpayer is likely to either be unable to meet minimum living expenses, be unable to afford medical treatment or unable to meet the cost of education for them or their dependents. Only if the conditions of the test for hardship are met, can relief be a possibility.
Tax Debt Relief for Bankruptcy or Liquidation
In the case of bankruptcy or liquidation, there must be evidence that the amount is unrecoverable. The commissioner must then write off the relevant amount. This write off is final unless additional funds are received/discovered by the organisation after bankruptcy/liquidation.
Where non-compliance is the result of an event outside the control of the taxpayer and the taxpayer has been penalised, it is in the commissioner’s power to remit the penalty. In order to grant the remit, the commissioner will enquire into whether the penalty has arisen due to circumstance outside of taxpayers control, there is reasonable justification for the breach and the taxpayer has made effort to correct the failure as soon as possible.
Other situations where relief can be considered are during a declared emergency event, when remission is consistent with collection of highest net revenue over time or when the collection of the unpaid amount is deemed by the commissioner as an inefficient use of resources.
How can I apply for tax debt relief?
If the taxpayer falls under any of the above situations or wishes to seek relief for any other reason, it is ideal to consult with a tax specialist and propose a request for relief. On the condition that the commissioner’s inquiry concludes that relief is appropriate, this will be administered at the discretion of the commissioner. Relief can be provided in the form of a write off, instalment agreement, remit, or a combination of the above. While these options are available, the overall decision on whether these will be granted rests with the commissioner, and no one is automatically entitled.
Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.
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