ANNUAL REPORT 2012 - Inland Revenue Department
ANNUAL REPORT 2012 - Inland Revenue Department
ANNUAL REPORT 2012 - Inland Revenue Department
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annual report<br />
<strong>2012</strong><br />
B-23
Crown Copyright © <strong>2012</strong><br />
This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute<br />
and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this<br />
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creativecommons.org<br />
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provision of the Flags, Emblems, and Names Protection Act 1981.<br />
legislation.govt.nz<br />
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ISSN 2230-6005 (Print)<br />
ISSN 2230-6013 (Online)<br />
ird.govt.nz<br />
Presented to the House of Representatives pursuant to the Public Finance Act 1989 and the Tax Administration Act 1994.
CONTENTS<br />
Commissioner’s introduction 5<br />
PART 1 – Our strategic direction 9<br />
PART 2 – Making it easier for customers to comply 17<br />
PART 3 – Detecting and responding to non-compliant customers 21<br />
PART 4 – Our performance 27<br />
PART 5 – Improving the way we work 35<br />
APPENDIX 40<br />
PART 6 – Statement of Service Performance 51<br />
PART 7 – <strong>Department</strong>al Financial Statements 81<br />
PART 8 – Financial Schedules – Crown as administered by<br />
<strong>Inland</strong> <strong>Revenue</strong><br />
115<br />
Audit report 137<br />
ird.govt.nz<br />
3
To the Minister OF <strong>Revenue</strong><br />
Under the provisions of the Public Finance Act 1989 and the<br />
Tax Administration Act 1994, I present the following report<br />
on my administration of the <strong>Inland</strong> <strong>Revenue</strong> Acts for the<br />
year ended 30 June <strong>2012</strong>, and on the operations of the <strong>Inland</strong><br />
<strong>Revenue</strong> <strong>Department</strong> for that year, together with the audited<br />
financial statements.<br />
Naomi Ferguson<br />
Chief Executive and Commissioner of <strong>Inland</strong> <strong>Revenue</strong><br />
4 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Commissioner’s INTROduCTION<br />
This is my first Annual Report as the Commissioner of<br />
<strong>Inland</strong> <strong>Revenue</strong>, having taken over the role from Bob Russell in<br />
July <strong>2012</strong>. I thank Bob for his leadership of <strong>Inland</strong> <strong>Revenue</strong> over<br />
the past six years. I also acknowledge his focus on ensuring we<br />
improved the quality of the services we provide to customers<br />
and our key stakeholders.<br />
We had a number of highlights this year despite facing<br />
significant operating challenges, especially the effort we have<br />
put into supporting the Canterbury rebuild.<br />
Our FOCus ON the GovERNMENT’s<br />
pRIORITIES<br />
In early <strong>2012</strong>, the Government announced its priorities and<br />
Better Public Services programme. We are committed to<br />
making positive contributions to this in the coming years. This<br />
builds on work done in the past few years with a number of<br />
government agencies to develop and deliver effective services.<br />
We are committed to improving our performance to ensure<br />
that we provide better services to our customers, that deliver<br />
value for money for government.<br />
Transforming the way we do our work<br />
Our business transformation programme will help us to deliver<br />
on the goals set out in IR for the future and respond to the<br />
Government’s priorities and Better Public Services programme.<br />
It will also result in fundamental changes to the way we work.<br />
Due to the complexity of the changes required, this will be a<br />
long-term work programme. The scale of the changes needed<br />
to transform our business will present us with resource<br />
challenges that we need to manage carefully.<br />
During the year, we worked closely with our business partner,<br />
Capgemini, to build an in-depth view of our business that<br />
will inform our thinking about our future transformation. We<br />
are developing options for the transformation effort, which<br />
Ministers will consider later this year.<br />
Supporting the CaNTERbury REbuild<br />
I am proud of our people in Christchurch. Their work in<br />
difficult conditions provides inspiration to all of us. New ways<br />
of working in Christchurch have given us insights about how<br />
to work together with other government agencies. We will use<br />
these lessons to design new service approaches that we will<br />
adopt in other sites.<br />
Our loss of capacity and the disruption associated with<br />
working out of a large number of sites in Christchurch,<br />
continues to cause service performance issues. We moved<br />
some of the functions carried out in Christchurch to our<br />
other sites, which has helped us maintain service levels for our<br />
customers.<br />
We are playing an active role in the rebuilding of Christchurch<br />
and will continue to assist a number of public and private<br />
sector agencies as they go about their various activities.<br />
Managing COMpliaNCE<br />
The ongoing disruption in Christchurch, a large volume of work<br />
carried over from June 2011 and other capacity issues affected<br />
our service performance this year. We achieved 38 out of 55 of<br />
our performance standards, down on last year’s result. This was<br />
disappointing given our results in recent years.<br />
We manage compliance by making it easier for our customers<br />
to self-manage their obligations and by taking action to<br />
improve the behaviour of non-compliant customers.<br />
We are focusing on providing more services online and<br />
reducing the need for customers to contact us. This year, we<br />
introduced a new mobile app for smartphones. This was a first<br />
for us. The app gives our customers access to some of our most<br />
commonly used online services. The new voice ID function<br />
in our telephone system lets customers quickly verify their<br />
identity when they call us, which saves them 40 seconds per<br />
call. We introduced a new service for GST customers to make it<br />
faster and easier for them to file their returns online.<br />
Our focus on debt prevention and early intervention has<br />
helped reduce debt under two years old by 16% this year.<br />
We have also focused our recovery and enforcement action<br />
on the cases with the greatest potential for cash collection.<br />
While these have produced good results, we continue to face<br />
a challenge with debt over two years old. Funding received in<br />
Budget <strong>2012</strong> will help us address this issue in the future.<br />
We continued to address non-compliance in our hidden<br />
economy and property programmes. We produced good<br />
returns on investment in these programmes, either meeting or<br />
exceeding our two-year targets.<br />
Managing debt and addressing non-compliance are both areas<br />
where we expect to see ongoing improvements.<br />
ird.govt.nz<br />
5
Challenges we face<br />
We will need to address a number of challenges in the coming<br />
year, including system constraints and the fiscal environment<br />
we operate in.<br />
Our ageing infrastructure continues to constrain our ability<br />
to easily and economically deliver system changes to support<br />
legislative requirements. Our business transformation<br />
programme will address these issues in the long term. We are<br />
also facing ongoing financial pressures associated with reducing<br />
baselines and the need to find funding for major business<br />
transformation projects. We are carefully managing these<br />
challenges to ensure we can deliver what we have committed<br />
to and also ensure that we make ongoing efficiency gains for<br />
government.<br />
I am committed to leading <strong>Inland</strong> <strong>Revenue</strong>, driving the change<br />
programme, delivering better services for our customers and<br />
meeting the Government’s priorities.<br />
The commitment, professionalism and expertise of our people<br />
give me great confidence that we will continue to deliver<br />
improved outcomes for all New Zealanders.<br />
Naomi Ferguson<br />
Chief Executive and Commissioner of <strong>Inland</strong> <strong>Revenue</strong><br />
6 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
INLAND REVENUE’S chaRTER<br />
How we will<br />
work with you<br />
<strong>Inland</strong> <strong>Revenue</strong> collects money to pay for public services. We help<br />
people to meet their obligations and receive their entitlements.<br />
We work within the <strong>Inland</strong> <strong>Revenue</strong> Acts and other relevant laws,<br />
and our actions are consistent with the spirit of the Treaty of Waitangi.<br />
How we will<br />
work with you<br />
Reliable advice<br />
and information<br />
Confidentiality<br />
We will be easy to deal with, prompt,<br />
courteous and professional.<br />
We will follow through on what<br />
we say we will do.<br />
We will be responsive to individual,<br />
cultural and special needs.<br />
The person you are dealing with will<br />
give you their name.<br />
We will value your feedback and use<br />
it to improve our services.<br />
We will provide you with reliable and<br />
correct advice and information about<br />
your entitlements and obligations.<br />
We will assist you to get in touch<br />
with the right people for your needs.<br />
We will be well-trained and<br />
competent.<br />
We will keep looking for better<br />
ways to provide you with advice<br />
and information.<br />
We will treat all information about<br />
you as private and confidential, and<br />
keep it secure. We will only use or<br />
disclose it in accordance with the<br />
law.<br />
Consistency<br />
and equity<br />
Your right to<br />
question us<br />
We will apply the law consistently so<br />
everyone receives their entitlements<br />
and pays the right amount.<br />
We will take your particular<br />
circumstances into account as<br />
far as the law allows.<br />
We will make it easy for you to<br />
question the information, advice<br />
and service we give you. We will<br />
inform you about options available<br />
if you disagree with us, and we will<br />
work with you to reach an outcome<br />
quickly and simply.<br />
For this charter to work effectively,<br />
we rely on each customer to provide<br />
all relevant information when dealing<br />
with <strong>Inland</strong> <strong>Revenue</strong>.<br />
Naomi Ferguson<br />
Commissioner of <strong>Inland</strong> <strong>Revenue</strong><br />
ird.govt.nz<br />
7
Part 1<br />
Our STRATegic DIReCTION<br />
ird.govt.nz<br />
PART 1<br />
Our stRAtegic direction<br />
9
Government pRIORITIES<br />
<strong>Inland</strong> <strong>Revenue</strong> makes an important contribution to the<br />
economic and social wellbeing of New Zealanders by collecting<br />
revenue and making payments. We contribute significantly to<br />
the achievement of the Government’s priorities, including the<br />
Better Public Services programme. We also interact with more<br />
New Zealanders than any other government agency.<br />
In January <strong>2012</strong>, the Government outlined these four priorities:<br />
""<br />
To responsibly manage the Government’s finances.<br />
""<br />
To build a more competitive and productive economy.<br />
""<br />
To deliver better public services within tight financial<br />
constraints.<br />
""<br />
To rebuild Canterbury.<br />
Much of the work we do aligns to these priorities. Our tax<br />
policy work programme continues to improve New Zealand’s<br />
tax and social policy legislation. We continue to implement our<br />
e-services programme, which makes it easier for customers to<br />
interact with us. While the ongoing effects of the Canterbury<br />
earthquakes continue to present us with challenges, they also<br />
provide us with opportunities for innovative solutions we can<br />
apply to other parts of our business.<br />
Better public servICES<br />
The Government’s Better Public Services programme sets out<br />
ten areas where the public sector can deliver better results and<br />
improved services for New Zealanders.<br />
We are contributing significantly to the achievement of two<br />
results. We will also make a contribution to a third, see Figure 1.<br />
These results are an important focus for us. We will continue to<br />
develop activities to contribute to this programme.<br />
Figure 1 –<br />
Our CONTRIBUTION TO Better Public Services results<br />
Result<br />
Result 9<br />
New Zealand<br />
businesses have a onestop<br />
online shop for<br />
all government advice<br />
and support they need<br />
to run and grow their<br />
business.<br />
Result 10<br />
New Zealanders<br />
can complete their<br />
transactions with<br />
government easily in a<br />
digital environment.<br />
Result 7<br />
Reduce the rates of<br />
total crime, violent<br />
crime and youth crime.<br />
Our contribution to date<br />
• We are working with other<br />
agencies to build a common<br />
view of the services government<br />
delivers to businesses.<br />
• We are using the lessons we<br />
learned from the Christchurch<br />
Business Recovery Centre,<br />
established after the 2010–11<br />
earthquakes, to scope and shape<br />
the work for this programme.<br />
• We are one of the leaders in<br />
providing online services and<br />
products. We have more than<br />
one million customers registered<br />
for our online services.<br />
• We introduced a mobile phone<br />
app that lets people access a<br />
subset of our services.<br />
• We have over 400,000 people<br />
registered for voice ID, which<br />
makes it easier for customers to<br />
access our services.<br />
• We have been working on a<br />
proposal to provide taxpayer<br />
information to law enforcement<br />
agencies for serious offences.<br />
10 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Our STRaTEGIC dIRECTION<br />
We set out our mission and strategic direction in our<br />
document IR for the future. It describes what we want to<br />
achieve for New Zealanders. It also aligns with the Government<br />
priorities and the Better Public Services programme.<br />
Our mission is:<br />
We contribute to the economic and social wellbeing of<br />
New Zealanders by collecting and distributing money.<br />
Our two outcomes support our mission:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes<br />
through people meeting payment obligations of their own<br />
accord.<br />
""<br />
People receive payments they are entitled to, enabling<br />
them to participate in society.<br />
See page 28 for information about the revenue we collected<br />
and the disbursements we made. Our contribution to our<br />
outcomes is measured through our impact indicators (main<br />
measures, see figure 6).<br />
PerformaNCE measuREMENT<br />
framework<br />
Our performance measurement framework (PMF), measures<br />
and demonstrates the success of our strategies and related<br />
interventions (see figure 2). Our performance for 2011–12<br />
is discussed in Part 4.<br />
Figure 2 –<br />
PeRFORMANCe meASURement FRAMeWORk<br />
Our mission<br />
We contribute to the economic and social wellbeing of New Zealand<br />
by collecting and distributing money<br />
Our outcomes – the goals we are aiming to achieve<br />
<strong>Revenue</strong> is available to fund government programmes through people<br />
meeting payment obligations of their own accord<br />
Our vision<br />
A world-class revenue organisation recognised for<br />
service and excellence<br />
People receive payments they are entitled to, enabling them to<br />
participate in society<br />
Value for<br />
money<br />
Our impacts – the difference we want to make<br />
We improve compliance<br />
by ensuring:<br />
More customers are able to<br />
self-manage<br />
Our outputs – the activities we do<br />
Services to inform the public about<br />
entitlements and meeting obligations<br />
More customers register<br />
and report accurate<br />
information when required<br />
Our priorities – the key areas we will direct our effort and resources to<br />
We retain, develop<br />
and attract high-calibre<br />
people with the skills<br />
required in the future<br />
– enabling a culture of<br />
service and excellence<br />
We proactively influence<br />
voluntary compliance<br />
and address the causes<br />
of compliance risk and<br />
threats through a range<br />
of interventions<br />
Services to process obligations and<br />
entitlements<br />
More customers claim their<br />
correct entitlements<br />
We move customers to<br />
cost-effective channels<br />
while creating an<br />
environment to make<br />
it easy for customers to<br />
self-manage<br />
Compliance improves if:<br />
Policy advice<br />
More customers pay and file<br />
information on time<br />
Management of debt and<br />
outstanding returns<br />
We improve the<br />
efficiency and effectiveness<br />
of government through<br />
working with other<br />
agencies and private<br />
providers<br />
We use our information<br />
to make timely decisions<br />
and build an intelligenceled<br />
organisation<br />
We address non-compliance<br />
so that:<br />
The behaviour of noncompliant<br />
customers<br />
improves<br />
Taxpayer audit<br />
Our systems meet<br />
current and future needs<br />
Effectiveness Efficiency<br />
Our inputs – the way we use our resources<br />
People Systems Assets<br />
Economy<br />
ird.govt.nz<br />
part 1<br />
Our stRAtegic direction<br />
11
The PMF shows how our resources (our inputs) need to be<br />
organised and used (our strategic priorities) to deliver the<br />
services that we provide to New Zealanders (our outputs).<br />
Through these activities we aim to make a difference by<br />
changing customer behaviour (our impacts) and contribute to<br />
our overall aims (our outcomes).<br />
We also recognise that getting best value for public funds is<br />
important. The PMF shows how we carefully consider the<br />
relationship between our inputs, outputs and impacts to<br />
ensure we stay focused on delivering value for money.<br />
We regularly review the PMF to check that it is relevant to our<br />
overall strategic direction and the Government priorities. It<br />
will be increasingly important for us to do this as our business<br />
transformation goes ahead, we participate in delivering better<br />
public services, work more closely with other government<br />
agencies, and consider the proposed changes to the Public<br />
Finance Act.<br />
12 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
BuSINESS traNSFORMaTION<br />
We need to address a number of challenges, which arise from<br />
an ageing operating model and technology infrastructure, to<br />
deliver what New Zealanders need from us. These are:<br />
""<br />
we are unable to satisfy the changing expectations of our<br />
customers<br />
""<br />
we are unable to rapidly and economically respond to<br />
government policy changes, including Better Public<br />
Services<br />
""<br />
we face an increasing risk of system issues that constrain<br />
our ability to collect and disburse money.<br />
During the year, we worked with our business partner,<br />
Capgemini, to develop an in-depth analysis of our business to<br />
help inform our long-term approach to business transformation.<br />
Our planning effort to date has seen us:<br />
""<br />
develop a new target operating model and business blueprint<br />
""<br />
identify a number of opportunities to improve compliance,<br />
service delivery and standardise our processes and business<br />
rules<br />
""<br />
complete an analysis of our current Information and<br />
Communications Technology (ICT) architecture, systems<br />
and data, and proposals for a future ICT state<br />
""<br />
develop an initial draft plan to achieve our future state.<br />
The resulting business transformation programme will help us<br />
deliver on the goals set out in IR for the future and respond to<br />
the Government’s priorities.<br />
We need to recognise the main components of the<br />
Performance Measurement Framework and the constrained<br />
fiscal environment we will be operating in for the foreseeable<br />
future, in preparing for the transformation. We also need to<br />
respond appropriately to changing customer expectations, and<br />
be able to implement legislative and operational changes in a<br />
more cost-effective and timely manner in the future.<br />
We are still developing the implementation options and<br />
programme level business case we will present to Ministers for<br />
consideration. We aim to have this finalised later in <strong>2012</strong>.<br />
Working with OTher aGENCIES<br />
We are working with the <strong>Department</strong> of Internal Affairs (DIA)<br />
and the Ministry of Social Development (MSD) to deliver<br />
better government services for less and improve overall<br />
service for New Zealanders. We have been actively involved in<br />
the DIA-led work around improving the value for money of<br />
Government ICT. <strong>Inland</strong> <strong>Revenue</strong> is part of the ICT council and<br />
the Government enterprise architecture group, and chairs the<br />
cross-Government chief architects’ forum.<br />
We have identified opportunities to share resources with other<br />
government agencies for mutual benefit. For example, we<br />
share call centre resources with StudyLink (MSD) during each<br />
agency’s period of high customer demand.<br />
Working with other agencies is also important in our efforts to<br />
support the Canterbury rebuild, see page 14.<br />
The Business Transformation programme will enable us to<br />
meet changing customer expectations by providing customer<br />
services that make compliance easier, faster and less costly.<br />
It will support the Government’s Better Public Services<br />
programme by delivering customer-centric services at lower<br />
cost for customers and the Government. It will also help us to<br />
focus on cross-government opportunities to improve the way<br />
New Zealanders access government services.<br />
Our transformation programme will also address our system<br />
reliability, which is making it difficult to administer revenue<br />
collection and make payments to customers. Our technology<br />
infrastructure is making it increasingly difficult to make timely<br />
system changes to support legislative change and the Better<br />
Public Services programme.<br />
A successful transformation will also require us to carefully<br />
consider our capacity to implement the change required. We<br />
are developing a strategy to source the skills we need. We will<br />
continue to engage and work with Ministers, central agencies<br />
and other government departments.<br />
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part 1<br />
Our stRAtegic direction<br />
13
Information sharing<br />
In August 2011 information sharing provisions were enacted<br />
in the Taxation (Tax Administration and Remedial Matters)<br />
Act to provide a framework for <strong>Inland</strong> <strong>Revenue</strong> to share<br />
the information it holds with other government agencies.<br />
The purpose of the proposed information sharing between<br />
<strong>Inland</strong> <strong>Revenue</strong> and MSD is to enable relevant information to<br />
be proactively shared between the two agencies to decrease<br />
benefit overpayments and fraud.<br />
An important aspect of information sharing for us is whether<br />
it will affect public attitudes to the integrity of the tax system.<br />
We carried out research to gauge whether there is likely to be<br />
any impact, in particular, whether it will reduce compliance. As<br />
part of the research, people were interviewed and focus groups<br />
were held to engage with a cross-section of New Zealand’s<br />
population.<br />
Most of the research participants had a positive attitude<br />
towards information sharing, believing the practice enabled<br />
better public service provision and increased service<br />
effectiveness. They placed great trust in government and its<br />
agencies, but some considered greater information sharing<br />
increased the power imbalance between government and<br />
citizens, eroded trust, and led to social “sorting”.<br />
This study also investigated the attitudes of representatives<br />
from a range of sectors (academia, industry, government and<br />
the general public) with the aim of understanding how they<br />
see the integrity of the tax system and how this may vary in<br />
response to proposed changes within <strong>Inland</strong> <strong>Revenue</strong> and<br />
government. Although participants in this study had trouble<br />
defining the concept of the integrity of the tax system as an<br />
absolute, they considered the integrity of New Zealand’s tax<br />
system to be strong—due to benefits seen to be delivered, and<br />
in comparison to other countries.<br />
Canterbury REbuild<br />
<strong>Inland</strong> <strong>Revenue</strong> plays a significant role in the Canterbury<br />
rebuild. We work with other Government agencies, local<br />
authorities, private sector and community groups to provide<br />
leadership and expertise, and deliver effective public services.<br />
Challenges<br />
The Canterbury earthquakes had a major effect on our<br />
staff and customers. Staff numbers have decreased by 25%,<br />
including resignations and transfers. Due to accommodation<br />
issues we have been unable to fill these positions. Our people<br />
have been working at a number of temporary sites, but since<br />
July <strong>2012</strong> we consolidated these to 11 from a peak of 31 in<br />
February <strong>2012</strong>. We are now providing all our normal business<br />
services and the contact centre has been operational since late<br />
2011. The level of business interruption has been significant<br />
and productivity continues to be affected by dislocation and<br />
infrastructure constraints.<br />
The ongoing effects of the Canterbury earthquakes affected<br />
our overall performance again this year. Continued disruption<br />
to our accommodation, with our people working at a number<br />
of temporary sites throughout Christchurch, has reduced<br />
capacity. This meant that we did not meet some of our<br />
performance targets.<br />
Capability building<br />
We collaborate with other government agencies to improve<br />
our learning management system. <strong>Inland</strong> <strong>Revenue</strong> is part of<br />
the Learning Management Systems cross-agency group, which<br />
enables us to share training resources with ACC, DIA, Ministry<br />
of Justice, MSD, Ministry of Health and Statistics New Zealand.<br />
14 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Working together for our Canterbury customers<br />
We continue to build on the knowledge and expertise<br />
gained during the last eighteen months, as well as exploring<br />
opportunities to improve service to our Canterbury customers.<br />
Some examples of this collaboration include:<br />
""<br />
Co-location front-of-house—we opened up a number<br />
of front-of-house (counter/reception) services for our<br />
customers in co-located MSD sites.<br />
""<br />
Co-located contact centre—we are establishing a<br />
co-located contact centre with MSD to open in early 2013.<br />
""<br />
Front-of-house project with MSD and DIA—in December<br />
<strong>2012</strong> we will open a joint front-of-house (reception/<br />
counter) facility promoting our e-services and customer<br />
self-management.<br />
""<br />
Recover Canterbury—we are working with government<br />
agencies and private sector organisations to deliver a<br />
joined-up service response to business customers, assisting<br />
their recovery and development.<br />
""<br />
Providing support for other agencies and organisations—<br />
we continue to provide resources to organisations<br />
throughout the recovery and rebuild phases. At the<br />
height of our involvement we had more than 100 people<br />
seconded to them.<br />
""<br />
Participation in joint agency initiatives—we contribute<br />
to public sector initiatives in Canterbury, such as<br />
the Canterbury Government Leaders Group and the<br />
Canterbury Earthquake Support Coordination Group.<br />
Tax relief<br />
Co-locating<br />
We introduced a number<br />
with other<br />
of practical tax relief<br />
government<br />
measures aimed at<br />
agencies in<br />
removing tax obstacles<br />
Christchurch is a<br />
for people affected by the<br />
great model for<br />
Canterbury earthquakes.<br />
providing better<br />
Relief measures were<br />
included in the Taxation<br />
services for<br />
(Tax Administration and<br />
customers.<br />
Remedial Matters) Bill<br />
(enacted August 2011).<br />
They included rollover<br />
relief for depreciation<br />
recovery income and addressing the issue of the timing of<br />
deemed sales of destroyed insured assets. Three Orders in<br />
Council were continued. These provided for the discretionary<br />
extension of statutory tax deadlines, the remission of useof-money<br />
interest, and for information sharing with other<br />
government agencies providing earthquake-relief. There are a<br />
few outstanding tax technical issues unique to the Canterbury<br />
earthquakes, but the Commissioner has adequate powers to<br />
respond.<br />
ird.govt.nz<br />
part 1<br />
Our stRAtegic direction<br />
15
Advising ON govERNMENT policy<br />
During the year we continued developing policy to make<br />
the tax system fairer and more efficient, and to support the<br />
Government’s priorities.<br />
Making the tax sySTEM faIRER and<br />
MORE EFFICIENT<br />
We continue to develop policy to make the tax system<br />
fairer and protect the revenue base. This included several<br />
consultation papers announced in Budget 2011.<br />
Herd scheme elections proposed to make the livestock<br />
valuation rules fairer by tightening the tax rules to prevent<br />
farmers who change valuation schemes, receiving an<br />
unintended tax break. Mixed use assets provided options<br />
to address unfairness in the tax treatment of assets, such as<br />
holiday houses used for both private and income-earning<br />
purposes. Recognising salary trade-offs as income looked at<br />
options for broadening the tax rules relating to non-cash<br />
benefits employees receive as a substitute for salary or wages.<br />
In October 2011 the Child Support Amendment Bill was<br />
introduced following extensive public consultation on options<br />
to make the child support scheme fairer.<br />
Improving efficiency and fairness across the tax system was also<br />
confirmed as a priority for <strong>2012</strong>–13 in the Government’s tax<br />
policy work programme, released in March <strong>2012</strong>.<br />
Further changes, aimed at moving us towards more taxpayerfocused<br />
service delivery, were included in the Taxation (Annual<br />
Rates, Returns Filing, and Remedial Matters) Bill introduced in<br />
September 2011. The changes aim to simplify returns filing and<br />
record-keeping requirements for taxpayers through reducing<br />
the use of paper forms and enabling more use of online<br />
services.<br />
Building a MORE COMpETITIve and<br />
produCTIve ECONOMy<br />
We also progressed or completed a number of businessfriendly<br />
initiatives to reduce the complexity of the tax system<br />
and make compliance easier.<br />
A number of changes to the GST rules were proposed in a<br />
Government discussion document, GST: Business-to-business<br />
neutrality across borders, released in August 2011. These<br />
changes will help prevent the rules impeding transactions<br />
between non-resident and New Zealand businesses.<br />
Measures in the Taxation (Tax Administration and Remedial<br />
Matters) Bill abolished outdated gift duty rules and streamlined<br />
the procedural rules for tax disputes.<br />
The Taxation (International Investment and Remedial<br />
Matters) Bill (enacted May <strong>2012</strong>), continued the reform of our<br />
international tax rules. These changes bring New Zealand’s<br />
international tax rules into line with those of other countries,<br />
and also help New Zealand-based companies to compete more<br />
effectively overseas.<br />
We strengthened New Zealand’s international cross-border<br />
trade and investment partnerships by signing new double<br />
tax agreements (DTAs) with Canada, Chile, Hong Kong and<br />
Mexico. We also reached an agreement in principle to a new<br />
DTA with Japan in June <strong>2012</strong>.<br />
Two major pieces of legislation were enacted, aimed at<br />
improving the repayment rates of student loan borrowers. In<br />
August 2011 legislation was passed allowing the student loans<br />
of serious defaulters to be recalled in full. The Student Loan<br />
Scheme Amendment Bill (enacted April <strong>2012</strong>) introduced<br />
changes to improve the efficiency and fairness of the student<br />
loan scheme and encourage borrowers to take greater<br />
responsibility for their loan repayments.<br />
16 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Part 2<br />
Making IT easier FOR CUSTOMers<br />
to COMPly<br />
ird.govt.nz<br />
PART 2<br />
Making it easier for customers to comply<br />
17
Making IT eaSIER FOR cuSTOMERS TO COMply<br />
We aim to make it easier for our customers to comply with<br />
their obligations and receive their entitlements by continuing<br />
to focus on delivering better services. Better services also<br />
deliver better value for money to the government. This year, we:<br />
""<br />
improved certainty that customers complied with their<br />
obligations<br />
""<br />
removed the need for customers to contact us for some<br />
basic services<br />
""<br />
offered more self-service options<br />
""<br />
made our existing self-service options more effective and<br />
accessible.<br />
Providing CERTaINTy about the law<br />
We provide taxpayer rulings and adjudications to give<br />
customers certainty about the correct interpretation of tax law<br />
and to resolve technical issues or disputes. This helps maintain<br />
confidence in the tax system and improve compliance.<br />
Providing taxpayer rulings as quickly as possible is important<br />
for our customers to understand the tax implications of<br />
their plans. We significantly reduced the delivery time of our<br />
rulings by introducing improved processes and better project<br />
management. This year, we delivered 60% more draft taxpayer<br />
rulings than in 2010–11 and took 20% less time to do them.<br />
We responded to the Supreme Court judgment in the Penny<br />
and Hooper case (see page 23) by issuing an important<br />
draft interpretation statement on tax avoidance for public<br />
consultation. There was strong interest among taxpayers and<br />
agents and we are currently considering the submissions we<br />
received.<br />
Developing our e-SERvICES<br />
We have over<br />
1.2 million<br />
customers<br />
registered for<br />
our e-services,<br />
almost 30%<br />
more than last<br />
year. More than<br />
1 million of these<br />
accounts have<br />
been activated<br />
by customers.<br />
This year, we introduced<br />
some new e-services<br />
for our customers<br />
and strengthened and<br />
stabilised existing ones to<br />
provide more consistent<br />
service. E-services make<br />
it easier for customers<br />
to manage their<br />
own obligations and<br />
entitlements, reducing<br />
the need for them to<br />
contact us, particularly<br />
for routine enquiries.<br />
This lets our people focus on more complex technical work.<br />
We provide certainty to our e-services customers by sending<br />
them an automatically generated confirmation whenever they<br />
make a transaction online. Customers can also log in after<br />
filing and check that their requests are being processed. We<br />
now include this functionality with all new e-services that<br />
we develop. Sending a confirmation to customers reduces<br />
telephone calls to our contact centres because they know that<br />
we have received their information.<br />
We have been very successful in our TV and online advertising<br />
promotion of e-services to encourage customers to register for<br />
them. Our customer services staff also actively promote our<br />
self-service options when they speak to customers.<br />
At 30 June <strong>2012</strong> we had 1.2 million customers registered for our<br />
e-services, an increase of almost 30% from last year. Customers<br />
have activated more than 1 million of these accounts.<br />
New e-service products<br />
In April <strong>2012</strong> we launched a mobile web app, which has<br />
received very positive customer feedback. Our app lets<br />
customers access some of our more commonly used e-services<br />
through their smartphones and tablets. The app has been<br />
viewed 15,000 times by customers with 45% of them logging in<br />
and using the services.<br />
We improved services for business customers with a new<br />
process for authenticating eGST returns and registrations. It<br />
removes the need for paper returns and document lodgement<br />
numbers, and streamlines the registration and return processes<br />
for customers. This will improve the compliance of GST<br />
customers, decrease the risk of GST fraud, and reduce our<br />
printing, stationery and postage costs.<br />
Improving e-service quality<br />
We are strengthening and stabilising our e-services to provide<br />
fast, consistent and integrated customer service through our<br />
website. We upgraded our portal to provide a more stable<br />
platform for our e-services.<br />
We are moving third-party electronic transactions from the<br />
portal to a separate business-to-business (B2B) channel. For<br />
example, we introduced the Tax Agent Web Service (TAWS),<br />
which lets tax agents view their clients’ accounts in their own<br />
accounting systems. This increases the reliability, stability<br />
and speed of our portal and gives B2B customers, such as tax<br />
agents, improved service. The introduction of TAWS was the<br />
main reason for the decrease in Look at Account Information<br />
enquiries this year.<br />
18 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
The improvement in our e-service quality is shown in the high<br />
level of customer satisfaction (95%) with our e-services this<br />
year. In our pilot survey in 2010–11, 95% of business customers<br />
and 89% of individuals were satisfied with our online services.<br />
student loans made eaSIER FOR<br />
cuSTOMERS to manage<br />
Student loan<br />
borrowers can<br />
now access a<br />
complete, upto-date<br />
picture<br />
of their loan<br />
online.<br />
This year, we implemented<br />
significant improvements<br />
for student loan borrowers<br />
that made it easier for<br />
them to manage their<br />
loans. This included the<br />
biggest system changes<br />
we have made since<br />
implementing KiwiSaver.<br />
Since April <strong>2012</strong>, student<br />
loan repayment obligations<br />
are calculated each pay period instead of each tax year. Most<br />
student loan borrowers will not require an annual square-up<br />
of their loan repayments, which reduces the need for them to<br />
contact us.<br />
Our voice ID<br />
system has<br />
400,000 registered<br />
customers, makes<br />
up nearly a third<br />
of our calling<br />
volume and saves<br />
our customers<br />
40 seconds per<br />
call.<br />
This year, we improved<br />
the navigation features<br />
and information quality<br />
of our telephone selfservices<br />
to make them<br />
faster and easier for our<br />
customers to use. We<br />
also extended telephone<br />
self-service to more<br />
call enquiries. These<br />
improvements have<br />
helped our customers to<br />
remain in our telephone<br />
self-services system rather<br />
than having to speak to a customer service specialist (CSS). At<br />
30 June, our initiative had reduced calls to our CSSs by 35,000<br />
in only four months.<br />
Customers who call us after hours or when our contact centres<br />
are busy, are finding our new virtual hold feature especially<br />
useful. This new feature lets customers choose the time and<br />
date for us to call them back.<br />
We also rolled out new e-services for student loan borrowers.<br />
They can now:<br />
""<br />
see an up-to-date consolidated loan balance through our<br />
e-services<br />
""<br />
apply online for a special deduction rate (eg, a borrower<br />
who has two jobs) or repayment obligation exemption<br />
(eg, a full-time student who is also working).<br />
improving our self-servICE TElephONE<br />
opTIONS<br />
We continue to invest in our telephone services to develop and<br />
improve self-service options.<br />
Our voice ID service lets customers prove their identity based<br />
on their voice biometrics. Over 400,000 customers have<br />
enrolled in voice ID since we introduced it in November 2011.<br />
This is a huge achievement that confirms our voice ID service<br />
as a leading solution. We have the fastest-growing voice<br />
biometrics application per capita, in the world. Our customers<br />
find voice ID easier and faster to use than our PIN verification<br />
system and it is more secure. Customers can access our services<br />
after hours, including the activation of online accounts and<br />
resetting online passwords. Voice ID customers now make<br />
up nearly a third of our calling volume, and save more than<br />
40 seconds in talk time for each call.<br />
ird.govt.nz<br />
part 2<br />
Making it easier for customers to comply<br />
19
Part 3<br />
detecting AND reSPONDING TO<br />
NON-COMPlIANT CUSTOMers<br />
ird.govt.nz<br />
PART 3<br />
detecting and responding to non-compliant customers<br />
21
Detecting and RESpondING TO NON-COMpliant<br />
cuSTOMERS<br />
We know that most of our customers comply voluntarily, but<br />
there are always some who do not. Our customers need to<br />
believe in our ability and willingness to address non-compliance.<br />
This in turn improves the effectiveness of the tax system and<br />
increases government revenue.<br />
Our approach to non-compliance includes investigations of<br />
the tax affairs of businesses and individuals. When we detect<br />
serious non-compliance we follow up with court action where<br />
appropriate. We also address non-compliance by preventing<br />
and collecting overdue debt.<br />
Our compliance work includes major multi-year initiatives,<br />
such as those for the hidden economy, property sector and<br />
debt management. In these programmes we have developed<br />
and implemented innovative ways to educate customers<br />
about their obligations. We have also developed new tools that<br />
promote compliance and draw non-compliant customers into<br />
the legitimate economy.<br />
Helping cuSTOMERS who want TO<br />
COMply<br />
We responded<br />
to our<br />
customers’<br />
needs by<br />
offering flexible<br />
payment<br />
options, eg,<br />
taking credit<br />
card payments<br />
over the phone.<br />
We use a number of<br />
approaches to educate<br />
and promote compliance<br />
for customers who want<br />
to comply but need some<br />
assistance.<br />
Our community<br />
compliance officers provide<br />
information and assistance<br />
to individuals, businesses<br />
and tax agents. This year, we<br />
reshaped the community<br />
compliance role.<br />
Our people are now doing more face-to-face work with their<br />
customers and use a three-part approach to delivering services<br />
in the community:<br />
""<br />
advice and education<br />
""<br />
local compliance enforcement<br />
""<br />
managing relationships.<br />
Our approach to influencing voluntary compliance relies on<br />
informing our customers of the compliance issues that we<br />
focus on. This includes:<br />
""<br />
publishing Helping you get it right: <strong>Inland</strong> <strong>Revenue</strong>’s<br />
compliance focus <strong>2012</strong>–13, which informs our customers<br />
of our intentions and concerns about compliance, our<br />
priorities and the actions we take to address them<br />
""<br />
educational campaigns to address the hidden economy<br />
and improve compliance by property traders<br />
""<br />
engaging with community and business organisations<br />
to inform customers of their obligations and promote<br />
compliance<br />
""<br />
providing information and tools on our website to help<br />
promote compliance.<br />
Using intellIGENCE TO dETECT<br />
NON-COMpliaNCE<br />
We made improvements to the way we identify compliance<br />
risk and monitor returns and claims. We enhanced the<br />
analytical tools we use that take information and analysis from<br />
third parties and our own data, to identify and predict risks.<br />
This is now done in a near real-time environment, speeding up<br />
intelligence gathering and its application to the screening of<br />
assessments and refund claims.<br />
Our initial focus has been on GST refunds. We process about<br />
$10 billion in GST refunds each year and it is critical that we<br />
issue these as quickly as possible for legitimate claims. We<br />
are aware of fraudulent activity, ranging from complex and<br />
organised crime to basic scams, and we are now making sure<br />
that we detect and investigate fraudulent claims more quickly.<br />
We are extending the use of these intelligence-based systems<br />
into other areas, where we know there is non-compliance,<br />
eg, the hidden economy and property transactions.<br />
InvestigaTIONS<br />
Discrepancies arise when an investigation finds differences<br />
between the taxpayer’s self-assessment and the liability<br />
determined by our investigations. In 2011–12 we identified<br />
over $1.2 billion of discrepancies, almost 10% above our<br />
target. See figure 16 in the appendix for full details of our audit<br />
discrepancies.<br />
Some taxpayers make voluntary disclosures of under-reported<br />
tax before or during an investigation. In 2011–12 there were<br />
over 2,500 disclosures with a value of $400 million. About half<br />
were prompted by our compliance activity.<br />
22 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Avoidance using trusts and companies<br />
The Supreme<br />
Court’s decision<br />
in the Penny<br />
and Hooper<br />
case resulted<br />
in more than<br />
100 voluntary<br />
disclosures<br />
from previously<br />
non-compliant<br />
taxpayers.<br />
In August 2011, the<br />
Supreme Court’s decision<br />
in the Penny and Hooper<br />
case ended a longstanding<br />
dispute over the<br />
interpretation of legislation<br />
around income diversion<br />
using trusts and company<br />
structures in tax avoidance.<br />
We then reissued a <strong>Revenue</strong><br />
Alert 1 and, with the<br />
New Zealand Institute of<br />
Chartered Accountants,<br />
completed a joint roadshow<br />
to contact intermediaries<br />
and taxpayers who may<br />
have taken tax positions similar to those in the Penny and<br />
Hooper case. Our actions resulted in more than 100 voluntary<br />
disclosures from this group, with shortfalls averaging $25,000<br />
in tax.<br />
Misuse of charities<br />
We are working closely with the Charities Commission to<br />
tackle the misuse of the tax-exempt or concessionary status of<br />
charities. Where appropriate, we share relevant information,<br />
provide training and share knowledge on tax and charity<br />
risks. We developed charity risk referral processes for specific<br />
risk cases and recently agreed on our first joint investigation<br />
protocol.<br />
We also completed a joint submission with the Charities<br />
Commission and the Australian Taxation Office, to the External<br />
Reporting Board on reporting requirements for charities.<br />
Large enterprises<br />
We continued to refine our risk identification and monitoring<br />
process to detect groups entering into complex, innovative<br />
and potentially non-compliant financing transactions. We<br />
improved our risk assessment process so we can focus on<br />
groups that pose a high compliance risk.<br />
We also continued piloting cooperative compliance<br />
agreements with large enterprises. This approach commits us<br />
and the large enterprise to a set of obligations and may lower<br />
compliance costs for both parties.<br />
Specially funded COMpliaNCE<br />
pROGRammes<br />
In Budget 2010 the Government gave us extra funding over<br />
several years for initiatives targeting non-compliance in the<br />
hidden economy, property trading and overdue debt.<br />
We used the funding to develop campaigns that have<br />
significantly improved compliance and increased revenue in<br />
the targeted areas.<br />
The hidden economy<br />
Some individuals and businesses fail to record all cash income<br />
or find other ways to avoid paying the correct amount of<br />
tax on all income earned. By doing this, they gain an unfair<br />
advantage over other taxpayers.<br />
Our approach to the hidden economy includes campaigns to<br />
educate customers about their obligations, targeted audits<br />
of specific industries, and new tools to make it easier for<br />
customers to comply.<br />
We also investigate cases of non-compliance we find. During<br />
2011–12, we identified $48 million in discrepancies and<br />
collected over 6,000 returns. For the two years to 30 June <strong>2012</strong><br />
we identified over $86 million in discrepancies, nearly 30%<br />
above the target of $67 million over two years.<br />
In April <strong>2012</strong>, we published industry benchmarks for the first<br />
time, jointly with Statistics New Zealand, so customers can<br />
compare their performance with similar sized businesses in<br />
their industry. We can identify businesses performing outside<br />
the benchmarks and take appropriate action.<br />
Our compliance programme is supported by research that<br />
gives us insight about why people participate in the hidden<br />
economy. It indicates that participation is relatively common.<br />
We also investigated the attitudes of small and medium<br />
enterprises and industry executives to work out a baseline to<br />
inform our approach to particular industries, technological<br />
change and the potential risks presented by internet-based<br />
businesses.<br />
Property<br />
For this initiative we also use a combination of education and<br />
enforcement actions for specific risks. This includes ensuring<br />
that taxpayers are aware of the increased scrutiny and the<br />
consequences if we detect fraud. We focus on off-plan sales,<br />
property swaps and use of single property trading companies.<br />
1<br />
A <strong>Revenue</strong> Alert is issued by <strong>Inland</strong> <strong>Revenue</strong> and provides information<br />
about significiant and/or emerging tax planning issues that concern us.<br />
ird.govt.nz<br />
part 3<br />
detecting and responding to non-compliant customers<br />
23
We have developed tools to help us to monitor property<br />
transactions more closely, particularly tracking property that<br />
has been subject to a GST claim and is then sold or advertised.<br />
We are also acting faster to recover debt.<br />
In 2011–12, we identified $40 million in discrepancies against a<br />
target for the year of $45 million. For the two years to 30 June<br />
<strong>2012</strong>, we identified discrepancies of $89 million, 1% below the<br />
target of $90 million. We also have several cases before the<br />
courts.<br />
Managing overdue debt<br />
In recent years we have<br />
had significant success<br />
This year, our<br />
in managing debt by<br />
debt prevention<br />
using a customer-centred<br />
strategy reduced<br />
approach that focuses on<br />
debt under two<br />
preventing debt. We base<br />
years old by<br />
this on the understanding<br />
$430 million.<br />
that, in the long term,<br />
debt prevention is the<br />
most effective way of<br />
improving compliance and<br />
will generate more revenue for government. During 2011–12:<br />
""<br />
we reduced the value of debt less than two years old by 16%,<br />
and the number of debt cases less than two years old by 4%<br />
""<br />
we collected $4.2 billion cash, of which $2.7 billion was<br />
from tax pooling (2010–11: $2.5 billion cash including<br />
$0.9 billion from tax pooling)<br />
""<br />
total overdue debt increased by $394 million (7%) to<br />
$5.9 billion (2010–11: $370 million increase or 7%). This<br />
included a 1% decrease in collectable debt and a 26%<br />
increase in non-collectable debt.<br />
Our approach to managing debt is aimed at preventing our<br />
customers from going into debt, intervening early where<br />
necessary and focusing our collection efforts on the cases<br />
that have the greatest prospect of cash collection. We do this<br />
because it is consistent with the needs of our customers and<br />
the government, as well as being the most efficient use of our<br />
people and resources.<br />
We have adopted a mix of new and innovative interventions<br />
for managing debt. They include reminder letters, text<br />
messages and online advertising (including Facebook) to<br />
remind customers at risk of going into debt about their<br />
payments before the due date. We also use outbound calls<br />
to intervene early when customers do not pay on time. We<br />
used Budget 2010 funding to invest in new automatic dialler<br />
technology and recruit extra specialist staff, which have<br />
significantly improved the capacity and effectiveness of our<br />
outbound calling campaigns.<br />
This year, for the Budget 2010-funded initiative, we collected<br />
$231 million (target $200 million), a return on investment of<br />
$12.5:1 (target: $10.2:1).<br />
We ran a successful campaign to improve on-time payment<br />
by customers with payments due on 7 February. This year,<br />
81% of tax due on 7 February was paid on time. This is similar<br />
to the 83% paid on time for the same campaign last year and<br />
significantly higher than the 72% paid on time for 7 February<br />
2010.<br />
Where prevention has been unsuccessful, we concentrate on<br />
assisting customers to get out of debt early, before it becomes<br />
unmanageable for them. The earliest possible intervention<br />
matters because it gives customers peace of mind and, as debt<br />
ages, it becomes increasingly difficult and expensive for us to<br />
collect.<br />
A key part of our early intervention focus is setting up<br />
repayment arrangements. This year, we helped over 175,000<br />
customers into arrangements to settle their debt. At 30 June<br />
<strong>2012</strong>, we had $1.2 billion of debt under arrangement,<br />
$30 million more than last year. The most important feature of<br />
repayment arrangements is that they provide more certainty to<br />
our customers and government, and help limit the growth of<br />
uncollectable debt.<br />
The proportion of collectable debt decreased and the level<br />
of older debt increased, due to our focus on debt prevention<br />
and early intervention. The proportion of total overdue debt<br />
more than two years old is 61%. A substantial proportion of<br />
the increase in older debt<br />
Our debt<br />
prevention<br />
strategy has<br />
improved ontime<br />
payment<br />
by customers.<br />
81% of tax due<br />
on 7 February<br />
was paid on<br />
time, compared<br />
to 72% two<br />
years ago.<br />
is penalties and interest,<br />
which now makes up 46% of<br />
total overdue debt. Funding<br />
received in Budget <strong>2012</strong> will<br />
help us address this issue in<br />
the future.<br />
We respond to older cases<br />
by taking recovery and<br />
enforcement action where<br />
necessary. Our priority<br />
areas for recovery and<br />
enforcement include auditassessed<br />
debt, a selection<br />
of the top 1,000 high-risk<br />
24 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
customers, debt associated with large enterprises and highwealth<br />
individuals. We have the best prospect of collecting<br />
cash from these areas.<br />
See figure 17 in the appendix for a detailed breakdown of our<br />
debt portfolio.<br />
Collecting overdue student loan repayments<br />
We have<br />
improved<br />
compliance by<br />
New Zealandbased<br />
student<br />
loan borrowers.<br />
In the past<br />
two years we<br />
reduced the<br />
overdue amount<br />
by 28%.<br />
At 30 June <strong>2012</strong> overdue<br />
student loan repayments<br />
were more than<br />
$500 million, an increase<br />
of almost 25% from the<br />
previous year. For the<br />
past three years there has<br />
been a trend of improving<br />
compliance among<br />
New Zealand-based<br />
borrowers and declining<br />
compliance among<br />
overseas-based borrowers.<br />
We have improved<br />
compliance among<br />
New Zealand-based<br />
borrowers by making sure that they use the right tax<br />
code and taking proactive steps to prevent new debt. The<br />
capitalisation of small debts under $344 also reduced the<br />
number of new debt cases.<br />
Overseas-based borrowers initiative<br />
We are using the overseas-based borrower compliance<br />
initiative to reduce the growth of overdue repayments for<br />
overseas-based borrowers, which increased by 42% this year.<br />
Overseas-based borrowers make up 15% of all student<br />
loan borrowers but have 80% of overdue repayments.<br />
These borrowers are mainly based in Australia and the<br />
United Kingdom. We are building on the success of an earlier<br />
pilot programme that focused on 1,000 defaulting borrowers<br />
in Australia.<br />
We also use private sector debt collection services to track and<br />
trace borrowers, collect debt, and start legal action against<br />
non-compliant overseas-based borrowers.<br />
Since October 2011, we have:<br />
""<br />
reviewed over 7,600 cases in Australia and the United<br />
Kingdom<br />
""<br />
collected almost $20 million of repayments. The return on<br />
investment was $11.40:1 at 30 June <strong>2012</strong>.<br />
Managing child support debt<br />
At 30 June <strong>2012</strong>, total child support debt was $2.5 billion, an<br />
increase of more than $180 million 2 (8%) from last year. Of the<br />
increase in total child support debt 21% is assessments and<br />
79% is penalties. See figure 20 in the appendix for a breakdown<br />
of the child support debt portfolio.<br />
The biggest influence on the growth in child support debt is<br />
penalties on aged debt, with 77% of child support debt over<br />
five years old. Of this, 16% is assessments and 84% is penalties.<br />
The high level of aged debt is mainly because we are required to<br />
collect all outstanding child support debt, even if recovery may<br />
be unlikely, eg, due to bankruptcy. We can only write off a valid<br />
assessment if the liable parent dies or if a court orders us to.<br />
Changes in the Child Support Amendment Bill before<br />
Parliament will help address the growth of child support debt<br />
in the future. The significant reforms proposed include:<br />
""<br />
revising the child support formula to take into account the<br />
cost of raising children, lower levels of shared care and both<br />
parents’ income<br />
""<br />
the compulsory deduction of child support from paying<br />
parents’ employment income<br />
""<br />
introducing a two-stage late payment penalty, reducing the<br />
current monthly penalty after a set period, and relaxing the<br />
circumstances in which debt can be written off.<br />
We contact these borrowers in a number of ways, such as<br />
direct campaigns and online advertising. To make it easier<br />
for overseas borrowers to make payments, we offer them the<br />
option to pay by credit card or use online payment services.<br />
2<br />
This increase includes $71 million of penalties charged on Australian child<br />
support cases that we are collecting under the reciprocal agreement with<br />
the Australian Child Support Program. We did not include these penalties<br />
in previous years.<br />
ird.govt.nz<br />
part 3<br />
detecting and responding to non-compliant customers<br />
25
We had success with these three initiatives aimed at overseasbased<br />
child support debtors.<br />
""<br />
The New Zealand Customs Service notified us of 9,700<br />
liable parents crossing the border. As a result, we set up<br />
repayment arrangements for $93 million of debt and found<br />
350 missing customers.<br />
""<br />
We have had a reciprocal agreement for collecting child<br />
support with the Australian Child Support Program<br />
(ACSP) since July 2000. At 30 June <strong>2012</strong>, ACSP managed<br />
11,500 cases (11,200 in debt) for New Zealand, and we<br />
managed 6,400 cases (5,100 in debt) for Australia.<br />
""<br />
Although the reciprocal agreement works well for the<br />
debt cases it covers, we have more liable parents living in<br />
Australia than the ACSP can accept for enforcement. So,<br />
we have set up a direct debt team to test the feasability of<br />
finding liable parents in Australia and influencing them to<br />
comply with their obligations.<br />
Litigation<br />
During the year the first judgment in a group of cases involving<br />
optional convertible notes was handed down. The cases focus<br />
on the deductibility of about $1.2 billion over a period of<br />
13 years claimed by taxpayers. In the first case to be heard,<br />
the High Court upheld our view that the arrangements in the<br />
Alesco case were tax avoidance. The decision is important for<br />
other litigants in this group.<br />
guilty to 87 charges of providing us with false or misleading<br />
information and two charges of evading GST. The tax<br />
evaded was over $600,000, resulting in a loss in tax revenue<br />
approaching $300,000.<br />
In another case, a property developer was sentenced to four<br />
and a half years in prison after being found guilty of tax evasion<br />
involving more than $2.1 million. He had faced seven charges<br />
of attempting to evade the assessment and payment of tax<br />
relating to GST and income tax.<br />
In August <strong>2012</strong> we also concluded a major case of tax fraud.<br />
Two tax advisors were found guilty of filing fraudulent tax<br />
returns on behalf of their clients and claiming fictitious<br />
expenses in excess of $9 million. They were also found guilty<br />
of attempting to pervert the course of justice. One received a<br />
prison sentence of eight and a half years and the other, eight<br />
years. These are the longest sentences ever handed down in a<br />
New Zealand tax case.<br />
Three other cases during the year were particularly significant<br />
for us.<br />
""<br />
The Trinity cases are continuing. We are waiting for a<br />
decision from the Supreme Court on taxpayer efforts to<br />
re-litigate the dispute.<br />
""<br />
Our appeal in the Tannadyce case was successful. This<br />
is an important case, because it defines and narrows<br />
the circumstances in which judicial review of disputable<br />
decisions may be available to taxpayers.<br />
""<br />
A complex case involving the insurance industry and the<br />
financial arrangement rules was heard in the last quarter<br />
of the year. The decision, in our favour, was received in<br />
July <strong>2012</strong>.<br />
ProsecuTIONS<br />
We continue to prosecute in cases of serious non-compliance.<br />
For example, in February <strong>2012</strong>, a taxi driver (and salesperson)<br />
was sentenced to two years in prison for tax fraud and evasion<br />
under the Tax Administration Act 1994. He had pleaded<br />
26 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Part 4<br />
Our performance<br />
ird.govt.nz<br />
PART 4<br />
Our perfoRMAnce<br />
27
Our performaNCE<br />
Scope and SCale OF our buSINESS<br />
We are New Zealand’s principal revenue agency, collecting<br />
about 80% of core Crown revenue. We also have an important<br />
role in administering social policy programmes, often in<br />
conjunction with other agencies.<br />
At 30 June <strong>2012</strong> we employed 5,301 people (FTEs), 6% fewer<br />
than last year.<br />
Tax revenue<br />
We collect revenue mainly from income tax and GST, but we<br />
also collect several special purpose duties and levies. Figure 3<br />
shows revenue for the last three years.<br />
Figure 3 –<br />
<strong>Revenue</strong> ASSessed<br />
<strong>Revenue</strong> type 2009–10<br />
$million<br />
2010–11<br />
$million<br />
2011–12<br />
$million<br />
%<br />
change<br />
Direct taxes<br />
Individuals $24,138 $23,136 $23,917 3.4%<br />
Company $7,512 $8,195 $9,121 11.3%<br />
Other direct taxes $2,549 $2,582 $2,644 2.4%<br />
Sub-total direct $34,199 $33,913 $35,682 5.2%<br />
Indirect taxes<br />
GST $11,478 $12,575 $13,119 4.3%<br />
Other indirect taxes $357 $357 $365 2.2%<br />
Sub-total indirect $11,835 $12,932 $13,484 4.3%<br />
Total IR taxation $46,035 $46,845 $49,166 5.0%<br />
For further details on tax revenue see Part 8.<br />
Customer statistics<br />
In the tax year ending March 2011, we collected tax from:<br />
""<br />
Individuals—about 1.1 million individuals filed annual tax<br />
returns<br />
""<br />
Employers—about 200,000 employers filed over 2.1 million<br />
employer monthly schedules<br />
""<br />
Companies—over 400,000 filed annual returns<br />
""<br />
GST payers—640,000 customers registered for GST filed<br />
3.1 million returns.<br />
<strong>Inland</strong> <strong>Revenue</strong> manages or shares the administration of these<br />
programmes:<br />
""<br />
Working for Families Tax Credits—in 2011–12 we<br />
distributed $2,670 million 3 in entitlements to support<br />
194,000 working families. The programme is administered<br />
with the Ministry of Social Development.<br />
""<br />
Child support—in 2011–12 we collected $426 million<br />
from 180,000 paying parents and distributed $216 million<br />
to custodial parents. 4<br />
""<br />
KiwiSaver—we administer the scheme by collecting<br />
contributions and transferring them to scheme providers<br />
for investment. In 2011–12, we transferred $2.2 billion<br />
in contributions from almost two million KiwiSaver<br />
members, as well as managing government contributions<br />
of $1.0 billion.<br />
""<br />
Student loans—we jointly administer this programme with<br />
the Ministry of Education and StudyLink (Ministry of Social<br />
Development). In 2011–12, we collected $768 million in<br />
repayments from 701,000 borrowers.<br />
""<br />
Paid parental leave—we make payments, for the<br />
<strong>Department</strong> of Labour, to parents who take leave from<br />
their job or business to care for a baby. In 2011–12, we paid<br />
$157 million to 25,000 applicants.<br />
Customer services<br />
We support customers through a variety of personal and<br />
automated information services that help them manage their<br />
obligations and receive their entitlements. In 2011–12 we:<br />
""<br />
received 4.1 million person-to-person telephone calls<br />
""<br />
had 15.8 million self-help services contacts (eg, look at<br />
account information, interactive voice responses, businessto-business<br />
KiwiSaver information)<br />
""<br />
received 1.5 million items of correspondence (51% paper,<br />
49% electronic).<br />
3<br />
Includes payments from <strong>Inland</strong> <strong>Revenue</strong> and the Ministry of Social<br />
Development.<br />
4<br />
The balance goes to the Crown to offset sole parent benefits paid to<br />
custodial parents by the Ministry of Social Development.<br />
28 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Impact performaNCE<br />
Our impacts describe the difference we want our activities<br />
and interventions to make to improve customer compliance,<br />
to progress towards achieving our outcomes. We use impact<br />
indicators to measure these impacts which, when aggregated,<br />
tell us about the effectiveness of our activities on customer<br />
compliance. The results are shown in figure 4.<br />
Figure 4 also shows an aggregated view of our three-year<br />
aspirational targets set at the indicator level. In setting the<br />
targets, we have taken into account our strategic direction, our<br />
operating environment (including government priorities), the<br />
economy and changing customer expectations.<br />
See figure 6 in the appendix for detailed information on<br />
baseline performance, current results and factors that influence<br />
the targets.<br />
The results show that generally customer compliance levels are<br />
static, with a small improvement in registering and reporting<br />
compliance results. While overall on-time filing and paying<br />
compliance levels are high, on-time paying compliance has<br />
been declining over the last five years.<br />
The results for “Non-compliance improves” in figure 4 imply<br />
a significant increase in performance levels in 2011–12. This<br />
is due to cash collections in the June <strong>2012</strong> quarter being<br />
substantially higher than past years, rather than an underlying<br />
shift in the behaviour of non-compliant customers. These<br />
higher levels of cash collections through tax pooling affected<br />
the cash collected to collectable debt impact indicator<br />
assessment level, which resulted in a higher overall assessment<br />
level for this impact.<br />
Given the significance of our Business Transformation<br />
programme, we will review the Performance Measurement<br />
Framework and the impact indicator targets when we finalise<br />
the detailed transformation plan. The 2014 targets have been<br />
retained in our Statement of Intent for the period ending 2015.<br />
For details about the work we have done this year to contribute<br />
to the achievement of our impacts, see Parts 2 and 3. We have<br />
also included discussion of the impacts our outputs contribute<br />
to in Part 6.<br />
Figure 4 —<br />
IMPACT peRFORMANCe<br />
90%<br />
80%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
Excellent<br />
Good<br />
Satisfactory<br />
Needs<br />
Improvement<br />
2008–09<br />
2009–10<br />
2010–11<br />
2011–12<br />
2014 target<br />
0%<br />
Customers<br />
self-manage<br />
Customers register<br />
and report<br />
Customers claim<br />
correctly*<br />
Customers file and<br />
pay on time<br />
Non-compliance<br />
improves*<br />
* The change in prior year data reflects the decision to report perception measures in the Statement of Service Performance.<br />
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part 4<br />
Our perfoRMAnce<br />
29
Output pERFORMaNCE<br />
Our outputs are the services we provide. They are grouped into<br />
five output classes:<br />
""<br />
Policy advice<br />
""<br />
Services to inform the public about entitlements and<br />
meeting obligations<br />
""<br />
Services to process obligations and entitlements<br />
""<br />
Management of debt and outstanding returns<br />
""<br />
Taxpayer audit.<br />
Results<br />
We have 55 performance measures for our outputs and<br />
10 activity forecasts that indicate the expected customer<br />
demand for some of our services. In 2011–12 we achieved<br />
38 of our 55 measures (69%). This was a disappointing result for<br />
us because it was lower than we have achieved in recent years.<br />
Our performance has declined, particularly in debt and returns<br />
management and the processing of obligations and entitlements.<br />
Last year, we reviewed our output measures for the 2011–12<br />
year. The purpose of this review was to:<br />
""<br />
ensure that we focus on the vital few external measures<br />
""<br />
create or update measures to reflect changes in our<br />
business<br />
""<br />
rationalise multiple or repeating measures<br />
""<br />
remove items that were not performance measures.<br />
As a result of the review we removed the 5% tolerance that<br />
we had previously applied to performance measure results,<br />
removed 22 measures (36%) and added 16 (26%).<br />
We reported on 38 comparable measures in both 2010–11 and<br />
2011–12. Our performance improved for nine measures (34%),<br />
remained the same for six measures (16%) and deteriorated for<br />
23 of these measures (61%). For 13 (57%) of the 23 measures<br />
where performance deteriorated the change in performance<br />
between years was less than 2%.<br />
Our service performance was affected by the loss of capacity<br />
and disruption to our established work patterns caused by<br />
the Canterbury earthquakes, and a large volume of work<br />
carried over from the previous year. We moved some work to<br />
our other sites and we trained staff to rebuild capability. The<br />
following performance measures have been most affected:<br />
""<br />
minimum percentage of paper correspondence answered<br />
within three weeks of receipt<br />
""<br />
minimum percentage of electronic enquiries responded to<br />
within one week of receipt<br />
""<br />
minimum percentage of priority telephone calls answered<br />
within one minute<br />
""<br />
minimum percentage of tax and social policy registrations<br />
processed within five working days of receipt.<br />
We made it a priority to provide more resources to answer<br />
telephone calls in our high-demand period. This improved<br />
service for our telephone customers, but it had a negative effect<br />
on areas where we had fewer people working, eg, responding to<br />
correspondence and collecting outstanding returns.<br />
Our performance measures also include functional cost<br />
indicators such as the cost per customer contact and<br />
processing a return. These results are shown in figure 5.<br />
See Part 6 for details of our output performance.<br />
Measuring customer satisfaction<br />
Results from customer satisfaction surveys are important<br />
measures in our output class “Services to inform the public<br />
about entitlements and meeting obligations”. As well as<br />
measuring satisfaction for traditional service channels such as<br />
correspondence and telephone services, we have started to<br />
survey customers’ satisfaction with our online services.<br />
Overall, in 2011–12 customers rated our services at the same<br />
level as in the year before. The “satisfied” rating was 86% and<br />
the “very satisfied” rating was 69%. Online services rated as 95%<br />
“satisfied” and 80% “very satisfied”.<br />
We also receive direct feedback from customers through our<br />
complaints service and letters to the Minister of <strong>Revenue</strong>.<br />
See figure 8 in the appendix for detailed customer satisfaction<br />
results.<br />
OrganisaTIONal ECONOMy, EFFICIENCy<br />
and EFFECTIvENESS<br />
The performance measurement framework (see figure 2) also<br />
provides the basis for demonstrating value for money, using<br />
indicators that reflect the economy, efficiency and effectiveness<br />
of our operations.<br />
Financial results<br />
We collected $49.2 billion of tax and $0.8 billion of other<br />
revenue during the year. This 4.5% increase on the previous<br />
year is mainly the result of improving economic conditions.<br />
Our operating budget for the 2011–12 financial year was<br />
$672.1 million, an increase of $29.2 million compared to the<br />
previous financial year. Most of this increase was for one-off<br />
restructuring costs and funding from Budget 2010 for<br />
additional compliance activity.<br />
30 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Expenditure was managed effectively, with actual expenditure<br />
being $10.5 million (1.6%) under budget. We have managed<br />
cost pressures such as remuneration and additional costs<br />
associated with the Canterbury rebuild within this expenditure.<br />
Cost pressures continued to be a challenge this year, with<br />
net input costs rising by $21.6 million (3.4%). We had net<br />
additional expenditure of $55.5 million, which included<br />
expenditure on business transformation, remuneration<br />
increases, rolling out our new enterprise desktop environment,<br />
restructuring costs and additional costs associated with the<br />
Canterbury rebuild.<br />
This year, we delivered savings of $33.9 million to ensure that<br />
we met our agreed baselines. We saved more than $16 million<br />
of personnel costs through restructuring back-office services,<br />
organisational improvements in front-office services and not<br />
replacing some staff. Operational savings were delivered in<br />
print costs, telecommunications, accommodation rentals<br />
in Wellington and Christchurch, and general contract and<br />
operating efficiencies.<br />
Many of the savings we delivered in 2011–12 are ongoing and<br />
will position us to meet fiscal challenges in upcoming financial<br />
years.<br />
In future, we expect the cost pressures and increased demand<br />
for our services to continue. We are well placed to manage<br />
within future fiscal constraints and will continue to identify<br />
savings to meet demand and cost pressures, but we will<br />
require additional Crown investment to deliver business<br />
transformation.<br />
Economy<br />
In 2011–12 we worked to achieve better economy in our<br />
operations through organisational improvement and by<br />
negotiating favourable contracts for services from third parties.<br />
During the year, we began improving our procurement<br />
processes. We appointed a procurement director, revised our<br />
procurement policy, increased staffing levels, and took steps to<br />
better align the procurement function with internal business<br />
units. We have also continued to engage with the all-ofgovernment<br />
procurement programme, led by the Ministry of<br />
Business, Innovation, and Employment.<br />
During the year, we delivered the following operational savings:<br />
""<br />
$1.4 million in accommodation savings relating to the<br />
consolidation of our Wellington properties footprint<br />
""<br />
$0.4 million in printing costs as a result of continued efforts<br />
to reduce the amount of paper we send to our customers<br />
and improvements made to our online services.<br />
We also renewed our telecommunications contract for four<br />
years, making significant savings on the existing contract.<br />
We are continuing to look for ways to reduce our input costs<br />
and deliver further savings.<br />
Efficiency<br />
Cost indicators<br />
At an operational level, we measure our efficiency through<br />
functional cost indicators. These measure the costs of our<br />
customer-initiated contacts, processing returns and child<br />
support administrative reviews. Figure 5 shows the actual<br />
results and targets for 2011–12, and our performance in<br />
2010–11.<br />
Figure 5 –<br />
FUNCTIONAl COST INDICATORS<br />
Indicator 2010–11 2011–12 2011–12<br />
Actual Target Actual<br />
Cost per telephone contact $28.84 $31.00 $33.28<br />
Cost per correspondence $40.45 $41.00 $37.50<br />
contact<br />
Cost per counter contact $35.12 $45.00 $48.31<br />
Average cost per customerinitiated<br />
contact<br />
$31.97 $34.00 $35.06<br />
Cost per income tax return $5.14 $6.10 $5.49<br />
processed<br />
Cost per GST return processed $1.84 $1.40 $1.45<br />
Cost per employer monthly $4.86 $4.70 $7.12<br />
schedule processed<br />
Average cost per return<br />
processed<br />
$3.77 $4.00 $4.39<br />
Cost of collecting an overdue<br />
return<br />
Cost per child support<br />
administrative review processed<br />
$9.43 $12.50 $7.96<br />
$630.22 $600.00 $768.57<br />
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part 4<br />
Our perfoRMAnce<br />
31
The results for 2011–12 show a mixed picture across functional<br />
areas, with the cost of some high-volume activities (eg,<br />
telephone calls) above target, and others (eg, the cost of<br />
processing some returns) below target. The method used<br />
to allocate overheads to activities has a strong effect on the<br />
results reported. In the case of telephone calls, the reduction<br />
in the number of calls received in 2011–12 (see figure 15 in the<br />
appendix) has increased the unit cost, given the fixed nature<br />
of the underlying costs and overheads. Because customers are<br />
encouraged to use more online services, rather than contact us<br />
in traditional ways, we expect to see this trend continue.<br />
This is the first year we have set targets, which show in the<br />
under- and over-performance reported. During the year, we<br />
also amended the calculation of our cost measures to better<br />
reflect the full cost to <strong>Inland</strong> <strong>Revenue</strong> of providing these<br />
services.<br />
See Part 6 for a full explanation of our performance compared<br />
to targets.<br />
Cost of collecting revenue<br />
The cost of collecting $100 of revenue is an indicator of<br />
<strong>Inland</strong> <strong>Revenue</strong>’s relative efficiency if other conditions are<br />
kept constant. It is particularly relevant in the context of<br />
international comparisons where comparator countries have<br />
tax systems similar to New Zealand. Our historical performance<br />
in OECD surveys shows that we are comparable with the most<br />
efficient tax administrations in the OECD. For example, the<br />
2010 survey showed that it cost Canada $1.33 to collect $100<br />
of revenue, the United Kingdom $1.14, and Australia $1.02.<br />
The data for these costs is from 2008. Our cost of collection<br />
for the same period was $0.88. This has increased slightly to<br />
$0.92 in 2011–12, mainly because of an increase in funding for<br />
compliance activities—investigations and debt collection. The<br />
next edition of the OECD Comparative Information Series will<br />
update the international data available on collection costs.<br />
Operational efficiency programmes<br />
We are running a three-year phased operations management<br />
programme across our Service Delivery business group, which<br />
is implementing industry best practice to help us plan and<br />
manage our operations. The programme uses tools to actively<br />
manage cost, quality and service outcomes. Operations<br />
management enables us to increase productivity by better<br />
planning and managing our work.<br />
We are also continuing to implement a Lean Six Sigma<br />
programme. The benefits so far are:<br />
""<br />
a streamlined approach for using “change of circumstance”<br />
information from customers for child support and Working<br />
for Families Tax Credits<br />
""<br />
a streamlined process for sorting correspondence<br />
""<br />
a significant reduction in security risk for data transfers<br />
between financial institutions and <strong>Inland</strong> <strong>Revenue</strong>.<br />
Benchmarking<br />
<strong>Inland</strong> <strong>Revenue</strong> takes part in benchmarking exercises to<br />
compare our activities with other organisations. These studies<br />
give us insight into our relative efficiency and are important<br />
ways of exchanging information and ideas to promote<br />
improvement.<br />
In 2010–11 we took part in a benchmarking exercise coordinated<br />
by the HM <strong>Revenue</strong> and Customs (the United Kingdom<br />
revenue authority). We ranked in the top three (out of<br />
10 participating countries) for 26 of the 42 (62%) indicators<br />
used in the benchmarking study that are comparable and allow<br />
robust interpretation. We were also the highest ranking tax<br />
administration for seven of the indicators.<br />
In 2011–12 we took part in these exercises:<br />
""<br />
OECD Comparative Information Series 5 , which compares<br />
tax administrations and provides detailed operational and<br />
costing information, as well as highlighting developments<br />
in international best practice. The current study is planned<br />
for completion in January 2013.<br />
""<br />
Better Administrative and Support Services (BASS)<br />
benchmarking work conducted by the Treasury 6 .<br />
<strong>Inland</strong> <strong>Revenue</strong> has rated relatively well in the BASS<br />
benchmarks in terms of the cost of our human resources,<br />
finance and legal services functions. Our Information and<br />
Communications Technology costs are higher than average.<br />
This reflects the size and complexity of the IT systems<br />
needed to administer revenue collection and disbursement<br />
of payments. Our results for the quality metrics have<br />
consistently rated higher than average for the BASS cohort.<br />
5<br />
For the latest edition, see Tax Administration in OECD and Selected Non-<br />
OECD Countries: Comparative Information Series (2010), available at<br />
oecd.org<br />
6<br />
See treasury.govt.nz/statesector/performance/bass/benchmarking/2010–11<br />
32 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Evaluations<br />
We regularly evaluate the results of policies and major<br />
business projects against their objectives. The findings help<br />
us understand the underlying factors that contribute to their<br />
success or if they are not working as intended.<br />
This year, we continued evaluating the outcomes of the<br />
KiwiSaver programme, focusing mainly on the home ownership<br />
features of the scheme and an initial evaluation of the impact<br />
on retirement savings. In June <strong>2012</strong>, we also published Opt-outs<br />
and contributions holidays, giving some insight into the<br />
characteristics of members who have opted out or taken a<br />
holiday from the scheme. In future, we will extend the scope of<br />
our evaluation work to survey individuals and households, and<br />
compare members and non-members.<br />
We also evaluated several aspects of the student loan scheme,<br />
including the following:<br />
""<br />
The effectiveness of the overseas-based borrowers<br />
compliance initiative to assess interventions with student<br />
loan debtors based in Australia. The findings indicated<br />
that the campaign was successful in having borrowers<br />
starting to repay their loans, but most were borrowers with<br />
smaller debts. The study’s findings informed the expansion<br />
of the initiative when we included borrowers in the<br />
United Kingdom in the target group.<br />
""<br />
Opinions of the repayment holiday for borrowers<br />
travelling and living overseas. Our evaluation found that<br />
the repayment holiday had no influence on borrowers’<br />
decisions to return to New Zealand and many had a<br />
significant lack of awareness of their loan. Lack of contact<br />
with <strong>Inland</strong> <strong>Revenue</strong> was a major factor in their noncompliance<br />
with student loan repayments.<br />
ird.govt.nz<br />
part 4<br />
Our perfoRMAnce<br />
33
Part 5<br />
Improving THe WAy we WORk<br />
ird.govt.nz<br />
PART 5<br />
iMproving the way we work<br />
35
Improving the way we work<br />
We continue to improve the way we work to ensure we achieve<br />
our desired future.<br />
Implementing IR for the Future<br />
Our strategic document IR for the future sets out our priorities<br />
and what we need to do to achieve our mission, vision and<br />
culture. Our Senior Management Team (SMT) developed an<br />
action plan to implement IR for the future. It contains initiatives<br />
that we report on monthly. These initiatives help keep us on<br />
track to build a better <strong>Inland</strong> <strong>Revenue</strong>. Our successes so far<br />
include the following:<br />
""<br />
Implementing our Commissioner’s Award scheme in<br />
January <strong>2012</strong>. The Awards recognise the contributions and<br />
hard work of our people.<br />
""<br />
Ensuring that our collective leadership is supported by<br />
clear accountabilities. Our SMT and group managers<br />
meet monthly to discuss issues about our vision, strategic<br />
priorities and the challenges we face.<br />
""<br />
Embedding our leader expectations in our performance<br />
and development framework and in our leaders’<br />
performance agreements.<br />
""<br />
Reviewing our approach to leadership support at each of<br />
our sites. We are taking a fresh look at our site leadership<br />
and our communications approaches to find the best way<br />
to support our people from sites outside National Office.<br />
We are looking at what information our people need and<br />
how we can best make it available to them.<br />
""<br />
Building an internal coaching programme, supported by<br />
a 360 degree feedback process. This has been received<br />
positively and so far, over 100 <strong>Inland</strong> <strong>Revenue</strong> leaders have<br />
taken part in the pilot coaching programme.<br />
""<br />
Looking at our investments in existing and new systems,<br />
to make it easier for our people and customers to work<br />
with us. We are piloting an approach to support wider<br />
<strong>Inland</strong> <strong>Revenue</strong> input into our design processes and ensure<br />
innovative thinking is a core part of the way we do things.<br />
We also held Making it real workshops to measure the progress<br />
of embedding our organisational values as part of IR for<br />
the future. As a result of feedback, we designed a number<br />
of initiatives which have increased dialogue between our<br />
people and leaders, clarified site leadership and increased staff<br />
involvement in IR for the future initiatives.<br />
OrgaNISaTIONal chaNGE<br />
This year, we have seen significant organisational change.<br />
Senior Management changes<br />
Bob Russell completed his term at <strong>Inland</strong> <strong>Revenue</strong> in July <strong>2012</strong><br />
and Naomi Ferguson took up the role of Chief Executive<br />
and Commissioner. Naomi previously spent three years with<br />
<strong>Inland</strong> <strong>Revenue</strong> from 2003–06 as Deputy Commissioner<br />
Service Delivery. She has spent the last six years working for<br />
HM <strong>Revenue</strong> and Customs, including the role of Director of<br />
Local Compliance.<br />
Arlene White came to <strong>Inland</strong> <strong>Revenue</strong> to take up the role<br />
of Deputy Commissioner Service Delivery in March <strong>2012</strong>.<br />
Previously, Arlene held the position of Assistant Commissioner,<br />
Assessment and Benefit Services Branch, with the Canada<br />
<strong>Revenue</strong> Agency. Arlene replaced Carolyn Tremain who was<br />
appointed Chief Executive at the New Zealand Customs<br />
Service.<br />
Struan Little was appointed Deputy Commissioner Policy<br />
Advice in September 2011. Struan was previously a Deputy<br />
Secretary at the Treasury. He replaced Robin Oliver as Deputy<br />
Commissioner Policy Advice.<br />
Peter Mersi, Deputy Commissioner Business Transformation,<br />
was appointed Chief Executive of Land Information<br />
New Zealand in August <strong>2012</strong>.<br />
Service delivery change and other organisational<br />
change<br />
We are facing significant challenges from customer<br />
expectations, government needs, technology change and<br />
financial pressures. Our Future Direction of Service Delivery<br />
(FDSD) project helps us meet these current challenges, as well<br />
as providing flexibility and delivering value for taxpayers. Our<br />
work on the FDSD project aligns our service delivery area with<br />
IR for the future by ensuring our people are appropriately placed<br />
to address community needs. This work ensures we:<br />
""<br />
deliver more targeted, coordinated and efficient customer<br />
services<br />
""<br />
are flexible enough to evolve how we work in the future, to<br />
meet changing community and business needs<br />
""<br />
provide better value for money<br />
""<br />
deliver the services our customers are looking for.<br />
36 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
The project has been supported by developing regional profiles<br />
of New Zealand. We collected and interpreted external and<br />
internal data sources to show how individual regions have<br />
unique blends of people, industries and geography.<br />
This regional diversity means that national and international<br />
change impacts to varying degrees across the country, and a<br />
“one-size fits all” approach to removing compliance barriers,<br />
or maximising uptake of social policy entitlements, will not<br />
necessarily work. Our research has attracted wide interest<br />
from other government agencies and we received additional<br />
funding to extend it and make results accessible to those other<br />
agencies.<br />
This year, we finished implementing FDSD changes in Rotorua,<br />
New Plymouth, Napier, Nelson and Invercargill. We are now<br />
considering what kinds of work we will do in our main sites,<br />
and the probable impacts of business transformation for our<br />
customers and us.<br />
We also made a number of management changes across<br />
<strong>Inland</strong> <strong>Revenue</strong>. We realigned our third-tier management in<br />
the Service Delivery, Business Transformation and Corporate<br />
Services business groups. We also realigned lower management<br />
tiers in several areas to ensure that our management structure<br />
helps <strong>Inland</strong> <strong>Revenue</strong> to focus on our future capability.<br />
We also prepared for future change by refreshing our strategic<br />
workforce plan, Our People Our Future 2011–15. This plan<br />
highlights our focus on change leadership, stakeholder<br />
management, co-design of services, programme management<br />
and emerging technology product knowledge.<br />
Outsourcing<br />
We are working with an external contact centre provider,<br />
which gives us additional cost-effective capacity to meet<br />
service requirements in periods of high demand. Their people<br />
are trained to deal with generic queries received by our<br />
contact centres, which lets our people deal with more complex<br />
enquiries.<br />
We also use private sector debt collection services as part of<br />
our overseas-based borrower compliance initiative, which<br />
targets student loan borrowers in Australia and the United<br />
Kingdom who have overdue repayments. We use these services<br />
to track and trace borrowers, collect debt, and take legal action<br />
on our behalf.<br />
Supporting diversity<br />
We continued to focus on supporting the diversity of<br />
our workforce. If our employee composition reflects our<br />
increasingly diverse customer base, we will be able to use their<br />
knowledge to improve our understanding of our customer<br />
needs and provide better services.<br />
We produced a Diversity and Inclusion Framework to help<br />
build a culture of inclusion and diversity of perspective. It<br />
supports our leaders to involve our people in achieving our<br />
vision and outcomes. Our diversity scorecard lets us track<br />
progress against key activities.<br />
For information about our eeO performance, see figure 24 in<br />
the appendix.<br />
Improving our sySTEMS and TOOls<br />
Our focus on ensuring that our systems meet our current and<br />
future needs reflects one of our strategic priorities in IR for<br />
the Future and is critical to achieving our successful business<br />
transformation.<br />
We are committed to giving our people better tools to do their<br />
job. As part of our IT enhancement work, we introduced a new<br />
enterprise desktop environment. It has successfully replaced<br />
our ageing distributed computing software. Our people can<br />
now access and share information more easily, facilitating more<br />
collaborative work.<br />
Accommodation<br />
In Christchurch, we are co-locating staff with the Ministry of<br />
Social Development (MSD) in a purpose-built building. It will<br />
house about 350 people from <strong>Inland</strong> <strong>Revenue</strong> and 125 from<br />
MSD. To start with, most of them will be contact centre<br />
and collections staff. We expect the building to be ready by<br />
December <strong>2012</strong>. In the meantime, our people are operating<br />
from temporary premises and shared government buildings.<br />
Our Cashel St building in Christchurch will be demolished.<br />
In Auckland we have also moved our contact centre operations<br />
into a more fit-for-purpose facility in the Unisys Building in<br />
Penrose.<br />
We are preparing a national property strategy that will look at<br />
our future business requirements and connect with our longterm<br />
accommodation plans.<br />
ird.govt.nz<br />
part 5<br />
Improving the way we work<br />
37
Managing our RISks<br />
To make progress towards our outcomes we must identify our<br />
key risks and develop approaches to mitigate them. We do<br />
this through our governance structure and risk management<br />
frameworks.<br />
Our risk management framework is based on the ISO Risk<br />
Management Standard (ISO31000:2009) and sets out the<br />
principles for managing risk. This framework:<br />
""<br />
requires business owners to adopt risk management<br />
practices<br />
""<br />
has a strong assurance focus that supports governance<br />
bodies<br />
""<br />
applies to strategic, operational, project, programme and<br />
portfolio risk.<br />
We have established processes for managing risks at the<br />
strategic, operational, programme, portfolio and individual<br />
project level which we regularly review.<br />
GovERNance<br />
The Commissioner chairs the Executive Board which focuses<br />
on longer-term strategy, ethics, integrity, strategic risks and<br />
progress towards our desired future and outcomes. In addition,<br />
the Senior Management Team meets weekly.<br />
The following governance groups support the Executive Board:<br />
""<br />
Portfolio Governance and Investment Committee—<br />
oversees the approval, initiation and implementation of<br />
our change portfolio.<br />
""<br />
Business Transformation Programme Board—provides<br />
assurance that business transformation initiatives will meet<br />
the strategic needs of the organisation.<br />
""<br />
Technical Governance Committee—facilitates and<br />
ensures the coordination and consistency of departmental<br />
work on important technical matters.<br />
In addition to the Executive Board and the supporting<br />
committees above, the Risk and Assurance Committee<br />
provides independent advice to the Commissioner on carrying<br />
out their statutory responsibilities and accountabilities. This<br />
Committee is made up of independent members and also has<br />
an independent chair.<br />
Strategic RISks<br />
We have identified strategic risks to delivering our outcomes<br />
for IR for the Future and developed the following mitigations,<br />
which are set out below.<br />
<strong>Revenue</strong><br />
<strong>Inland</strong> <strong>Revenue</strong> needs to administer all tax and social policies<br />
to optimise revenues and disbursements to support government<br />
objectives.<br />
We identify and implement policy changes to improve the<br />
fairness of our tax system and ease of compliance (see Part 1<br />
for more information). We have an ongoing focus on<br />
addressing non-compliance through our hidden economy,<br />
debt and property initiatives. Our Business Transformation<br />
programme will also help optimise our tax and social policy<br />
administration.<br />
Reputation and community confidence<br />
<strong>Inland</strong> <strong>Revenue</strong> needs to maintain the confidence of the public<br />
and government.<br />
We continue to strengthen our customer and stakeholder<br />
relationships. We are progressively introducing our community<br />
compliance officer roles, which have increased our presence<br />
in regional communities. We provide regular, transparent and<br />
consistent messaging to our customers and to the media by<br />
taking a proactive approach to keeping them informed.<br />
People capability<br />
<strong>Inland</strong> <strong>Revenue</strong> needs the right people in the right place at the<br />
right time now and for the future.<br />
We continue to plan our people capability through our<br />
workforce planning efforts. This helps us to identify and<br />
understand what skills and staff we will need in the future.<br />
We have identified future capability gaps and are developing<br />
appropriate approaches to ensure that we can continue to<br />
deliver our services. For example, the Accelerated Capability<br />
Development Programme in our Information, Design and<br />
Systems (IDS) area ensures that IDS has the necessary capability<br />
and capacity.<br />
38 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Information technology<br />
<strong>Inland</strong> <strong>Revenue</strong> needs to apply timely technology solutions to<br />
meet our delivery requirements.<br />
We continue to refresh and update our IT strategy. We now<br />
have detailed plans to ensure that <strong>Inland</strong> <strong>Revenue</strong> continues<br />
to receive hardware and software support and manage our<br />
forecast demand for increased IT capacity. Our business<br />
transformation programme will include the modernisation of<br />
our IT infrastructure and systems.<br />
Information management<br />
<strong>Inland</strong> <strong>Revenue</strong> needs reliable data, and effective management<br />
information systems and processes to make informed decisions.<br />
We recognise that this strategic risk requires our most urgent<br />
attention. Funding was assigned to initiate the Information<br />
Management Programme last year. We have since developed<br />
a comprehensive strategic response plan. We will assess the<br />
phasing of implementation of the plan in conjunction with<br />
Business Transformation planning and prioritisation processes.<br />
Financial<br />
<strong>Inland</strong> <strong>Revenue</strong> needs to ensure future capital investment and<br />
operational funding is sufficient in order to provide services, now<br />
and in the future.<br />
We have strong financial management practices, which have<br />
been endorsed by our auditors and are reflected in the findings<br />
of the Performance Improvement Framework report. We have<br />
a rolling four-year budget/business plan to ensure we plan and<br />
budget for our future funding needs. We ensure that options<br />
for proposed policy changes are presented with clear financial<br />
implications. We test our investment decisions, monitor<br />
expenditure and report regularly. We continue to improve our<br />
internal policies and practices, such as the recent launch of our<br />
procurement policy.<br />
External interactions<br />
<strong>Inland</strong> <strong>Revenue</strong> needs to ensure that competing priorities are<br />
managed when working together with other agencies and<br />
private providers.<br />
This risk was recently introduced and recognises the need<br />
to manage our interactions with others more effectively<br />
and strategically. We recently implemented a number of<br />
operational responses, eg, webinars with software developers<br />
and committing senior managers to cross-agency committees.<br />
We are planning further work to ensure that <strong>Inland</strong> <strong>Revenue</strong><br />
leads and supports interactions with others.<br />
ird.govt.nz<br />
part 5<br />
Improving the way we work<br />
39
AppENdix<br />
This section contains statistical tables that provide additional information supporting Parts 1 to 5. 7<br />
Measuring pERFORMance<br />
Figure 6 –<br />
IMPACT INDICATORS rePORT – MAIN MEASURES<br />
Impact indicator Recent performance Current performance Target by June 2014<br />
More customers are able to self-manage 8<br />
% of customers who are aware of their Year end June 2011: 80% Year end June <strong>2012</strong>: 80% Increase to 85% or more<br />
obligations and entitlements increases<br />
% of customers who find it easy to Year end June 2011: 71% Year end June <strong>2012</strong>: 71% Increase to 75% or more<br />
comply increases<br />
Factors that influenced target setting: This impact is key to enabling improved customer compliance and cost-effectiveness in a<br />
fiscally constrained environment.<br />
More customers register and report accurate information when required<br />
% of returns filed without errors increases Year end June 2011: 85% 9 July 2011 – March <strong>2012</strong>: Increase to 90% or more<br />
86%<br />
% of applications submitted without<br />
errors increases<br />
March 2011 – June 2011:<br />
84%<br />
Year end June <strong>2012</strong>: 89% To be set when more data<br />
is available<br />
Ratio of registrations to population size Year end June 2011: Year end June <strong>2012</strong>: n/a<br />
and growth follows an appropriate trend 10 Employers: correlation 99%,<br />
WfFTC: correlation 87% 11 Employers: correlation 99%,<br />
WfFTC: correlation 67%<br />
GST assessed to consumer spending Year end March 2011: Year end March <strong>2012</strong>: n/a<br />
follows an appropriate trend 12 Correlation of 93% 13 Correlation of 93%<br />
Factors that influenced target setting: This impact is key to improving customer self-management, reducing unnecessary contacts<br />
and improving end-to-end processing.<br />
More customers claim their correct entitlements 14<br />
% of accurate WfFTC payments<br />
Tax year 2010: 68% Tax year 2011: 69% Tax year 2013: Increase to<br />
increases 15 70% or more<br />
Factors that influenced target setting: The expected impact of the upcoming changes to WfFTC eligibility rules has been taken into<br />
account when assessing our ability to improve accuracy.<br />
7<br />
Figures in the tables may not add up to the stated totals due to rounding.<br />
8<br />
We only include results for the contextual indicator under this impact<br />
“customer compliance costs are minimised” when the data is less than two<br />
years old. The survey that this indicator uses was last undertaken in 2009<br />
and results were included in the 2011 Annual Report.<br />
9<br />
Result updated to June 2011 (results reported in <strong>2012</strong>–15 Statement of<br />
Intent and 2011 Annual Report were to March 2011).<br />
10<br />
We report on this indicator to provide additional contextual information.<br />
Employers’ correlation is between the number of employers who register<br />
for PAYE and the percentage of the labour force that is employed (from the<br />
Statistics New Zealand Household Labour Force Survey). WfFTC correlation<br />
is between the number of customers who receive payments from<br />
<strong>Inland</strong> <strong>Revenue</strong> and the number of households with dependent children<br />
(from the Statistics New Zealand Household Labour Force Survey).<br />
11<br />
Correlation results updated as result of revised historical data from Statistics<br />
New Zealand for number of households with dependent children.<br />
12<br />
We report on this indicator to provide additional contextual information.<br />
It highlights a link between consumer spending and the amount of GST<br />
assessed, showing the completeness of information provided by GST<br />
customers. As this is an indicator that is beyond our influence, no formal<br />
target has been set.<br />
13<br />
Correlation results updated as a result of revised historical data from<br />
Statistics New Zealand for gross national expenditure.<br />
14<br />
The previously reported entitlements perception indictor has been moved<br />
to the statement of service performance (Part 6) because this is more<br />
a reflection on the quality of our service than the impact on customer<br />
compliance.<br />
15<br />
Payments are considered accurate if customers’ total yearly payments are<br />
within $1,000 of their entitlement. The accuracy of payments is primarily a<br />
reflection of the quality of information provided to us by our customers.<br />
40 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Figure 6 –<br />
IMPACT INDICATORS rePORT – MAIN MEASURES (CONTINUed)<br />
Impact indicator Recent performance Current performance Target by June 2014<br />
More customers pay and file information on time<br />
% of returns filed on time increases Tax year 2010: 82% Tax year 2011: 82% Tax year 2013: Increase to<br />
85% or more<br />
% of payments made by customers on<br />
time increases<br />
Tax year 2010: 87% Tax year 2011: 86% 16 Tax year 2013: Increase to<br />
90% or more<br />
Factors that influenced target setting: This impact is a key compliance driver and consequently stretch targets are appropriate.<br />
The behaviour of non-compliant customers improves 17<br />
The compliance behaviour of customers Year end June 2011: 82% Year end June <strong>2012</strong>: 86% Maintain at 80% or more<br />
who received an audit intervention<br />
increases<br />
% of collectable debt to total debt<br />
increases<br />
Year end June 2011: 69% Year end June <strong>2012</strong>: 65% Increase to 70% or more<br />
% of cash collected to collectable debt<br />
increases<br />
% of collectable debt to revenue assessed<br />
decreases<br />
Year end June 2011: 65% Year end June <strong>2012</strong>: 112% 18 Increase to 70% or more by<br />
year end<br />
Year end June 2011: 8.1% Year end June <strong>2012</strong>: 7.6% Decrease to 7.0% or less<br />
Factors that influenced target setting: The economic environment is a significant factor in debt performance. Maintaining or<br />
making small improvements will be challenging.<br />
16<br />
Measured using provisional results. Final results will be confirmed in<br />
October <strong>2012</strong>.<br />
17<br />
The previously reported non-compliance perception indicator has been<br />
moved to the statement of service performance (Part 6) because this<br />
is more a reflection on the quality of our service than our impact on<br />
customer compliance.<br />
18<br />
This is the result of increased use of tax pooling. These increases were not<br />
anticipated when the target was set and we will look at options for future<br />
reporting.<br />
ird.govt.nz<br />
appendix<br />
41
Customer satisfaction remained at similar levels to last year, although business satisfaction has declined over the past year.<br />
Figure 7 –<br />
CUSTOMer SATISFACTION<br />
Overall satisfaction 2010–11 2011–12<br />
Customer group Satisfied Very satisfied Satisfied Very satisfied<br />
National results 86% 69% 86% 69%<br />
Individuals (overall) 84% 66% 85% 67%<br />
Working for Families Tax Credits (WfFTC) 88% 73% 88% 72%<br />
Child support 76% 50% 75% 54%<br />
KiwiSaver (employees) 88% 71% 91% 76%<br />
Student loan 84% 70% 84% 66%<br />
Business (overall) 89% 71% 86% 69%<br />
Small and medium enterprises 89% 74% 86% 70%<br />
Large enterprises 89% 71% 88% 75%<br />
Tax agents 89% 71% 90% 70%<br />
Not for profits 88% 69% 81% 61%<br />
Channel<br />
Voice 87% 70% 87% 70%<br />
Correspondence 76% 56% 72% 55%<br />
Online – – 95% 80%<br />
42 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Customer perceptions of <strong>Inland</strong> <strong>Revenue</strong> improved this year.<br />
Figure 8 –<br />
CUSTOMer percePTIONS OF THe TAx sySTem<br />
2010–11 2011–12<br />
Agree Strongly<br />
agree<br />
Agree Strongly<br />
agree<br />
Overall fairness 81% 54% 83% 56%<br />
Overall operational 83% 59% 85% 60%<br />
effectiveness<br />
Makes it easy to 75% 44% 79% 47%<br />
get it right<br />
Appropriate<br />
76% 54% 79% 55%<br />
action against<br />
non-compliance<br />
Paying tax<br />
contributes to<br />
New Zealand<br />
96% 86% 96% 87%<br />
Social policy—cuSTOMERS claIMING<br />
thEIR ENTITlEMENTS<br />
We have nearly two million KiwiSaver members.<br />
Figure 9 –<br />
kIWISaver membeRSHIP (AT 30 June)<br />
Enrolment method 2010 2011 <strong>2012</strong><br />
Automatically enrolled 541,769 646,725 742,751<br />
Opted in through<br />
211,883 232,131 247,950<br />
employer<br />
Opted in through provider 706,290 877,076 975,743<br />
Total members 1,459,942 1,755,932 1,966,444<br />
We distributed over $3 billion to KiwiSaver scheme providers<br />
this year.<br />
Figure 10 –<br />
kIWISaver FUNDS TO PROviders 19<br />
Contributions from 2009–10<br />
$million<br />
2010–11<br />
$million<br />
2011–12<br />
$million<br />
Members<br />
Employee $1,051 $1,156 $1,322<br />
Employer $626 $740 $866<br />
Voluntary $9 $16 $16<br />
Total member $1,686 $1,911 $2,204<br />
Crown<br />
Member tax credit $573 $664 $799<br />
Kick-start $376 $331 $239<br />
Fee subsidy $9 – –<br />
Interest $5 $5 $6<br />
Total Crown $962 $1,000 $1,044<br />
Total to providers $2,648 $2,911 $3,248<br />
Figure 11 –<br />
CUSTOMers receivING regular WorkING FOR Families<br />
Tax CreDITS PAymeNTS FROM InlAND <strong>Revenue</strong><br />
June–10 June–11 June–12<br />
Customers 202,000 200,000 193,600<br />
Average weekly payment $153 $153 $156<br />
FiguRE 12–<br />
STUDeNT lOAN rePAymeNTS<br />
Repayments 2009–10<br />
$million<br />
2010–11<br />
$million<br />
2011–12<br />
$million<br />
PAYE system $473.9 $491.6 $528.0<br />
From borrower $170.5 $199.0 $239.7<br />
Total $644.4 $690.6 $767.7<br />
19<br />
Figures are on a cash accounting basis and are gross (ie, exclude refunds<br />
from providers). They exclude member tax credits paid to complying funds,<br />
and contributions made direct to scheme providers.<br />
ird.govt.nz<br />
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43
Customer SERvICES and CONTaCTS<br />
We had more than 18 million visits to our website this year, and<br />
registrations for our online services reached 1.2 million.<br />
Figure 13 –<br />
Self-service CONTACTS<br />
2010–11 2011–12<br />
Website visits 17,823,263 18,204,485<br />
Total registrations for online<br />
964,904 1,240,629<br />
services (cumulative)<br />
Self-help and online services 16,056,536 15,810,023<br />
Look at account information 12,397,006 12,113,609<br />
Agent client maintenance 507,824 658,829<br />
0800 self-service 695,498 654,347<br />
KiwiSaver member scheme provider<br />
requests<br />
2,456,208 2,383,238<br />
Figure 14 –<br />
CorreSPONDence CONTACTS<br />
2010–11 2011–12 2010–11 2011–12<br />
Paper<br />
Electronic<br />
Income tax 426,533 405,779 470,749 517,556<br />
GST 97,161 78,576 85,827 92,536<br />
Working for Families 30,127 29,722 23,028 27,796<br />
PAye 53,220 62,271 15,142 20,094<br />
Student loan 12,111 16,261 23,876 30,502<br />
Child support 57,381 46,478 18,303 14,825<br />
Other tax types 136,435 145,287 26,088 24,111<br />
KiwiSaver 10,458 8,672 21,721 27,697<br />
Total 823,426 793,046 684,734 755,117<br />
Complying with obligaTIONS – Audit<br />
and dEbt tablES<br />
We identified $1.2 billion in audit discrepancies this year, less<br />
than in the previous year.<br />
Figure 16 –<br />
AUDIT DISCRePANCIes<br />
Audit category<br />
Actual<br />
2010–11<br />
$million<br />
Target<br />
2011–12<br />
$million<br />
Actual<br />
2011–12<br />
$million<br />
Investigations – SMEs $374.3 $398.4 $400.1<br />
Aggressive tax issues $110.3 $169.0 $322.7<br />
Tax evasion and fraud $208.6 $131.1 $141.3<br />
Large enterprises $757.4 $401.5 $340.0<br />
Total discrepancies $1,450.6 $1,100.0 $1,204.1<br />
Adjustments<br />
Less loss reduction<br />
$188.6 – $265.0<br />
adjustments<br />
Less imputation credit $429.0 – $180.7<br />
adjustments<br />
Additional tax assessed $832.0 – $758.4<br />
Notes<br />
1. The table shows net discrepancies by audit category. Net discrepancies<br />
are defined as gross discrepancies less timing adjustments—for errors<br />
found in a return filed for one period, but claimable in another.<br />
2 Further adjustments are made because not all net discrepancies result<br />
in an immediate tax liability or payment of additional tax. Adjustments<br />
to losses and imputation credits can affect current tax liabilities, but are<br />
mainly carried forward to future periods.<br />
Figure 15 –<br />
TelePHONe peRFORMANCe<br />
2010–11 2011–12<br />
Calls received 5,142,339 4,077,317<br />
Calls answered 3,894,454 3,670,987<br />
Average handling time (min:sec) 10:48 10:40<br />
44 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
The amount of total debt increased by 7.1% over last year. The amount of debt under instalment arrangement increased by 2.6%.<br />
Figure 17 –<br />
COMPOSITION OF OUR debt PORTFOlio (at 30 June)<br />
Debt type ($million) 2010 2011 <strong>2012</strong> One-year<br />
change<br />
One-year<br />
change (%)<br />
Debt under arrangement $937.7 $1,146.6 $1,176.3 $29.7 2.6%<br />
Other collectable debt $2,548.6 $2,663.5 $2,582.7 ($80.8) (3.0%)<br />
Total collectable debt $3,486.3 $3,810.2 $3,759.0 ($51.2) (1.3%)<br />
Total non-collectable debt $1,664.3 $1,711.9 $2,157.4 $445.5 26.0%<br />
Total debt $5,150.6 $5,522.1 $5,916.4 $394.3 7.1%<br />
Income tax debt $2,158.1 $2,207.8 $2,372.4 $164.6 7.5%<br />
GST $1,809.4 $1,908.5 $1,947.2 $38.7 2.0%<br />
PAye $532.3 $622.6 $642.1 $19.5 3.1%<br />
Student loan $324.7 $411.7 $512.3 $100.6 24.4%<br />
WfFTC $238.3 $275.1 $320.8 $45.7 16.6%<br />
KiwiSaver $14.6 $19.8 $21.5 $1.7 8.6%<br />
Other $73.2 $76.6 $100.1 $23.5 30.7%<br />
Total debt $5,150.6 $5,522.1 $5,916.4 $394.3 7.1%<br />
Penalties and interest $2,149.7 $2,359.0 $2,711.3 $352.3 14.9%<br />
Penalties and interest (%) 41.7% 42.7% 45.8% 3.1% 7.3%<br />
Customers in debt (total cases) 363,814 389,947 408,606 18,659 4.8%<br />
Annual debt change (%) 1.8% 6.7% 7.1%<br />
Debt under two years old decreased by more than $430 million over last year’s level. Debt over two years old continues to increase.<br />
Figure 18 –<br />
Age OF debt (AT 30 June) 20<br />
2010 2011 <strong>2012</strong> One-year change<br />
Debt<br />
($million)<br />
Debt<br />
cases<br />
Debt<br />
($million)<br />
Debt<br />
cases<br />
Debt<br />
($million)<br />
Debt<br />
cases<br />
Debt<br />
($million)<br />
Debt<br />
cases<br />
< 1 year $1,500.3 216,815 $1,377.7 220,597 $1,254.7 224,520 ($123.0) 3,923<br />
1–2 years $1,386.4 84,000 $1,387.7 89,063 $1,079.1 72,219 ($308.6) (16,844)<br />
2–5 years $1,542.0 50,839 $1,787.7 63,840 $2,310.9 92,119 $523.2 28,279<br />
> 5 years $721.9 13,660 $969.0 16,447 $1,271.6 19,748 $302.6 3,301<br />
Total $5,150.6 363,814 $5,522.1 389,947 $5,916.4 408,606 $394.3 18,659<br />
20<br />
This table includes overdue student loan repayments. Figures are based on<br />
cases using a weighted average of debt elements. They are not comparable<br />
with the figures in Part 8, which are based on elements.<br />
ird.govt.nz<br />
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45
Overdue repayments owed by New Zealand-based borrowers<br />
continued to decrease.<br />
Figure 19 –<br />
OveRDUe STUDeNT lOAN rePAymeNTS<br />
Overdue repayments 2009–10<br />
$million<br />
Borrowers based:<br />
2010–11<br />
$million<br />
2011–12<br />
$million<br />
– in New Zealand $142.2 $122.8 $102.6<br />
– overseas $182.5 $288.9 $409.7<br />
Total $324.6 $411.7 $512.3<br />
Total child support debt increased by more than $180 million this year.<br />
Figure 20 –<br />
Child SUPPORT debt (AT 30 June) 21<br />
Child support debt type 2009–10 2010–11 2011–12 22 One year One year<br />
($million)<br />
change change (%)<br />
Penalty debt $1,367.7 $1,666.0 $1,809.5 $143.5 8.6%<br />
Assessment debt $575.8 $604.5 $642.9 $38.4 6.4%<br />
Debt under arrangement $964.2 $1,122.7 $1,067.9 ($54.8) (4.9%)<br />
Uncollectable debt $272.0 $310.9 $348.6 $37.7 12.1%<br />
Not yet under arrangement $707.3 $836.9 $1,035.9 $199.0 23.8%<br />
Total child support debt $1,943.5 $2,270.5 $2,452.4 $181.9 8.0%<br />
Customers in debt (cases) 139,136 141,464 147,177 5,713 4.0%<br />
Figure 21 –<br />
ReCIPROCAl AGReement FOR COlleCTION OF CHIld SUPPORT (at 30 June)<br />
New Zealand cases handled by Australian Child<br />
Support Program<br />
Total debt cases Debt owed Debt collected<br />
$million $million<br />
2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong><br />
11,450 11,198 $502.1 $403.4 $43.3 $49.2<br />
Australian cases handled by <strong>Inland</strong> <strong>Revenue</strong> 4,978 5,136 $105.8 $116.7 $11.3 $11.4<br />
21<br />
Child Support debt figures do not match the figures in Part 8 because the<br />
Crown financial schedules include accruals and only show the portion of<br />
overdue debt due to the Crown, ie, penalties.<br />
22<br />
From June <strong>2012</strong>, penalties charged on Australian Child Support Program<br />
cases that are being collected in New Zealand are included in the total<br />
child support debt figure. Of the $182 million increase in child support<br />
debt, $71 million of the growth relates to these penalties.<br />
46 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
77% of child support debt is more than five years old.<br />
Figure 22 –<br />
Age OF CHIld SUPPORT debt (at 30 June)<br />
Debt<br />
($million)<br />
2010 2011 <strong>2012</strong> One year change<br />
Debt Debt Debt Debt Debt Debt<br />
cases ($million) cases ($million) cases ($million)<br />
Debt<br />
cases<br />
< 1 year $75.3 55,406 $72.3 52,944 $71.5 51,710 ($0.8) (1,234)<br />
1–2 years $97.4 21,575 $106.7 23,122 $114.7 23,332 $8.0 210<br />
2–5 years $340.9 30,747 $353.6 31,994 $381.5 35,667 $27.9 3,673<br />
> 5 years $1,429.9 31,408 $1,737.9 33,404 $1,884.7 36,468 $146.8 3,064<br />
Total $1,943.5 139,136 $2,270.5 141,464 $2,452.4 147,177 $181.9 5,713<br />
CapabilITy and EEO<br />
Figure 23 –<br />
WorkFORCe INDICATORS<br />
2009–10 2010–11 2011–12 Public sector comparison<br />
Staff FTEs 5,511 5,646 5,301 Cap: 5,946<br />
Staff turnover 23 6.3% 7.4% 9.4% 2011 public sector average: 10.9%<br />
Staff engagement (mean) 3.77/5 3.77/5 n/a 24 2011 Gallup engagement survey database for<br />
New Zealand State Sector, 50 th percentile: 3.74<br />
Figure 24 –<br />
EEO STATISTICS<br />
2009–10 2010–11 2011–12<br />
Percentage of female staff 66% 65% 64%<br />
Percentage of female team leaders 65% 64% 61%<br />
Percentage of female managers 25 46% 45% 41%<br />
23<br />
In 2010–11 we moved to reporting on unplanned turnover, rather than<br />
total turnover. The 2009–10 and 2010–11 results have been recalculated to<br />
reflect the change in measurement methodology.<br />
24<br />
The <strong>2012</strong> engagement survey was conducted in September <strong>2012</strong>.<br />
25<br />
Includes managers down to the fourth tier of management.<br />
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47
AddITIONal INFORMaTION<br />
FiguRE 25 –<br />
PROPerty INFORMATION (AT 30 June)<br />
2010 2011 <strong>2012</strong><br />
Accommodation area 121,496 121,481 100,736 26<br />
Other area (m 2 ) 5,147 5,519 927 27<br />
Total area leases (m 2 ) 126,643 127,000 101,663<br />
Vacant accommodation (m 2 ) 719 13,862 5,571<br />
Vacant as a % of total 0.6% 10.9% 5.5%<br />
Average space per person (m 2 ) 21.1 18.5 17.4<br />
Annual rental per person ($) 5,446 5,909 5,760<br />
Utility costs per person ($) 939 857 823<br />
Occupancy cost per person ($) 6,385 6,766 6,583<br />
Figure 26 –<br />
HISTORICAl expeNDITURe on CONSUlTANTS AND CONTRACTORS<br />
Expenditure on consultants and<br />
contractors ($000)<br />
2009–10 2010–11 2011–12<br />
$30,829 $35,173 $47,305<br />
% of total operating expenditure 5.1% 5.5% 7.0%<br />
% of total capital and operating<br />
4.7% 5.2% 6.5%<br />
expenditure<br />
26<br />
Includes temporary sites in Christchurch, but excludes the Cashel Street<br />
building, which will be demolished.<br />
27<br />
The reduction is due to exiting from storage sites.<br />
48 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Figure 27 –<br />
ExpeNDITURe ON CONSUlTANTS AND CONTRACTORS<br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
14,829 Information technology 14,023<br />
13,127 Specialist advice and project management 26,552 28<br />
744 HR and change management services 938<br />
780 Tax issues 1,473<br />
2,936 Property 1,964<br />
1,660 Research 1,448<br />
257 Communications 156<br />
840 Other 751<br />
35,173 Total 47,305<br />
28<br />
The increase in specialist advice and project management is related to<br />
Business Transformation.<br />
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49
Part 6<br />
statement OF service<br />
peRFORMANCe<br />
ird.govt.nz<br />
PART 6 statement of service perfoRMAnce<br />
51
Statement OF RespONSIbility<br />
In terms of the Public Finance Act 1989 I am responsible, as<br />
Chief Executive of <strong>Inland</strong> <strong>Revenue</strong>, for the preparation of the<br />
department’s financial statements and statements of service<br />
performance, and for the judgements made in them.<br />
I have the responsibility for establishing a system of internal<br />
control designed to provide reasonable assurance as to the<br />
integrity and reliability of financial reporting.<br />
In my opinion, these financial statements fairly reflect the<br />
financial position and operations of the department for the<br />
year ended 30 June <strong>2012</strong>.<br />
Naomi Ferguson<br />
Chief Executive and Commissioner of <strong>Inland</strong> <strong>Revenue</strong><br />
28 September <strong>2012</strong><br />
Countersigned by:<br />
Giles Southwell<br />
Chief Financial Officer<br />
28 September <strong>2012</strong><br />
52 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
STATEMENT OF SERVICE PERFORMANCE<br />
For the year ENded 30 JuNE <strong>2012</strong><br />
RepORTING pERFORMance<br />
Our service performance is divided into two groups:<br />
""<br />
Activity forecasts—these are forecasts of expected customer demand for our services that provide context for our performance<br />
measures results. Significant variation from the forecast figures can influence the achievement of the targets set for our<br />
performance measures.<br />
""<br />
Performance measures—these are measures we use to set our performance targets. They measure our performance in terms of<br />
quantity, quality, timeliness and cost. We are reporting cost measures for the first time.<br />
The following sections report on our performance against our targets. Where a performance measure is expressed in terms of a<br />
range of characteristics that the output should meet, the result is reported as ‘achieved’ or ‘not achieved’ (eg, see Output Expense 1).<br />
We have provided additional information to explain our performance for these performance measures.<br />
We have provided comments for:<br />
""<br />
key activity forecasts where actual demand was outside the expected range<br />
""<br />
performance measures that were not achieved<br />
""<br />
performance measures with a positive variance greater than 10%.<br />
Some performance measures are calculated using a sample of the customer population. We have marked these performance<br />
measures with a hash mark (#) in the 2011–12 Actual column.<br />
In the past, a 5% tolerance was applied to determine whether performance targets had been achieved. From 2011–12 we no longer<br />
apply this tolerance and we adjusted some of our performance targets to reflect this change.<br />
Comparative performance data<br />
Where appropriate we have included comparative performance information against the activity forecast and performance measures<br />
for the previous year (2010–11 Actual). We have not included comparative performance information for new performance<br />
measures, or where there has been a change in the performance measure or measurement methodology that made the results<br />
incomparable. These are indicated by ‘n/a’.<br />
Comparative financial data – Output Statements<br />
Certain comparative information has been restated, where required to conform with the current year’s presentation.<br />
Performance context commentary<br />
We have included information to give context to the performance achieved. For each output expense we have included a summary of:<br />
""<br />
the impacts we want to contribute to. Further information about our performance measurement framework is in part two.<br />
""<br />
factors influencing our performance during 2011–12.<br />
These commentaries form part of the overall performance picture and should be read in conjunction with the activity forecasts and<br />
narrative in the other sections of this report.<br />
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53
Summary OF SERvICE pERFORMance<br />
Figure 28 summarises the performance measures achieved. This year, we achieved 38 out of 55 (69%) performance measures.<br />
FiguRE 28 – pERFORMaNCE measuRES achieved<br />
2009–10 2010–11 Output expense 2011–12<br />
4 of 4 6 of 6 Policy advice 5 of 5<br />
20 of 21 12 of 14 Services to inform the public about entitlements and meeting obligations 9 of 14<br />
18 of 18 15 of 17 Services to process obligations and entitlements 11 of 17<br />
8 of 9 9 of 15 Management of debt and outstanding returns 6 of 12<br />
9 of 9 9 of 9 Taxpayer audit 7 of 7<br />
59 of 61 51 of 61 Total 38 of 55<br />
Review of 2011–12 output performance measures<br />
Last year we reviewed our output measures for the 2011–12 year. The purpose of this review was to:<br />
""<br />
ensure that we focus on the key external measures<br />
""<br />
create or update measures to reflect changes in our business<br />
""<br />
rationalise multiple or repeating measures<br />
""<br />
remove items that were not performance measures<br />
As a result of the review we removed the 5% tolerance that we had previously applied to performance measure results, removed<br />
22 measures (36%) and added 16 measures (26%).<br />
We reported on 38 comparable measures in both 2010–11 and 2011–12. Our performance improved for nine measures (24%),<br />
remained the same for six measures (16%) and deteriorated for 23 of these measures (60%). For 13 (57%) of the 23 measures where<br />
performance deteriorated, the change in performance between years was less than 2%.<br />
54 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
OUTPUT EXPENSE 1<br />
POLICY advICE<br />
Description<br />
This output expense provides policy advice services jointly with the Treasury that contribute to achieving the government’s tax and<br />
social policy outcomes, and improving the economic and social wellbeing of New Zealanders.<br />
Activities undertaken:<br />
""<br />
advising on all aspects of tax policy and social policy measures that interact with the tax system<br />
""<br />
drafting tax and social policy legislation<br />
""<br />
negotiating and maintaining New Zealand’s network of double tax agreements with other countries<br />
""<br />
forecasting tax revenues<br />
""<br />
providing ministerial services.<br />
Performance context commentary<br />
The impacts we contribute to<br />
Providing policy advice services protects and maintains the integrity of the tax system while ensuring that our tax system is as simple<br />
as possible and is internationally competitive. This contributes to achieving all of our impacts:<br />
""<br />
More customers are able to self-manage<br />
""<br />
More customers register and report accurate information when required<br />
""<br />
More customers claim their correct entitlements<br />
""<br />
More customers pay and file information on time<br />
""<br />
The behaviour of non-compliant customers improves.<br />
When customers comply with their obligations and receive their entitlements we make progress towards <strong>Inland</strong> <strong>Revenue</strong>’s<br />
outcomes:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes through people meeting payment obligations of their own accord<br />
""<br />
People receive payments they are entitled to, enabling them to participate in society.<br />
Factors influencing performance during 2011–12<br />
Our significant areas of work in 2011–12 were:<br />
""<br />
negotating tax treaties<br />
""<br />
Budget <strong>2012</strong><br />
""<br />
Consultation on a range of issues<br />
""<br />
Canterbury earthquake policy response<br />
""<br />
ongoing work on the Government’s Tax Policy Work Programme, including management of Bills before the House.<br />
See part one for more information about our policy advice work.<br />
Financial performance for the year ended 30 June <strong>2012</strong> ($000)<br />
<strong>Revenue</strong> Expenses Net surplus/(deficit)<br />
16,149 15,842 307<br />
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Output 1.1 Policy ADvice IN relATION TO TAx AND SOCIAl POlicy<br />
Description<br />
This output involves:<br />
""<br />
advising on all aspects of tax policy and social policy measures that interact with the tax system<br />
""<br />
developing tax and social policy in line with the Generic Tax Policy Process<br />
""<br />
drafting tax legislation for introduction in the House and assisting its passage through the House<br />
""<br />
negotiating and maintaining New Zealand’s network of double tax agreements with other countries<br />
""<br />
forecasting future tax and non-tax Crown revenue receipts and disbursements for the government<br />
""<br />
analysing revenue implications of changes in tax and social policy.<br />
Performance measures<br />
2010–11<br />
Actual<br />
Measure<br />
2011–12<br />
Target Actual Variance<br />
Quantity, quality and timeliness<br />
Achieved We will provide the Minister with: Achieved Achieved* –<br />
tax and social policy advice as agreed in the government’s tax<br />
policy work programme using the Generic Tax Policy Process<br />
(details available at taxpolicy.ird.govt.nz)<br />
draft tax bills as agreed, and support their introduction and<br />
passage through Parliament<br />
budget forecasts and updates, and<br />
regular reports on progress.<br />
n/a Percentage of regulatory impact statements assessed as adequate – 100% 100%** –<br />
advice is complete, convincing, consulted, clear and concise (details<br />
available at treasury.govt.nz/publications/guidance/regulatory).<br />
Achieved We will ensure that the Minister is satisfied with the quality of:<br />
policy advice<br />
tax legislation<br />
revenue forecasts. Achieved Achieved*** –<br />
Explanation for “achieved” rating<br />
We will provide the Minister with tax and social policy advice, draft tax bills, budget forecasts and updates.<br />
The achievement of this measure is based on the delivery of tax policy work, including draft tax bills and budget forecasts, in<br />
accordance with the agreed timeframes to deliver the Government’s tax policy work programme.<br />
* See Explanation for “achieved” rating above and Generic Tax Policy Process on page 57<br />
** See Tax Policy quality assurance assessment criteria on page 57<br />
*** This is measured by using a survey of the Minister near the end of the year.<br />
56 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Generic Tax Policy Process<br />
A process designed to produce better, more effective tax policy. There are five key development stages.<br />
Stage<br />
Strategic<br />
Tactical<br />
Operational<br />
Legislative<br />
Implementation and review<br />
Description<br />
This involves the development of an economic strategy, a fiscal strategy and a revenue strategy.<br />
This involves the development of a work programme and an annual resource plan.<br />
This involves detailed policy design, formal detailed consultation, and Ministerial and Cabinet<br />
approval of detailed policy recommendations.<br />
This stage, which can occur concurrently with the operational stage, involves the translation of<br />
the detailed policy recommendations into legislation.<br />
This involves the implementation of legislation and any post-implementation review.<br />
Tax policy quality assurance assessment criteria<br />
Quality<br />
standard<br />
Complete<br />
Description<br />
All required information (including disclosure statement) is included in the Regulatory Impact Statement (RIS).<br />
All substantive elements of each fully-developed option are included (or the RIS identifies the nature of the<br />
additional policy work required).<br />
Convincing<br />
All substantive economic, social and environmental impacts have been identified (and quantified where<br />
feasible).<br />
Status quo, problem definition and any cited evidence is presented in an accurate and balanced way.<br />
The objectives relate logically to and fully cover the problem definition.<br />
The options offer a proportionate, well-targeted response to the problem.<br />
The level and type of analysis provided is commensurate with the size and complexity of the problem and the<br />
magnitude of the impacts and risk of the policy options.<br />
The nature and robustness of the cited evidence is commensurate with the size and complexity of the<br />
problem and the magnitude of the impacts and risks of the policy options.<br />
Consulted<br />
Clear and concise<br />
The conclusion relate logically and consistently to the analysis of the options.<br />
The RIS shows evidence of efficient and effective consultation with all relevant stakeholders, key affected<br />
parties, government agencies and relevant experts.<br />
The RIS show how any issues raised in consultation have been addressed or dealt with.<br />
Communicated in plain English, with minimal use of jargon and any technical terms explained.<br />
The material is structured in a way that is helpful to the reader.<br />
The material is concisely presented with minimal duplication, appropriate use of tables and diagrams and<br />
references to more detailed source material to help manage the length.<br />
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Output 1.2 MINISTerial services<br />
Description<br />
This output involves all activities associated with ministerial services, including responding to ministerial correspondence and<br />
parliamentary questions. It includes all tax, child support, student loan, KiwiSaver and family assistance ministerial correspondence<br />
and supply of information.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
2011–12<br />
Target Actual Variance<br />
Timeliness<br />
95% Minimum percentage of ministerial correspondence responded to within 10 days. 95% 96% 1.0%<br />
100% Percentage of parliamentary questions responded to within required timeframes. 100% 100% –<br />
Output Statement: Policy ADvice<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
2011–12<br />
Main<br />
estimates<br />
$000<br />
2011–12<br />
Final<br />
voted<br />
$000<br />
<strong>Revenue</strong><br />
14,655 Crown 15,934 15,434 15,934<br />
178 Other 215 167 167<br />
14,833 Total revenue 16,149 15,601 16,101<br />
Expenses<br />
14,617 Annual appropriations 15,842 15,601 16,101<br />
14,617 Total expenses 15,842 15,601 16,101<br />
216 Net surplus/(deficit) 307 – –<br />
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OUTPUT EXPENSE 2<br />
ServICES TO INFORM the public about ENTITlEMENTS and MEETING obligaTIONS<br />
Description<br />
This output expense provides services that help taxpayers and other customers to meet their payment obligations of their own<br />
accord and to receive payments they are entitled to. This is achieved through a range of proactive and reactive services to make<br />
people aware of their entitlements and obligations, and the services available to help them comply. This output expense also<br />
contributes to confidence in the tax administration system through managing individual customer complaints quickly, fairly and in<br />
confidence.<br />
Activities undertaken:<br />
""<br />
providing information to taxpayers on the application of the tax laws<br />
""<br />
responding to enquiries from taxpayers and social support programme customers<br />
""<br />
providing assistance to the public, businesses and tax agents<br />
""<br />
adjudication on behalf of the Commissioner on proposed taxpayer assessments<br />
""<br />
providing binding rulings and other statements, on the interpretation and application of the law administered by<br />
<strong>Inland</strong> <strong>Revenue</strong>.<br />
Performance context commentary<br />
The impacts we contribute to<br />
Providing customers with relevant information and advice, certainty in relation to the application of the law, and a choice in how<br />
they engage with us ensures that customers are aware of and understand their obligations and entitlements. This means more<br />
customers are able to self-manage and consequently:<br />
""<br />
More customers register and report accurate information when required<br />
""<br />
More customers claim their correct entitlements<br />
""<br />
More customers pay and file information on time.<br />
When customers comply with their obligations and receive their entitlements we make progress towards <strong>Inland</strong> <strong>Revenue</strong>’s<br />
outcomes:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes through people meeting payment obligations of their own accord<br />
""<br />
People receive payments they are entitled to, enabling them to participate in society.<br />
Factors influencing performance during 2011–12<br />
Our approach to managing telephone services in the first quarter influenced year-end performance. Priority resourcing in this area,<br />
combined with new telephone technology, enabled us to improve our customers service experience and answer 89% of attempted<br />
calls (target 70%). This approach had a negative effect on areas such as correspondence where we reduced resourcing.<br />
Our period of high demand is from May to August each year. Filing dates for individual returns (IR3) and issuing of Personal Tax<br />
Summaries are the main drivers for the increase in contacts during this period. We receive about 45% of our annual call volume<br />
during this period.<br />
A new virtual hold feature lets customers choose a time and date for us to ring them back. This has helped us manage high-demand<br />
days and had a positive impact on general service calls answered within four minutes. It has negatively affected our ability to answer<br />
priority calls within one minute because rescheduled calls get higher priority.<br />
The ongoing impact from the Canterbury earthquakes also affected our performance, mainly in managing correspondence. The<br />
disruption to our established work patterns because we had fewer staff last year, meant we started this year with higher than<br />
anticipated work on hand, and we were unable to catch up.<br />
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In 2011 we piloted an e-satisfaction survey to increase our understanding of what drives customer satisfaction with our online<br />
service channel. This year, 95% of customers were satisfied with our online services. We have set new performance targets for online<br />
satisfaction for <strong>2012</strong>–13.<br />
There were four full days and eight part days where no phone data was captured within the TelstraClear database. As a result there is<br />
a small portion of missing data which we have estimated, but this does not materially affect the reported results.<br />
See part two for more information about how we make it easier for our customers to comply.<br />
Financial performance for the year ended 30 June <strong>2012</strong> ($000)<br />
<strong>Revenue</strong> Expenses Net surplus/(deficit)<br />
258,335 255,204 3,131<br />
60 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Output 2.1 INFORMATION services<br />
Description<br />
This output involves responding to customer enquiries on tax and social support programmes (including child support and<br />
KiwiSaver) through electronic channels, correspondence, telephone, personal appointments, actively providing advice through a<br />
range of communication approaches delivered in the community and through the complaints management service.<br />
Activity forecasts<br />
2010–11<br />
Actual<br />
Activity forecast<br />
2011–12<br />
Forecast<br />
Actual<br />
5.47 million* We expect to receive the following number of customer service contacts,<br />
including:<br />
5.50–6.00 million 5.85 million<br />
523,559 The total number of child support contacts 0.45–0.50 million 0.44 million<br />
16.06 million We expect to receive the following total number of self-help contacts. 18.50–20.50 million 15.81 million<br />
* results are not directly comparable as 2010–11 methodology was based on ‘answered’ rather than ‘received’.<br />
Explanation for demand outside forecast range<br />
The total number of child support contacts received.<br />
This year, there were 7.2% fewer child support service contacts than forecast, primarily due to lower than expected contacts during<br />
the period of high demand. We are investigating the drivers behind this decrease.<br />
We expect to receive the following total number of self-help contacts.<br />
This year there were 2.3% fewer Look at Account Information enquiries than 2010–11. This was mainly because we introduced<br />
the Tax Agents Website Service, which enables tax agents to view their clients accounts within their own accounting systems. This<br />
change was not fully factored into our forecast and has driven the overall decrease in the number of self-help service contacts.<br />
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Performance measures<br />
2010–11<br />
Actual<br />
Measure<br />
2011–12<br />
Target Actual Variance<br />
Quality<br />
86.4%# Minimum percentage of customers who have contacted us and are satisfied<br />
85% 85.5%# 0.6%<br />
with the quality of the service we provide.<br />
74.7% Minimum percentage of all initial telephone enquiries fully resolved at the time. 75% 72.3% (3.6%)<br />
73% Percentage of customers confident that <strong>Inland</strong> <strong>Revenue</strong> takes appropriate<br />
action to ensure people received their social support entitlements increases*<br />
– 71% –<br />
Quantity<br />
n/a Minimum percentage of attempted calls that we answer. 70% 89.5% 27.9%<br />
Timeliness<br />
77.4% Minimum percentage of paper correspondence answered within three weeks<br />
of receipt.<br />
64.9% Minimum percentage of all electronic enquiries answered within one week of<br />
receipt.<br />
71.0% Minimum percentage of priority telephone calls responded to within one<br />
minute.<br />
76.5% Minimum percentage of general telephone calls responded to within four<br />
minutes.<br />
80% 69.5% (13.1%)<br />
80% 54.1% (32.4%)<br />
75% 69.2% (7.7%)<br />
75% 75.7% 0.9%<br />
Cost<br />
n/a Maximum average cost of a customer initiated contact. $34.00 $35.06 (3.1%)<br />
# measured using a sample of the customer population.<br />
* the perception measure has been moved into the Statement of Service Performance as perception measures are more a reflection on the quality of our service<br />
than our impact on customer compliance.<br />
Explanation for targets not achieved<br />
Minimum percentage of all initial telephone enquiries fully resolved at the time.<br />
<strong>Inland</strong> <strong>Revenue</strong>’s strategy to shift less complex contacts to self-help channels is increasing the breadth and complexity of the<br />
telephone enquiries we receive, making them more difficult to resolve at first contact.<br />
Minimum percentage of paper correspondence answered within three weeks of receipt, and<br />
Minimum percentage of all electronic enquiries answered within one week of receipt.<br />
Our performance was affected by increased work on hand at the beginning of the year due to reduced capacity in Christchurch last<br />
year and the decision to reprioritise resources to the voice channel in the first quarter.<br />
Minimum percentage of priority telephone calls responded to within one minute.<br />
We implemented enhanced customer call back technology that improved our customers service experience and enabled us to<br />
answer more calls. The impact of the new technology is that call backs are given precedence over priority queues making this target<br />
more difficult to achieve.<br />
Maximum average cost of a customer initiated contact.<br />
This is the first year in which we have set a target and we underestimated the cost of providing these services and the level<br />
of expected demand. During the year, we also amended the calculation of our cost measures to better reflect the full cost to<br />
<strong>Inland</strong> <strong>Revenue</strong> of providing these services.<br />
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Explanation for significant positive variance<br />
Minimum percentage of attempted calls that we answer.<br />
We were able to answer 89.5% of attempted calls by priority resourcing of the voice channel during our period of high demand and<br />
by implementing new technology that has improved our customers service experience.<br />
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Output 2.2 ADJUDICATION AND RulINGS<br />
Description<br />
This output involves:<br />
Adjudication<br />
""<br />
providing a technical review of existing taxation disputes referred to the Adjudication Unit<br />
""<br />
issuing an adjudication report (or other formal communication of conclusions) to the parties concerned<br />
""<br />
issuing, where required, an assessment consistent with the conclusions of the technical review.<br />
Taxpayer rulings<br />
""<br />
considering applications for and providing binding private and product rulings, and statutory determinations<br />
""<br />
preparing statutory determinations and valuations, eg, taxpayer-specific accruals.<br />
Public rulings<br />
""<br />
preparing and issuing binding public rulings<br />
""<br />
developing and publishing non-binding statements on the Commissioner’s view of the law administered by <strong>Inland</strong> <strong>Revenue</strong>,<br />
eg, interpretation statements and interpretation guidelines<br />
""<br />
considering applications for and providing taxpayer-specific depreciation determinations<br />
""<br />
preparing and publishing depreciation and other determinations, eg, livestock valuations<br />
""<br />
considering and responding to technical correspondence.<br />
Performance measures<br />
2010–11<br />
Actual<br />
Measure<br />
Quality<br />
100% Percentage of rulings reports, adjudication reports, public items and<br />
technical correspondence or advice that meets the applicable purpose, logic,<br />
alternatives, consultation and practicality standards.<br />
Quantity<br />
28 Number of published or finalised public items (including technical<br />
correspondence), that gives the Commissioner’s interpretation of the law.<br />
Timeliness<br />
94% Minimum percentage of adjudication cases completed within three months of<br />
receipt.<br />
100% Minimum percentage of taxpayer ruling applications that have a draft ruling<br />
completed within three months of receipt.<br />
100% Minimum percentage of non-qualifying taxpayer ruling applications that<br />
have a draft ruling completed within the timeframe agreed with the applicant<br />
(which will not be more than six months from the receipt of the application).<br />
n/a Minimum percentage of public items (including relevant public consultation),<br />
completed within 18 months of allocation.<br />
2011–12<br />
Target Actual Variance<br />
100% 100% –<br />
25–45 25 –<br />
90% 94.7% 5.2%<br />
90% 100% 11.1%<br />
90% 100% 11.1%<br />
90% 92.3% 2.6%<br />
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Explanation for significant positive variances<br />
Minimum percentage of taxpayer ruling applications that have a draft ruling completed within three months of receipt, and<br />
Minimum percentage of non-qualifying taxpayer ruling applications that have a draft ruling completed within the timeframe agreed<br />
with the applicant.<br />
This year, we maintained our timeliness performance because of the improved rulings process implemented in February 2010.<br />
We also completed significantly more draft taxpayer rulings than last year.<br />
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Quality criteria definitions<br />
Quality<br />
standard<br />
Purpose<br />
Logic<br />
Alternatives<br />
Consultation<br />
Practicality<br />
Description<br />
The subject matter and conclusions are clearly stated and guidance is provided in a manner useful to those<br />
affected by them.<br />
The assumptions used are explicit, and the argument is logical and supported by appropriate legal authority.<br />
Alternative legal arguments and interpretations are adequately considered and their respective merits<br />
assessed.<br />
There is evidence of appropriate consultation within and outside <strong>Inland</strong> <strong>Revenue</strong>, and contrary legal<br />
arguments and practical difficulties identified in such consultation have been considered, as appropriate.<br />
Compliance and administrative costs and problems for customers and <strong>Inland</strong> <strong>Revenue</strong> arising from<br />
implementation, including feasibility and timing have been considered, and incorporated in the analysis in so<br />
far as they are relevant to the interpretation and are possible under the legislation, and/or these issues and<br />
their implications have been discussed at the appropriate level with Policy Advice and Service Delivery.<br />
Output Statement: Services TO INFORM THe PUBlic ABOUT eNTITlemeNTS AND meeTING<br />
oblIGATIONS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
2011–12<br />
Main<br />
estimates<br />
$000<br />
2011–12<br />
Final<br />
voted<br />
$000<br />
<strong>Revenue</strong><br />
243,290 Crown 254,105 247,450 254,105<br />
3,629 Other 4,230 2,494 3,694<br />
246,919 Total revenue 258,335 249,944 257,799<br />
Expenses<br />
245,238 Annual appropriations 255,204 249,944 257,799<br />
245,238 Total expenses 255,204 249,944 257,799<br />
1,681 Net surplus/(deficit) 3,131 – –<br />
66 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
OUTPUT EXPENSE 3<br />
ServICES TO pROCESS obligaTIONS and ENTITlEMENTS<br />
Description<br />
This output expense provides services that contribute to the availability of revenue to fund government programmes, as well as<br />
ensuring that taxpayers and other customers receive payments they are entitled to, including tax refunds. This is achieved through<br />
services designed to achieve timely, efficient and effective assessment and processing of:<br />
""<br />
tax payments, tax credit claims and refunds for taxpayers<br />
""<br />
entitlements for social support programmes.<br />
Activities undertaken:<br />
""<br />
registering taxpayers<br />
""<br />
making tax assessments<br />
""<br />
banking tax payments and making refunds<br />
""<br />
processing applications and payments for social support programmes<br />
""<br />
supplying information to other government agencies<br />
""<br />
accounting and reporting the collection of Crown revenue<br />
""<br />
collecting ACC employee earners levy as a component of PAYE deductions.<br />
Performance context commentary<br />
The impacts we contribute to<br />
Accurate, timely, complete and efficient processing of notices, statement and social policy entitlements increases customers<br />
confidence in the tax system. When customers have confidence in the tax system they are more likely to be able to self-manage their<br />
compliance obligations. This means:<br />
""<br />
more customers register and report accurate information when required<br />
""<br />
more customers claim their correct entitlements<br />
""<br />
more customers pay and file information on time.<br />
When customers comply with their obligations and receive their entitlements we make progress towards <strong>Inland</strong> <strong>Revenue</strong>’s outcomes:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes through people meeting payment obligations of their own accord<br />
""<br />
People receive payments they are entitled to, enabling them to participate in society.<br />
Factors influencing performance during 2011–12<br />
The ongoing impact of the Canterbury earthquakes affected our performance again this year. The disruption to our established<br />
work patterns because we had fewer staff last year, meant we started this year with higher than anticipated work on hand, and we<br />
were unable to catch up. We moved some work to other sites in New Zealand and we had to train existing and new staff quickly to<br />
rebuild capability.<br />
During 2011–12, we issued 78.2% of income tax refunds within six weeks and 97.3% of GST refunds within four weeks of a return<br />
being lodged. We have set new performance targets for refund timeliness for <strong>2012</strong>–13.<br />
Following the Canterbury earthquakes and our subsequent assessment of building safety, our Upper Hutt site was closed in<br />
December to allow remedial strengthening work to be carried out. This unplanned closure caused disruption to our processing<br />
activities over this period.<br />
Financial performance for the year ended 30 June <strong>2012</strong> ($000)<br />
<strong>Revenue</strong> Expenses Net surplus/(deficit)<br />
116,318 114,077 2,241<br />
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Output 3.1 ReGISTRATIONS, APPlICATIONS AND ASSeSSMeNTS<br />
Description<br />
This output involves processing all registrations, applications and assessments for the tax and social policy programmes we administer.<br />
Activity forecasts<br />
2010–11<br />
Actual<br />
Activity forecast<br />
2011–12<br />
Forecast<br />
Actual<br />
773,253* Number of tax and social policy registrations (excluding child support) received. 730,000–810,000 647,154<br />
58,192* Number of child support applications received. 56,200–62,300 47,174<br />
* Results are not directly comparable as 2010–11 methodology was based on registrations processed rather than received.<br />
Explanation for forecasts outside range<br />
Number of tax and social policy registrations (excluding child support) received.<br />
Tax and social policy registrations were below forecast, mainly due to receiving lower than expected IRD number applications and<br />
KiwiSaver registrations.<br />
Number of child support applications received.<br />
Child support applications received were below forecast. This trend of reduced volumes can be seen across the range of<br />
child support activities, and is also consistent with the trend in other customer contacts. We are investigating the drivers behind this<br />
decrease.<br />
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Performance measures<br />
2010–11<br />
Actual<br />
Measure<br />
2011–12<br />
Target Actual Variance<br />
Quality<br />
99.7%# Minimum percentage of notices and statements produced without error. 98.5% 99.2%# 0.7%<br />
Timeliness<br />
84.1% Minimum percentage of social policy and tax registrations processed within<br />
five working days of receipt.<br />
86.3%* Minimum percentage of income tax assessments finalised within four weeks of<br />
receipt.<br />
97.5% Minimum percentage of GST and FBT assessments finalised within three weeks<br />
of receipt.<br />
83.6% Minimum percentage of child support assessments issued within two weeks of<br />
receipt of a properly made application.<br />
88% 83.7% (4.9%)<br />
85% 90.4% 6.4%<br />
95% 98.6% 3.8%<br />
70% 82.7% 18.1%<br />
# measured using a sample of the customer population.<br />
* results are not directly comparable as the 2010–11 methodology was based on the issuing of a Notice of Assessment rather than the system completion date for<br />
the return.<br />
Explanation for target not achieved<br />
Minimum percentage of social policy and tax registrations processed within five working days of receipt.<br />
Our performance was affected by reduced capacity in Christchurch last year which resulted in increased work on hand at the<br />
beginning of the year. The movement of work from Christchurch and the need to train staff in other locations further affected our<br />
performance.<br />
Explanation for significant positive variance<br />
Minimum percentage of child support assessments issued within two weeks of receipt of a properly made application.<br />
This result is similar to last year. It was achieved by focusing on issuing assessments early to inform customers of their liability, which<br />
helps to improve compliance. The target for <strong>2012</strong>–13 has been increased to better reflect our performance.<br />
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Output 3.2 ADMINISTRATIve Reviews<br />
Description<br />
This output involves providing an administrative process for reviewing child support assessments that is both inexpensive and<br />
readily accessible to custodians and paying parents.<br />
Activity forecasts<br />
2010–11<br />
Actual Activity forecast<br />
2011–12<br />
Forecast<br />
Actual<br />
4,595 Number of applications for administrative review of child support assessments received. 4,400–4,900 4,201<br />
Explanation for forecast outside range<br />
Number of applications for administrative review of child support assessments received.<br />
Demand was affected by an overall decrease in administrative reviews received. A noticeably larger decrease was experienced in<br />
Christchurch due to the disruptions caused by the Canterbury earthquakes.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
Timeliness<br />
76.5% Minimum percentage of child support administrative review decisions issued<br />
within seven weeks of receipt of the application.<br />
2011–12<br />
Target Actual Variance<br />
85% 82.9% (2.5%)<br />
Cost<br />
$630.22 Maximum average cost of child support administrative review. $600 $768.57 (28.1%)<br />
Explanation for targets not achieved<br />
Minimum percentage of child support administrative review decisions issued within seven weeks of receipt of the application.<br />
Our performance was affected by reduced capacity in Christchurch last year which resulted in increased work on hand at the<br />
beginning of the year. The movement of work from Christchurch and the need to train staff in other locations further affected our<br />
performance. Lower than expected performance in the last quarter contributed to the target not being achieved.<br />
Maximum average cost of child support administrative review.<br />
This measure has been affected by lower than expected demand driven in part by the Government’s child support review. The lower<br />
volume has driven up the average cost per item.<br />
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Output 3.3 PaymeNTS, reTURNS, COlleCTIONS AND DISBURSemeNTS<br />
Description<br />
This output involves:<br />
""<br />
issuing rebates and refunds<br />
""<br />
distributing KiwiSaver contributions to scheme providers<br />
""<br />
disbursing child support payments to custodians and the Crown<br />
""<br />
receiving and banking payments (including child support payments from paying parents)<br />
""<br />
accounting and reporting the collection of Crown revenue.<br />
Activity forecasts<br />
2010–11<br />
Actual<br />
Activity forecast<br />
2011–12<br />
Forecast<br />
Actual<br />
7.97 million* Number of returns we expect to receive. 7.45–8.25 million 6.89 million<br />
8.10 million* Number of payments received. 7.60–8.40 million 8.27 million<br />
47.3%* Percentage of returns filed electronically. 50% 53.2%<br />
62.4%* Minimum percentage of payments received electronically. 65% 66.1%<br />
* results are not directly comparable as 2010–11 results were based on processed rather than received.<br />
Explanation for forecast outside range<br />
Number of returns we expect to receive.<br />
Volumes of all return types were below forecast. Results for the previous year were based on returns processed. The change in<br />
methodology to returns received had a more significant impact on reported results than anticipated.<br />
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Performance measures<br />
2010–11<br />
Actual<br />
Measure<br />
2011–12<br />
Target Actual Variance<br />
Quality<br />
99.9% Minimum percentage of payments correctly processed to customers’ accounts. 99.5% 99.8% 0.3%<br />
Quantity<br />
75.6% Minimum percentage of New Zealand based child support assessments collected. 78% 75.0% (3.8%)<br />
n/a Minimum percentage of student loan repayments due from New Zealand based<br />
borrowers that is collected.<br />
95% 127.3% 34%<br />
Timeliness<br />
69.3% Minimum percentage of New Zealand based child support assessments received 70% 67.9% (3.0%)<br />
by the due date.<br />
97.1% Minimum percentage of New Zealand based student loan borrowers who pay on 85% 97.3% 14.5%<br />
time.<br />
91.9% Minimum percentage of tax credit claim payments made within three weeks of 85% 88.5% 4.1%<br />
receipt.<br />
96.3% Minimum percentage of paid parental leave payments issued to customers on the 97% 97.2% 0.2%<br />
first regular pay day following the agreed date of entitlement.<br />
96.5% Minimum percentage of Working for Families Tax Credit (WfFTC) payments<br />
95% 96.1% 1.2%<br />
made on the first regular pay period following the receipt of an application,<br />
excluding end-of-year payments.<br />
98.7% Minimum percentage of payments banked on the day of receipt. 99% 99.2% 0.2%<br />
n/a<br />
Cost<br />
Maximum average cost of processing income tax returns, GST returns and<br />
employer monthly schedules.<br />
$4.00 $4.39 (9.8%)<br />
Explanation for targets not achieved<br />
Minimum percentage of New Zealand based child support assessments collected.<br />
This year’s result is consistent with previous years. Performance was affected by the reallocation of resources to other priority<br />
activities. The target for <strong>2012</strong>–13 has been reduced to better reflect our performance.<br />
Minimum percentage of New Zealand based child support assessments received by the due date.<br />
Our performance was affected by the reallocation of resources to other priority activities during our period of high demand.<br />
Maximum average cost of processing income tax returns, GST returns and employer monthly schedules.<br />
This is the first year in which we have set a target and we underestimated the cost of providing these services. During the year, we<br />
also amended the calculation of this cost measures to include KiwiSaver costs and to better reflect the full cost to <strong>Inland</strong> <strong>Revenue</strong> of<br />
providing these services.<br />
Explanation for significant positive variance<br />
Minimum percentage of student loan repayments due from New Zealand based borrowers that is collected.<br />
This result reflects increased compliance by New Zealand based borrowers. It includes voluntary repayments made by borrowers<br />
who have paid more than required meaning the overall result can exceed 100%. The target for <strong>2012</strong>–13 has been increased to better<br />
reflect our performance.<br />
Minimum percentage of New Zealand based student loan borrowers who pay on time.<br />
This year’s result is consistent with previous years and the target for <strong>2012</strong>–13 has been increased to better reflect our performance.<br />
72 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Output Statement: Services TO PROCess OBlIGATIONS AND eNTITlemeNTS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
2011–12<br />
Main<br />
estimates<br />
$000<br />
2011–12<br />
Final<br />
voted<br />
$000<br />
<strong>Revenue</strong><br />
92,540 Crown 94,181 98,919 94,181<br />
21,905 Other 22,137 23,772 23,772<br />
114,445 Total revenue 116,318 122,691 117,953<br />
Expenses<br />
115,868 Annual appropriations 114,077 122,691 117,953<br />
115,868 Total expenses 114,077 122,691 117,953<br />
(1,423) Net surplus/(deficit) 2,241 – –<br />
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OUTPUT EXPENSE 4<br />
MANAGEMENT OF DEBT AND OUTSTANDING RETURNS<br />
Description<br />
This output expense provides services that contribute to the availability of revenue to fund government programmes. This is<br />
achieved by:<br />
""<br />
ensuring that taxpayers assess their liabilities when required and they and any other customers meet payment obligations (or<br />
understand the action they need to take to meet overdue obligations)<br />
""<br />
taking appropriate enforcement action where people choose not to comply.<br />
Activities undertaken:<br />
""<br />
taking follow-up action where returns are outstanding<br />
""<br />
taking follow-up action where payments are overdue.<br />
Performance context commentary<br />
The impacts we contribute to<br />
Using a tailored approach to our interventions, based on the PARE model*, that reflects customers’ individual circumstances and<br />
compliance behaviour should ensure that:<br />
""<br />
the behaviour of non-compliant customers improves<br />
""<br />
more customers will pay and file information on time.<br />
If more customers comply with their obligations and receive their entitlements, we make progress towards <strong>Inland</strong> <strong>Revenue</strong>’s outcomes:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes through people meeting payment obligations of their own accord.<br />
""<br />
People receive payments they are entitled to, enabling them to participate in society.<br />
Factors influencing performance during 2011–12<br />
Our decision to reallocate outstanding return staff to other priority activities, particularly during the period of high demand,<br />
affected our overall performance.<br />
Our approach to managing debt is aimed at preventing our customers from going into debt, intervening early where necessary and<br />
focusing our collection efforts on the cases that have the greatest prospect of cash collection.<br />
The use of tax pooling** increased significantly compared to last year. This year, we collected $4.2 billion of cash, of which $2.7 billion<br />
was from tax pooling (2010–11: $2.5 billion cash including $0.9 billion from tax pooling).<br />
We used Budget 2010 funding to run a campaign targeting 250,000 customers owing outstanding returns and debt. We sent them<br />
reminders before major payment due dates and quickly followed up those who did not pay on time. We also focused on risk returns<br />
and taxpayers defaulting on instalment arrangements or accruing further debt.<br />
We have had a decrease in the proportion of collectable debt and an increased level of older debt as a result of our focus on debt<br />
prevention and early intervention. 61% of total overdue debt is more than two years old. A substantial proportion of the increase in<br />
older debt is penalties and interest, which now makes up 46% of total overdue debt.<br />
See part three for more information about our focus on debt prevention.<br />
Financial performance for the year ended 30 June <strong>2012</strong> ($000)<br />
<strong>Revenue</strong> Expenses Net surplus/(deficit)<br />
110,943 109,661 1,282<br />
* Prevention, assistance, recovery or enforcement.<br />
** Tax pooling allows compliant customers to reduce their exposure to use-of-money interest on underpayments of provisional tax by purchasing funds from, or<br />
depositing money with a tax intermediary. This can create debt for up to 75 days before being paid.<br />
74 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Output 4.1 OUTSTANDING reTURNS<br />
Description<br />
This output involves all activities associated with collecting outstanding returns, including taking appropriate follow-up action<br />
against taxpayers who do not file a return.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
2011–12<br />
Target Actual Variance<br />
Quantity<br />
n/a Minimum percentage reduction in outstanding returns. 2% (11.7%) (685.0%)<br />
n/a Maximum percentage of outstanding returns over one year old. 57% 60.5% (6.1%)<br />
Timeliness<br />
66% Minimum percentage of outstanding returns finalised within six months<br />
following the due date.<br />
65% 63.4% (2.5%)<br />
Cost<br />
n/a Maximum average cost of finalising an outstanding return. $12.50 $7.96 36.3%<br />
Explanation for targets not achieved<br />
Minimum percentage reduction in outstanding returns.<br />
This target is aspirational and challenging to achieve. Our performance was affected by the reallocation of resources to other priority<br />
activities. However the growth in outstanding returns has slowed from the previous year. We have amended our target for <strong>2012</strong>–13.<br />
Maximum percentage of outstanding returns over one year old.<br />
The proportion of returns aged over one year old increased because of our ongoing focus on collecting newer returns, particularly<br />
employer monthly schedules. Our performance was also affected by the reallocation of resources to other priority activities.<br />
Minimum percentage of outstanding returns finalised within six months following the due date.<br />
A large number of income tax returns become overdue during the first quarter each year. This coincides with the period of high<br />
demand for our voice and correspondence channels and we reallocated resources to these activities.<br />
Explanation for significant positive variance<br />
Maximum average cost of finalising an outstanding return.<br />
This is the first year we have set a target and we overestimated the cost of providing this service. During the year, we also amended<br />
the calculation of our cost measures to better reflect the full cost to <strong>Inland</strong> <strong>Revenue</strong> of providing these services.<br />
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Output 4.2 OveRDUe debt<br />
Description<br />
This output covers all activities associated with collecting overdue debt (excluding child support debt). It involves taking<br />
appropriate follow-up action when customers do not meet their obligations, including providing them with assistance on how they<br />
can meet their tax obligations.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
2011–12<br />
Target Actual Variance<br />
Quantity<br />
n/a Minimum debt value cleared, expressed as a percentage of debt book (debt<br />
100% 126.0% 26.0%<br />
turnover).<br />
41.3% Maximum percentage of collectable debt value over two years old. 36% 51.0% (41.7%)<br />
Timeliness<br />
66.3% Minimum percentage of debt cases resolved within three months. 65% 62.3% (4.1%)<br />
85.3% Minimum percentage of debt cases resolved within the first 12 months. 85% 81.3% (4.4%)<br />
n/a Minimum percentage of debt value resolved for those customers who did not<br />
have a debt at the start of the year.<br />
65% 82.0% 26.2%<br />
Cost<br />
$52.55 Minimum cash collected for every debt dollar spent. $40.00 $61.28 53.2%<br />
Explanation for targets not achieved<br />
Maximum percentage of collectable debt value over two years old.<br />
The proportion of debt aged over two years old continues to increase as a consequence of our focus on reducing new debt. Penalties<br />
and interest have also contributed to the increase in debt over two years old.<br />
Minimum percentage of debt cases resolved within three months, and<br />
Minimum percentage of debt cases resolved within the first 12 months.<br />
These results have been influenced by fewer people paying in full, but more people entering arrangements to pay over time.<br />
Explanation for significant positive variances<br />
Minimum debt value cleared, expressed as a percentage of debt book (debt turnover), and<br />
Minimum percentage of debt value resolved for those customers who did not have a debt at the start of the year, and<br />
Minimum cash collected for each debt dollar spent.<br />
These results reflect the increased use of tax pooling by large enterprises.<br />
76 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Output 4.3 Child SUPPORT debt MANAGement<br />
Description<br />
This output involves all activities associated with the recovery of overdue child support payments. It includes taking appropriate<br />
enforcement action against non-compliers.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
Quantity<br />
84.7% Minimum percentage of the value of all child support assessments due over<br />
the last five years which is collected.<br />
2011–12<br />
Target Actual Variance<br />
84% 84.6% 0.7%<br />
n/a<br />
Timeliness<br />
Minimum percentage of paying parent child support debt cases resolved<br />
within 12 months of the due date of payment.<br />
70% 71.9% 2.7%<br />
Output Statement: MANAGement OF debt AND OUTSTANDING reTURNS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
2011–12<br />
Main<br />
estimates<br />
$000<br />
2011–12<br />
Final<br />
voted<br />
$000<br />
<strong>Revenue</strong><br />
95,786 Crown 107,178 106,610 107,178<br />
2,420 Other 3,765 4,155 4,155<br />
98,206 Total revenue 110,943 110,765 111,333<br />
Expenses<br />
99,776 Annual appropriations 109,661 110,765 111,333<br />
99,776 Total expenses 109,661 110,765 111,333<br />
(1,570) Net surplus/(deficit) 1,282 – –<br />
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OUTPUT EXPENSE 5<br />
TaxpayER audIT<br />
Description<br />
This output expense provides services to ensure that the revenue base for funding government programmes is protected. This is<br />
achieved by verifying, through audit activity, that taxpayers across all taxpayer groups are meeting their obligations, specifically<br />
targeting risk areas, and taking appropriate enforcement action when obligations are not being met.<br />
Activities undertaken:<br />
""<br />
identifying risks to revenue and designing audit activities accordingly<br />
""<br />
verifying that tax obligations have been met by auditing a selection of taxpayers<br />
""<br />
managing tax litigation.<br />
Performance context commentary<br />
The impacts we contribute to<br />
We use intelligence analysis to target our compliance activities to customers who are non-compliant or at risk of non-compliance.<br />
This creates an environment where customers believe we will detect non-compliance and are deterred from providing inaccurate<br />
information. It also protects the revenue base and provides certainty to customers in relation to the application of the law.<br />
We also use our compliance activities to educate customers who are unaware of their obligations and only use enforcement action<br />
to the extent necessary. This ensures that:<br />
""<br />
the behaviour of non-compliant customers improves<br />
""<br />
more customers will pay and file information on time.<br />
When customers comply with their obligations and receive their entitlements we make progress towards <strong>Inland</strong> <strong>Revenue</strong>’s<br />
outcomes:<br />
""<br />
<strong>Revenue</strong> is available to fund government programmes through people meeting payment obligations of their own accord<br />
""<br />
People receive payments they are entitled to, enabling them to participate in society.<br />
Factors influencing performance during 2011–12<br />
We have targeted investigations better as a result of strengthening our intelligence gathering and analysis capability. This year, we<br />
assessed over $1.2 billion in discrepancies which resulted in our return on investment being 9.6% higher than the target.<br />
<strong>Inland</strong> <strong>Revenue</strong> received additional funding in Budget 2010 to address the hidden economy (2011–12: $8.7 million) and property<br />
compliance (2011–12: $6.6 million). This year, we identified $48 million in discrepancies, 9.6% above the additional discrepancy<br />
target of $44 million in the hidden economy. Our approach to tackling the hidden economy includes campaigns to educate<br />
customers about their obligations, targeted audits of specific industries, and new tools to make it easier for customers to comply.<br />
In our property compliance initiative work, we identified $40 million in discrepancies against a target for the year of $45 million. For<br />
the two years to 30 June <strong>2012</strong> we have identified discrepancies of $89 million, 1.3% below the target of $90 million. We also have<br />
several cases before the courts.<br />
See part three for more information about our investigations work, and our hidden economy and property compliance<br />
programmes.<br />
Financial performance for the year ended 30 June <strong>2012</strong> ($000)<br />
<strong>Revenue</strong> Expenses Net surplus/(deficit)<br />
169,413 166,775 2,638<br />
78 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Output 5.1 TaxPAyer AUDIT<br />
Description<br />
This output involves:<br />
""<br />
Individual and small to medium enterprise audit—The audit of businesses with a turnover of up to $300 million (excluding<br />
groups in the large enterprise segment). It includes audits of duties, non-residents, investments and salary and wage earners.<br />
""<br />
Large enterprise audit—Auditing and providing services to large businesses with a group turnover of more than $300 million,<br />
plus other specific groups.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
Quality<br />
95.8% Minimum percentage of cases completed that are correct, complete, clear and<br />
appropriately referenced.<br />
n/a Minimum percentage of audited customers who are satisfied with their<br />
experience.<br />
n/a Minimum percentage of audits that result in a material discrepancy being<br />
identified.<br />
75% Percentage of customers confident that <strong>Inland</strong> <strong>Revenue</strong> takes appropriate<br />
action against those who don’t comply increases*<br />
2011–12<br />
Target Actual Variance<br />
90% 95.4% 6.0%<br />
65% 75.0%# 15.4%<br />
70% 71.3% 1.9%<br />
– 75% –<br />
Timeliness<br />
n/a Minimum percentage of audits completed within 12 months. 85% 85.3% 0.4%<br />
n/a Minimum percentage of disputed cases completed within 15 months. 75% 75.7% 0.9%<br />
92.6% Minimum percentage of open audit cases that are less than two years old. 85% 91.9% 8.1%<br />
Cost<br />
n/a Minimum audit activity assessed for every audit output dollar spent. $7.00 $7.67 9.6%<br />
# measured using a sample of audit cases.<br />
* The perception measure has been moved into the Statement of Service Performance as perception measures are more a reflection on the quality of our service<br />
than our impact on customer compliance. This perception measure also applies to our work under output class 4 – management of debt and outstanding<br />
returns.<br />
Explanation for significant positive variance<br />
Minimum percentage of audited customers who are satisfied with their experience.<br />
This is the first year that we have measured audit customer satisfaction with the results confirmed in June. Targets from 2013–14<br />
onwards will be set to better reflect our performance.<br />
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Output 5.2 lITIGATION MANAGement<br />
Description<br />
This output involves the management of litigation of disputed tax cases, including the requirement to state the case through to<br />
resolution by the courts.<br />
Performance measures<br />
2010–11<br />
Actual Measure<br />
2011–12<br />
Target Actual Variance<br />
Quality<br />
n/a During the year we will undertake work on a range of litigation cases to protect<br />
the integrity of the tax system through ensuring the correct tax is paid and by<br />
See litigation<br />
on page 26<br />
clarifying the law. We will report on the major cases that we are engaged in/<br />
have concluded and their results on a quarterly basis.<br />
75.5% Percentage of litigation judgements found in favour of the Commissioner. –* 68.6% –<br />
* A target will be set for this measure in future years.<br />
Output Statement: TAxPAyer AUDIT<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11<br />
Actual<br />
$000<br />
2011–12<br />
Actual<br />
$000<br />
2011–12<br />
Main<br />
estimates<br />
$000<br />
2011–12<br />
Final<br />
voted<br />
$000<br />
<strong>Revenue</strong><br />
164,440 Crown 167,021 177,921 167,021<br />
2,182 Other 2,392 1,864 1,864<br />
166,622 Total revenue 169,413 179,785 168,885<br />
Expenses<br />
164,495 Annual appropriations 166,775 179,785 168,885<br />
164,495 Total expenses 166,775 179,785 168,885<br />
2,127 Net surplus/(deficit) 2,638 – –<br />
80 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Part 7<br />
DepartmeNTAl FINANCIAl<br />
StatemeNTS<br />
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PART 7 <strong>Department</strong>al Financial Statements<br />
81
STATEMENT OF COMPREHENSIVE INCOME<br />
FOR THE YEAR ENDED 30 JUNE <strong>2012</strong><br />
2010–11 Notes 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Income<br />
610,711 <strong>Revenue</strong> Crown 638,419 646,334 638,419<br />
30,314 Other income 1 32,739 32,452 40,152<br />
641,025 Total income 671,158 678,786 678,571<br />
Expenditure<br />
403,665 Personnel 2 409,666 437,412 412,932<br />
159,191 Operating 3 174,400 157,160 176,942<br />
16,500 Depreciation 4 16,542 15,784 17,086<br />
43,096 Amortisation and impairment 5 44,337 47,233 44,172<br />
17,926 Capital charge 6 20,939 21,197 20,939<br />
640,378 Total Output Expenses 665,884 678,786 672,071<br />
3,226 Other expenses 7 6,152 – 6,500<br />
643,604 Total expenditure 672,036 678,786 678,571<br />
(2,579) Net surplus/(deficit) (878) – –<br />
– Other comprehensive income – – –<br />
(2,579) Total comprehensive income (878) – –<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
Refer to Note 25 for explanation of major variances.<br />
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STATEMENT OF CHANGES IN TaxpayERS’ FUNDS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 Note 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
241,292 Balance at start of year 261,737 264,963 261,737<br />
(2,579) Total comprehensive income (878) – –<br />
(647) Repayment of surplus to the Crown 8 (5,777) – –<br />
24,391 Capital contribution 4,869 2,321 4,869<br />
(720) Capital repayment – – –<br />
23,024 (908) 2,321 4,869<br />
261,737 Balance at end of year 259,951 267,284 266,606<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
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STATEMENT OF FINANCIal POSITION<br />
AS AT 30 JuNE <strong>2012</strong><br />
2010–11 Notes 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Taxpayers' funds<br />
261,737 Taxpayers' funds 259,951 267,284 266,606<br />
261,737 Total taxpayers' funds 259,951 267,284 266,606<br />
Represented by:<br />
Current assets<br />
14,666 Cash and cash equivalents 44,540 12,000 12,000<br />
147,069 Debtor Crown 156,886 131,203 156,886<br />
17,988 Debtors and prepayments 9 15,773 12,505 17,172<br />
1,119 Inventories held for distribution 10 1,233 1,200 1,300<br />
180,842 Total current assets 218,432 156,908 187,358<br />
Non-current assets<br />
305 Prepayments 9 1,274 374 230<br />
58,562 Property, plant and equipment 4 54,551 66,321 59,061<br />
134,577 Intangible assets 5 124,288 153,831 140,964<br />
193,444 Total non-current assets 180,113 220,526 200,255<br />
374,286 Total assets 398,545 377,434 387,613<br />
Current liabilities<br />
27,412 Creditors and other payables 11 36,061 23,200 33,049<br />
647 Surplus payable to the Crown 8 5,777 – –<br />
41,537 Employee entitlements 12 50,513 45,944 47,105<br />
2,605 Provision for other liabilities 13 1,105 – 1,780<br />
– Derivative financial instruments 14 503 – –<br />
– Finance leases 15 1,867 – –<br />
181 Other financial liabilities 16 113 168 150<br />
72,382 Total current liabilities 95,939 69,312 82,084<br />
Non-current liabilities<br />
35,756 Employee entitlements 12 38,881 37,396 34,853<br />
3,018 Provision for other liabilities 13 2,577 2,257 2,827<br />
– Finance leases 15 487 – –<br />
1,393 Other financial liabilities 16 710 1,185 1,243<br />
40,167 Total non-current liabilities 42,655 40,838 38,923<br />
112,549 Total liabilities 138,594 110,150 121,007<br />
261,737 Net assets 259,951 267,284 266,606<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
Refer to Note 25 for explanation of major variances.<br />
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STATEMENT OF CASH FLOWS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 Note 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Cash flows − operating activities<br />
610,648 Receipts from Crown 628,602 667,141 628,602<br />
6,627 Receipts from government departments 9,221 6,968 16,269<br />
23,284 Receipts from third parties 24,658 24,974 24,903<br />
(403,035) Payments to employees (397,563) (431,248) (408,266)<br />
(162,412) Payments to suppliers (165,688) (156,956) (173,057)<br />
(17,926) Payments for capital charge (20,939) (21,197) (20,939)<br />
877 Goods and Services tax (net) 867 4,500 428<br />
58,063 Net cash flow from operating activities 17 79,158 94,182 67,940<br />
Cash flows − investing activities<br />
2 Receipts from sale of property, plant and equipment 67 – –<br />
(18,329) Purchase of property, plant and equipment (19,513) (22,000) (24,085)<br />
(19,249) Purchase of intangible assets (34,060) (62,503) (50,743)<br />
(37,576) Net cash flow from investing activities (53,506) (84,503) (74,828)<br />
Cash flows − financing activities<br />
24,391 Capital contribution 4,869 2,321 4,869<br />
(44,125) Repayment of surplus (647) (12,000) (647)<br />
(720) Capital repayment – – –<br />
(20,454) Net cash flow from financing activities 4,222 (9,679) 4,222<br />
33 Net increase/(decrease) in cash and cash equivalents 29,874 – (2,666)<br />
14,633 Opening cash and cash equivalents 14,666 12,000 14,666<br />
14,666 Closing cash and cash equivalents 44,540 12,000 12,000<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
The Goods and Services tax (net) component of operating activities reflects the net GST paid to and received from <strong>Inland</strong> <strong>Revenue</strong>. The GST components have<br />
been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.<br />
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STATEMENT OF COMMITMENTS<br />
AS AT 30 JuNE <strong>2012</strong><br />
2010–11 Note 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Capital commitments<br />
3,331 Property, plant and equipment 7,339<br />
894 Intangible assets 338<br />
4,225 Total capital commitments 7,677<br />
Operating commitments<br />
Non-cancellable accommodation leases<br />
32,550 Not later than one year 28,523<br />
87,834 Later than one year and not later than five years 79,249<br />
99,260 Later than five years 78,030<br />
219,644 Total non-cancellable accommodation leases 185,802<br />
249,217 Total commitments 18 193,479<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
STATEMENT OF CONTINGENT LIABILITIES<br />
AND CONTINGENT ASSETS<br />
AS AT 30 JuNE <strong>2012</strong><br />
2010–11 Note 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Contingent liabilities<br />
378 Legal proceedings and disputes - taxpayer 230<br />
120 Legal proceedings and disputes - departmental 3,958<br />
20 Personal grievances –<br />
518 Total contingent liabilities 19 4,188<br />
Contingent assets<br />
4,000 Insurance claims 20,000<br />
4,000 Total contingent assets 19 20,000<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
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STATEMENT OF DEpaRTMENTAL EXPENSES AND<br />
CAPITAL EXPENDITURE AGAINST appROPRIATIONS<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Expenditure Expenditure 1 Main<br />
estimates<br />
Final<br />
voted 2<br />
$000 $000 $000 $000<br />
Vote: <strong>Revenue</strong><br />
Output expenses<br />
14,617 Policy advice 1 15,842 15,601 16,101<br />
255,204 249,944 257,799<br />
245,238 Services to inform the public about entitlements and<br />
meeting obligations 1<br />
115,868 Services to process obligations and entitlements 1 114,077 122,691 117,953<br />
99,776 Management of debt and outstanding returns 1 109,661 110,765 111,333<br />
164,495 Taxpayer audit 1 166,775 179,785 168,885<br />
639,994 Total output expenses 1 661,559 678,786 672,071<br />
3,226 Recovery from Canterbury earthquake 6,152 – 6,500<br />
643,220 Total expenditure 667,711 678,786 678,571<br />
<strong>Department</strong>al capital expenditure<br />
18,329 Property, plant and equipment 19,513 22,000 24,085<br />
19,249 Intangible assets 34,060 57,500 73,915<br />
37,578 Total departmental capital expenditure 53,573 79,500 98,000<br />
1<br />
Excludes remeasurement of $4,325,000 (2010-11, $384,000).<br />
2<br />
Includes adjustments made in the Supplementary Estimates and transfers under the Public Finance Act 1989.<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
Refer to Note 25 for explanation of major variances.<br />
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Transfers under section 26(a) public finance act 1989<br />
Vote: <strong>Revenue</strong><br />
Appropriations for output expenses<br />
Supp Section 26(a)<br />
Final<br />
estimates Transfers<br />
voted<br />
$000 $000 $000<br />
Policy advice 16,101 – 16,101<br />
Services to inform the public about entitlements and meeting obligations 251,799 6,000 257,799<br />
Services to process obligations and entitlements 121,953 (4,000) 117,953<br />
Management of debt and outstanding returns 111,333 – 111,333<br />
Taxpayer audit 170,885 (2,000) 168,885<br />
Total appropriations for output expenses 672,071 – 672,071<br />
Appropriation for other expenses<br />
Recovery from Canterbury earthquake 6,500 – 6,500<br />
Total expenditure 678,571 – 678,571<br />
<strong>Department</strong>al capital expenditure<br />
Property, plant and equipment 24,085 – 24,085<br />
Intangible assets 73,915 – 73,915<br />
Total departmental capital expenditure 98,000 – 98,000<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
STATEMENT OF UNAPPROPRIATED EXPENSES<br />
AND CAPITAL EXPENDITURE<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
In the 2011–12 financial year there were no instances of:<br />
""<br />
expenses and capital expenditure incurred in excess of appropriation (2010–11, $nil).<br />
""<br />
expenses and capital expenditure incurred without appropriation or other authority, or outside scope of appropriation<br />
(2010–11, $nil).<br />
In the 2011–12 financial year there were no breaches of projected departmental net asset schedules (2010–11, $nil).<br />
The accompanying accounting policies and notes form part of these financial statements.<br />
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STATEMENT OF ACCOUNTING POLICIES<br />
<strong>REPORT</strong>ING ENTITY<br />
<strong>Inland</strong> <strong>Revenue</strong> is a government department as defined by<br />
section 2 of the Public Finance Act 1989 and is domiciled in<br />
New Zealand. In addition, <strong>Inland</strong> <strong>Revenue</strong> has reported on<br />
Crown activities and trust monies which it administers. It is a<br />
wholly owned entity of the Crown whose primary objective<br />
is to provide services to the public rather than making a<br />
financial return. Accordingly, <strong>Inland</strong> <strong>Revenue</strong> has designated<br />
itself as a public benefit entity for the purpose of New Zealand<br />
equivalents to International Financial Reporting Standards<br />
(NZ IFRS).<br />
<strong>REPORT</strong>ING PERIOD<br />
The reporting period for these financial statements is for<br />
the year ended 30 June <strong>2012</strong>. The financial statements were<br />
authorised for issue by the Chief Executive of <strong>Inland</strong> <strong>Revenue</strong><br />
on 28 September <strong>2012</strong>.<br />
STATEMENT OF COMPLIANCE<br />
The financial statements have been prepared in accordance<br />
with the requirements of the Public Finance Act 1989, which<br />
includes the requirement to comply with New Zealand<br />
generally accepted accounting practice (NZ GAAP), and<br />
Treasury Instructions. These financial statements have been<br />
prepared in accordance with NZ GAAP. They comply with<br />
NZ IFRS, and other applicable financial reporting standards, as<br />
appropriate for public benefit entities.<br />
BASIS OF PREPARATION<br />
The accounting policies set out below have been applied<br />
consistently to all periods presented in these financial<br />
statements.<br />
These financial statements have been prepared on a historical<br />
cost basis, unless otherwise stated.<br />
The accrual basis of accounting has been used, unless<br />
otherwise stated.<br />
These financial statements are presented in New Zealand<br />
dollars, and all values are rounded to the nearest thousand<br />
dollars ($000). The functional currency of <strong>Inland</strong> <strong>Revenue</strong> is<br />
New Zealand dollars.<br />
JUDGEMENTS AND ESTIMATIONS<br />
In preparing these financial statements, estimates and<br />
assumptions have been made concerning the future. These<br />
estimates and assumptions may differ from the subsequent<br />
actual results. Estimates and assumptions are continually<br />
evaluated and are based on experience and other factors,<br />
including expectations of future events that are believed to be<br />
reasonable under the circumstances.<br />
Revisions to accounting estimates are recognised in the period<br />
the estimate is revised in if the revision affects only that period,<br />
or in the period of the revision and future periods if the<br />
revision affects both current and future periods.<br />
The estimates and assumptions that have a significant risk<br />
of causing a material adjustment to the carrying amount of<br />
assets and liabilities within the next financial year are related to<br />
retiring and long-service leave.<br />
An analysis is provided in Note 12 of the exposure in relation<br />
to estimates and uncertainties surrounding retiring and longservice<br />
leave liabilities.<br />
Finance leases<br />
Determining whether a lease agreement is a finance lease<br />
or an operating lease requires judgement as to whether the<br />
agreement transfers substantially all the risks and rewards<br />
of ownership to <strong>Inland</strong> <strong>Revenue</strong>. Judgement is required on<br />
various aspects that include, but are not limited to, the fair<br />
value of the leased asset, the economic life of the leased asset,<br />
whether or not to include renewal options in the lease term,<br />
and determining an appropriate discount rate to calculate the<br />
present value of the minimum lease payments. Classification as<br />
a finance lease means the asset is recognised in the statement<br />
of financial position as property, plant and equipment, whereas<br />
with an operating lease no such asset is recognised.<br />
<strong>Inland</strong> <strong>Revenue</strong> has exercised its judgement on the appropriate<br />
classification of equipment leases, and has determined that one<br />
of these arrangements included a finance lease.<br />
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STANDARDS AND INTERPRETATIONS ISSUED<br />
AND NOT YET adOPTED<br />
The External Reporting Board (XRB) was given the<br />
responsibility for issuing accounting standards on 1 July 2011.<br />
Prior to that date the Accounting Standards Review Board<br />
(ASRB) issued standards. The XRB is a legal continuation of the<br />
ASRB. All accounting standards on issue on 30 June 2011 have<br />
been carried across to the XRB.<br />
Standards and interpretations issued but not yet effective<br />
that have not been early adopted, and which are relevant to<br />
<strong>Inland</strong> <strong>Revenue</strong>, are discussed below.<br />
NZ IFRS 9 Financial Instruments will eventually replace NZ<br />
IAS 39 Financial Instruments: Recognition and Measurement.<br />
This new standard was approved by the Accounting Standards<br />
Review Board in November 2010. NZ IAS 39 is being replaced<br />
through the following three main phases: Phase 1 Classification<br />
and Measurement, Phase 2 Impairment Methodology and<br />
Phase 3 Hedge Accounting. Phase 1 has been completed and<br />
has been published in the new financial instrument standard<br />
NZ IFRS 9. The new standard uses a single approach to<br />
determine whether a financial asset is measured at amortised<br />
cost or fair value, replacing the many different rules in NZ<br />
IAS 39. The approach in NZ IFRS 9 is based on how an entity<br />
manages its financial assets (its business model) and the<br />
contractual cash flow characteristics of the financial assets.<br />
The financial liability requirements are the same as those of<br />
NZ IAS 39, except for when an entity elects to designate a<br />
financial liability at fair value through the surplus or deficit.<br />
The new standard is required to be adopted for the year<br />
ended 30 June 2016. However, as a new Accounting Standards<br />
Framework (“Framework”) will apply before this date, there is<br />
no certainty when an equivalent standard to NZ IFRS 9 will be<br />
applied by public benefit entities.<br />
The effects of the above standard on <strong>Inland</strong> <strong>Revenue</strong>’s<br />
departmental financial statements have not yet been assessed.<br />
The Minister of Commerce has approved a new Framework<br />
(incorporating a Tier Strategy) developed by the External<br />
Reporting Board. Under this Framework, <strong>Inland</strong> <strong>Revenue</strong> is<br />
classified as a Tier 1 reporting entity and it will be required to<br />
apply full Public Benefit Entity Accounting Standards. These<br />
standards are being developed by the External Reporting<br />
Board based on current International Public Sector Accounting<br />
Standards. The effective date for the new standards for<br />
public sector entities is expected to be for reporting periods<br />
beginning on or after 1 July 2014. This means <strong>Inland</strong> <strong>Revenue</strong><br />
expects to transition to the new standards in preparing its<br />
30 June 2015 financial statements. As the Public Benefit<br />
Entity Accounting Standards are still under development,<br />
<strong>Inland</strong> <strong>Revenue</strong> is unable to assess the implications of the new<br />
Framework at this time.<br />
Due to the change in the Framework for public benefit entities,<br />
it is expected that all new NZ IFRS and amendments to existing<br />
NZ IFRS will not be applicable to public benefit entities.<br />
Therefore, the External Reporting Board has effectively frozen<br />
the financial reporting requirements for public benefit entities<br />
up until the new Framework is effective.<br />
ACCOUNTING POLICIES<br />
The following accounting policies, which materially affect the<br />
measurement of financial results and financial position, have<br />
been applied.<br />
Budget figures<br />
The budget figures are those included in the Information<br />
Supporting the Estimates of Appropriations (Main Estimates) for<br />
the year ending 30 June <strong>2012</strong> and the Information Supporting<br />
the Supplementary Estimates of Appropriations (Supplementary<br />
Estimates) for the year ending 30 June <strong>2012</strong>. The Main Estimates<br />
are 2011 Budget Economic and Fiscal Update (BEFU 2011)<br />
out-year 1 figures. The Supplementary Estimates are SUPS <strong>2012</strong><br />
out-year 0 figures. The budget figures have been prepared in<br />
accordance with NZ GAAP, using accounting policies that are<br />
consistent with those adopted in preparing these financial<br />
statements.<br />
GST (goods and services tax)<br />
All items in the financial statements, including appropriation<br />
statements, are stated exclusive of GST, except for “debtor<br />
Crown”, “net debtors” and “accounts payable”, which are stated<br />
on a GST-inclusive basis. Where GST is not recoverable as input<br />
tax, it is recognised as part of the related asset or expense.<br />
The net amount of GST owing to or from <strong>Inland</strong> <strong>Revenue</strong><br />
at balance date, being the difference between output GST<br />
and input GST, is included in “creditors and other payables”<br />
or “debtors and prepayments” in the Statement of Financial<br />
Position.<br />
The net GST paid to or received from <strong>Inland</strong> <strong>Revenue</strong>, including<br />
the GST relating to investing and financing activities, is classified<br />
as an operating cash flow in the Statement of Cash Flows.<br />
Commitments and contingencies are disclosed exclusive of GST.<br />
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Income tax<br />
Government departments are exempt from income tax as<br />
public authorities, so accordingly, no charge for income tax has<br />
been provided for.<br />
<strong>Revenue</strong><br />
<strong>Revenue</strong> is measured at the fair value of consideration received<br />
or receivable. <strong>Revenue</strong> is recognised as follows:<br />
<strong>Revenue</strong> Crown<br />
<strong>Revenue</strong> earned from the supply of outputs to the Crown is<br />
recognised as revenue when earned.<br />
Sale of services<br />
Sale of services are recognised in the accounting period the<br />
services are provided in, by reference to completion of specific<br />
transactions, assessed on the basis of actual services provided<br />
as a proportion of the total services to be provided.<br />
<strong>Revenue</strong> from recoveries<br />
<strong>Revenue</strong> from recoveries is recognised as revenue when earned.<br />
Sub-leases<br />
Income from sub-leased property is recognised in the<br />
Statement of Comprehensive Income on a straight-line basis<br />
over the term of the lease.<br />
Insurance proceeds<br />
Insurance claim proceeds are recognised as revenue when<br />
the claim has been accepted by the insurer or when receipt<br />
of the insurance proceeds is considered virtually certain. The<br />
insurance proceeds will be disclosed as a contingent asset if the<br />
receipt is only probable.<br />
Cost allocations<br />
<strong>Inland</strong> <strong>Revenue</strong> uses an integrated cost allocation process to<br />
derive the cost of its outputs. This process involves the initial<br />
costing of business processes followed by the full costing of<br />
outputs.<br />
Business processes represent <strong>Inland</strong> <strong>Revenue</strong>’s key functional<br />
activities. These business processes are used to capture direct<br />
costs.<br />
Direct personnel costs are charged to business processes, based<br />
on actual hours and standard activity rates. Other related<br />
direct costs, including depreciation, are allocated to business<br />
processes, based on planned hours or relevant activity drivers.<br />
Other indirect costs and corporate overheads that cannot be<br />
attributed directly to a business process are apportioned to<br />
outputs, based on planned business process activity allocation<br />
to outputs.<br />
There have been no material changes in cost accounting<br />
policies since the date of the last audited financial statements.<br />
Capital charge<br />
The capital charge is recognised as an expense in the period to<br />
which the charge relates.<br />
Leases<br />
A lease is classified as a finance lease if it transfers substantially<br />
all the risks and rewards of ownership of an asset, whether<br />
or not title is eventually transferred. A lease is classified as an<br />
operating lease if it does not transfer substantially all the risks<br />
and rewards incidental to the ownership of an asset.<br />
Operating leases<br />
Rentals payable under operating leases are recognised as an<br />
expense on a straight-line basis over the term of the relevant<br />
lease. Lease incentives received as incentive to enter into an<br />
operating lease are also recognised evenly over the term of the<br />
lease as a reduction in the rental expense.<br />
Contractual arrangements considered to be operating leases<br />
have been recognised during the reporting period.<br />
Finance leases<br />
At the commencement of the lease term, finance leases are<br />
recognised as assets and liabilities in the statement of financial<br />
position at the lower of the fair value of the leased item or the<br />
present value of the minimum lease payments.<br />
The finance charge is charged to the surplus or deficit over<br />
the lease period so as to produce a constant periodic rate of<br />
interest on the remaining balance of the liability.<br />
The amount recognised as an asset is depreciated over its<br />
useful life. If there is no certainty as to whether <strong>Inland</strong> <strong>Revenue</strong><br />
will obtain ownership at the end of the lease term, the asset<br />
is fully depreciated over the shorter of the lease term and its<br />
useful life.<br />
Contractual arrangements considered to be finance leases have<br />
been recognised during the reporting period.<br />
Premises lease costs are charged to business processes based on<br />
headcount or relevant activities.<br />
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Financial instruments<br />
Financial assets<br />
<strong>Inland</strong> <strong>Revenue</strong> classifies its financial assets into two categories:<br />
financial assets at fair value through surplus or deficit, and<br />
debtors and receivables. The classification depends on the<br />
purpose for which the assets were acquired.<br />
a) Financial assets at fair value through surplus or deficit<br />
Financial assets designated at fair value through surplus<br />
or deficit are recorded at fair value with any realised and<br />
unrealised gains or losses recognised in the Statement of<br />
Comprehensive Income. Gains or losses from foreign exchange<br />
and other fair value movements are separately reported in<br />
the Statement of Comprehensive Income. Transaction costs are<br />
expensed as they are incurred. Derivatives (eg, foreign currency<br />
forward exchange contracts) are classified under this category.<br />
Derivative financial instruments are recognised both initially on<br />
the date a derivative contract is entered into and subsequently<br />
at fair value at each balance date. They are reported as either<br />
assets or liabilities, depending on whether the derivative is in a<br />
net gain or net loss position, respectively. The fair value gains<br />
or losses on derivatives are recognised in the Statement of<br />
Comprehensive Income.<br />
b) debtors and receivables<br />
Debtors and receivables are non-derivative financial assets<br />
with fixed or determinable payments that are not quoted in<br />
an active market. They are recognised initially at fair value plus<br />
transaction costs and subsequently measured at amortised<br />
cost using the effective interest rate method. Debtors and<br />
receivables issued with durations of less than 12 months<br />
are recognised at their nominal value, unless the effect of<br />
discounting is material.<br />
Impairment of financial assets<br />
Allowances for estimated irrecoverable amounts are recognised<br />
when there is objective evidence that <strong>Inland</strong> <strong>Revenue</strong> will not<br />
be able to collect all amounts due according to the original<br />
terms of the receivable. Significant financial difficulties of the<br />
debtor, probability that the debtor will enter into bankruptcy,<br />
and default in payments are considered indicators that the<br />
debtor is impaired.<br />
The amount of the provision is the difference between the<br />
asset’s carrying amount and the estimated impaired value. The<br />
carrying amount of the asset is reduced through the use of an<br />
allowance account, and the amount of the impairment loss is<br />
recognised in the Statement of Comprehensive Income.<br />
Financial liabilities<br />
<strong>Inland</strong> <strong>Revenue</strong> classifies its financial liabilities into two<br />
categories: financial liabilities at fair value through surplus or<br />
deficit, and financial liabilities measured at amortised cost. The<br />
classification depends on the purpose for which the liabilities<br />
were incurred.<br />
a) Financial liabilities at fair value through surplus or deficit<br />
Financial liabilities designated at fair value through surplus<br />
or deficit are recorded at fair value with any realised and<br />
unrealised gains or losses recognised in the Statement of<br />
Comprehensive Income. Gains or losses from foreign exchange<br />
and other fair value movements are reported separately in<br />
the Statement of Comprehensive Income. Transaction costs are<br />
expensed as they are incurred. Derivatives (eg, foreign currency<br />
forward exchange contracts) are classified under this category.<br />
b) Financial liabilities measured at amortised cost<br />
Financial liabilities measured at amortised cost are recognised<br />
initially at fair value less transaction costs and subsequently<br />
measured at amortised cost using the effective interest rate<br />
method. Financial liabilities entered into with durations of<br />
less than 12 months are recognised at their nominal value,<br />
unless the effect of discounting is material. Creditors and other<br />
payables are recognised at their nominal value as the effect of<br />
discounting is immaterial.<br />
Cash and cash equivalents<br />
Cash and cash equivalents include all cash held in the bank<br />
accounts. All cash held in bank accounts is held in “on demand”<br />
accounts and no interest is payable to <strong>Inland</strong> <strong>Revenue</strong>.<br />
Inventories held for distribution<br />
Inventories held for distribution comprise forms, booklets and<br />
returns held for distribution to the public at no or nominal<br />
consideration in the ordinary course of operations.<br />
Inventories held for distribution for public benefit purposes<br />
are carried at cost, calculated using the first-in, first-out<br />
(FIFO) cost method, adjusted where applicable for any loss<br />
of service potential. The cost of inventories includes all costs<br />
of purchase, costs of conversion and other costs incurred<br />
in bringing the inventories to their present location and<br />
condition. Where inventories are acquired at no cost, or for<br />
nominal consideration, the cost is deemed to be the current<br />
replacement cost at the date of acquisition.<br />
The carrying amount is recognised as an expense in the period<br />
in which the goods are distributed. The amount of any writedown<br />
of inventories and all losses of inventories is recognised<br />
as an expense in the period the write-down or loss occurs.<br />
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The amount of any reversal of any write-down of inventories<br />
is recognised as a reduction in the amount of inventories<br />
recognised as an expense in the period the reversal occurs in.<br />
Hedge accounting, hedging activities and foreign<br />
currency transactions<br />
<strong>Inland</strong> <strong>Revenue</strong>’s activities expose it primarily to risks of changes<br />
in foreign exchange rates. <strong>Inland</strong> <strong>Revenue</strong> uses derivative<br />
financial instruments (primarily, foreign currency forward<br />
exchange contracts) to mitigate its risks associated with foreign<br />
currency fluctuations relating to certain commitments. The use<br />
of financial derivatives is governed by <strong>Inland</strong> <strong>Revenue</strong>’s foreign<br />
exchange policy, which provides written principles on the use<br />
of financial derivatives consistent with <strong>Inland</strong> <strong>Revenue</strong>’s risk<br />
management strategy.<br />
<strong>Inland</strong> <strong>Revenue</strong> does not hold or issue derivative financial<br />
instruments for trading purposes. It also has not adopted hedge<br />
accounting.<br />
Foreign currency transactions (including those for which<br />
forward exchange contracts are held) are translated into<br />
New Zealand dollars using the exchange rates prevailing at<br />
the dates of the transactions. Foreign exchange gains and<br />
losses resulting from the settlement of such transactions are<br />
recognised in the Statement of Comprehensive Income.<br />
Property, plant and equipment<br />
<strong>Inland</strong> <strong>Revenue</strong> has operational assets that include IT<br />
equipment, furniture and office equipment, motor vehicles, and<br />
leasehold improvements. The capitalisation thresholds are:<br />
• IT equipment – desktop computers all<br />
and laptops<br />
• IT equipment – other $2,000 and over<br />
(or $20,000 for<br />
bulk purchased IT<br />
equipment)<br />
• Furniture and office equipment $2,000 and over<br />
(or $20,000 for bulk<br />
purchased furniture)<br />
• Motor vehicles $2,000 and over<br />
• Leasehold improvements $20,000 and over<br />
Property, plant and equipment are shown at historical cost, less<br />
accumulated depreciation and impairment losses. Historical<br />
cost is the value of consideration given to acquire or create the<br />
asset and any directly attributable costs of bringing the asset to<br />
working condition for its intended use.<br />
Additions<br />
The cost of an item of property, plant and equipment is<br />
recognised as an asset if it is probable that future economic<br />
benefits or service potential associated with the item will flow<br />
to <strong>Inland</strong> <strong>Revenue</strong> and the cost of the item can be measured<br />
reliably. In most instances, an item of property, plant and<br />
equipment is recognised at its cost. Where an asset is acquired<br />
at no cost, or for a nominal cost, it is recognised at fair value as<br />
at the date of acquisition.<br />
Subsequent costs<br />
Subsequent costs are included in the asset’s carrying amount<br />
or recognised as a separate asset, as appropriate, only when it<br />
is probable that future economic benefits or service potential<br />
associated with the item will flow to <strong>Inland</strong> <strong>Revenue</strong> and<br />
the cost of the item can be measured reliably. All repairs and<br />
maintenance are charged to the Statement of Comprehensive<br />
Income during the financial period in which they are incurred.<br />
Depreciation<br />
Depreciation is provided on a straight-line basis on all property,<br />
plant and equipment, other than assets under construction.<br />
The rate of depreciation will write-off the cost of the asset to<br />
the estimated residual value over the useful life of the asset.<br />
The useful life of major classes of assets have been estimated as<br />
follows:<br />
""<br />
IT equipment 3 to 6 years<br />
""<br />
Furniture and office equipment 5 to 7 years<br />
""<br />
Motor vehicles 5 to 7 years<br />
""<br />
Leasehold improvements up to 10 years<br />
All fixed assets other than motor vehicles are assumed to have<br />
no residual value. Motor vehicles are assumed to have a 20%<br />
residual value.<br />
The cost of leasehold improvements is capitalised and<br />
depreciated over the unexpired period of the lease, or<br />
the estimated remaining useful life of the improvements,<br />
whichever is shorter, up to a maximum of 10 years.<br />
Assets under construction are not depreciated. The total cost<br />
of a capital project is transferred to the appropriate asset class<br />
on its completion and then depreciated.<br />
The assets’ residual values and useful lives are reviewed, and<br />
adjusted if appropriate, at each balance sheet date.<br />
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Impairment<br />
Property, plant and equipment that has a finite useful life<br />
is reviewed for impairment whenever events or changes in<br />
circumstances indicate that the carrying amount may not<br />
be recoverable. If any indication of impairment exists, the<br />
recoverable amount is estimated to determine the extent of<br />
the impairment loss, if any.<br />
If an assets’ recoverable amount is less than its carrying<br />
amount, the asset is impaired and it will be reported at its<br />
recoverable amount. The impairment loss is recognised in the<br />
Statement of Comprehensive Income.<br />
The reversal of an impairment loss is also recognised in the<br />
Statement of Comprehensive Income.<br />
Disposals<br />
Gains and losses on disposals are determined by comparing<br />
proceeds with the carrying amount. These are included in the<br />
Statement of Comprehensive Income.<br />
Intangible assets<br />
<strong>Inland</strong> <strong>Revenue</strong> has intangible assets in the form of software,<br />
licences, and business process design.<br />
Additions<br />
Intangible assets are initially recorded at cost. <strong>Inland</strong> <strong>Revenue</strong><br />
only has intangible assets with finite useful lives. The three<br />
main categories are: software – developed, software and<br />
licences – purchased, and business process design.<br />
a) Software – developed<br />
The cost of an internally generated intangible asset represents<br />
expenditure incurred in the development phase of the asset<br />
only. The cost of developed computer software comprises<br />
direct labour, material purchased and an appropriate portion<br />
of relevant overheads. These costs are directly associated<br />
with the development of identifiable and unique software<br />
controlled by <strong>Inland</strong> <strong>Revenue</strong>, and will generate future<br />
economic benefits.<br />
Expenditure incurred on research of an internally generated<br />
intangible asset is expensed when it is incurred. Where the<br />
research phase cannot be distinguished from the development<br />
phase, the expenditure is expensed when it is incurred.<br />
Costs associated with maintaining computer software<br />
programmes are recognised as an expense when incurred.<br />
Costs of configuring and customising purchased software for<br />
intended use are capitalised.<br />
b) Software and licences – purchased<br />
Intangible assets acquired by <strong>Inland</strong> <strong>Revenue</strong> such as computer<br />
software and licences are stated at cost less accumulated<br />
amortisation and impairment losses. Acquired computer<br />
software and licences are capitalised on the basis of costs<br />
incurred to acquire and bring to use the specific software.<br />
Costs associated with maintaining computer software<br />
programmes are recognised as an expense when incurred.<br />
Costs of configuring and customising purchased software for<br />
intended use are capitalised.<br />
c) business process design<br />
Expenditure on development activities, where research<br />
findings are applied to a plan or design for new or<br />
substantially improved business processes, is capitalised if<br />
the business process is technically and commercially feasible<br />
and <strong>Inland</strong> <strong>Revenue</strong> has sufficient resources to complete<br />
development. Other development expenditure is recognised<br />
in the Statement of Comprehensive Income as an expense as<br />
incurred.<br />
The capitalisation thresholds for intangible assets are:<br />
""<br />
Software – developed $50,000 and over<br />
""<br />
Software and licences – purchased $5,000 and over<br />
""<br />
Business process design $50,000 and over<br />
Subsequent cost<br />
The cost of intangible assets with finite lives is subsequently<br />
recorded at cost less any amortisation and impairment losses.<br />
Amortisation<br />
The carrying value of an intangible asset with a finite life is<br />
amortised on a straight-line basis over its estimated useful<br />
life. Amortisation begins when the asset is available for use<br />
and ceases at the date that the asset is de-recognised. The<br />
amortisation charge for each period is recognised in the<br />
Statement of Comprehensive Income.<br />
The useful lives of major classes of intangible assets have been<br />
estimated as follows:<br />
""<br />
Software – developed 5 to 10 years<br />
""<br />
Software and licences – purchased 5 to 10 years<br />
""<br />
Business process design 5 to 10 years<br />
Assets under construction are not amortised. The total cost of<br />
a capital project is transferred to the appropriate asset class on<br />
its completion and then amortised.<br />
Staff training costs are recognised as an expense when incurred.<br />
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Impairment<br />
Intangible assets including assets under construction are<br />
reviewed for impairment at each balance date. If any indication<br />
of impairment exists, the recoverable amount is estimated to<br />
determine the extent of the impairment loss, if any.<br />
If an intangible asset’s recoverable amount is less than its<br />
carrying amount, the asset is impaired and it will be reported<br />
at its recoverable amount. The impairment loss is recognised in<br />
the Statement of Comprehensive Income.<br />
The reversal of an impairment loss is also recognised in the<br />
Statement of Comprehensive Income.<br />
De-recognition<br />
The gain or loss arising from the de-recognition of an intangible<br />
asset is recognised in the Statement of Comprehensive Income<br />
when the asset is de-recognised.<br />
Employee entitlements<br />
Short-term entitlements<br />
Employee entitlements that <strong>Inland</strong> <strong>Revenue</strong> expects to be<br />
settled within 12 months of balance date are measured at<br />
nominal values based on accrued entitlements at current rates<br />
of pay. These include salaries and wages accrued up to balance<br />
date, annual leave and time off in lieu earned up to but not yet<br />
taken at balance date, retiring, long-service leave and sick leave<br />
entitlements expected to be settled within 12 months.<br />
<strong>Inland</strong> <strong>Revenue</strong> recognises a liability for sick leave to the extent<br />
that absences in the coming year are expected to be greater<br />
than the sick leave entitlements earned in the coming year.<br />
The amount is calculated based on the unused sick leave<br />
entitlement that can be carried forward at balance date, to the<br />
extent that <strong>Inland</strong> <strong>Revenue</strong> anticipates it will be used by staff to<br />
cover those future absences.<br />
<strong>Inland</strong> <strong>Revenue</strong> recognises a liability and an expense for<br />
bonuses where it is contractually obliged to pay them, or where<br />
a past practice has created a constructive obligation.<br />
Long-term entitlements<br />
Employee entitlements that are payable beyond 12 months<br />
such as long-service leave and retiring leave have been<br />
calculated on an actuarial basis.<br />
The actuarial calculations for long-service leave and retiring<br />
leave liabilities are based on:<br />
""<br />
Employee contractual entitlements.<br />
""<br />
Years of service accrued to balance date and years<br />
remaining to entitlement.<br />
""<br />
Present value of the estimated future cash outflows using<br />
an applicable discount rate and salary inflation rate.<br />
Superannuation schemes<br />
Obligations for contributions to the <strong>Inland</strong> <strong>Revenue</strong><br />
Superannuation Scheme, State Sector Retirement Savings<br />
Scheme, KiwiSaver, and the Government Superannuation Fund<br />
are accounted for as defined contribution schemes and are<br />
recognised as an expense in the Statement of Comprehensive<br />
Income as they fall due.<br />
Termination benefits<br />
Termination benefits are payable when an employee’s<br />
employment contract is terminated before their normal<br />
retirement or when an employee accepts voluntary<br />
redundancy in exchange for these benefits. <strong>Inland</strong> <strong>Revenue</strong><br />
recognises the expenditure in the Statement of Comprehensive<br />
Income when it is demonstrably committed to either terminate<br />
the employment of current employees, according to a detailed<br />
formal plan without the possibility of withdrawal, or as a result<br />
of an offer for voluntary redundancy.<br />
Termination benefits to be settled within 12 months are<br />
reported at the amount expected to be paid, otherwise they<br />
are reported as the present value of the estimated future cash<br />
outflows.<br />
Provisions<br />
<strong>Inland</strong> <strong>Revenue</strong> recognises a provision for future expenditure<br />
of uncertain amounts or timing where there is a present<br />
obligation (either legal or constructive) as a result of a past<br />
event, and it is probable that expenditure will be required to<br />
settle the obligation, and a reliable estimate can be made of<br />
the amount of the obligation. Provisions are not recognised for<br />
future operating losses.<br />
Provisions are recorded at the best estimate of the expenditure<br />
required to settle the obligation. Provisions to be settled<br />
beyond 12 months are recorded at their present value.<br />
Taxpayers’ funds<br />
This is the Crown’s net investment in <strong>Inland</strong> <strong>Revenue</strong>. It is<br />
measured as the difference between total assets and total<br />
liabilities. Taxpayers’ funds are disaggregated and classified into<br />
a number of components:<br />
""<br />
Capital contribution<br />
""<br />
Capital repayment<br />
""<br />
Repayment of surplus to the Crown<br />
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Statement of Cash Flows<br />
Cash and cash equivalents mean cash balances in bank<br />
accounts.<br />
Operating activities include cash received from all income<br />
sources of <strong>Inland</strong> <strong>Revenue</strong>, and cash payments made for the<br />
supply of goods and services.<br />
Investing activities are those activities relating to the acquisition<br />
and disposal of non-current assets.<br />
Financing activities comprise capital injections by, or repayment<br />
of capital to, the Crown.<br />
Commitments<br />
Expenses and liabilities yet to be incurred on non-cancellable<br />
contracts that have been entered into on or before balance<br />
date are disclosed as commitments to the extent that they are<br />
unperformed obligations.<br />
Contingent liabilities and assets<br />
Contingent liabilities and assets are recorded in the Statement<br />
of Contingent Liabilities and Contingent Assets at the point<br />
at which the contingency is evident. Contingent liabilities<br />
are disclosed if the possibility that they will crystallise is not<br />
remote. Contingent assets are disclosed if it is probable that<br />
the benefits will be realised. Insurance claim proceeds will be<br />
disclosed as a contingent asset if the receipt of the insurance<br />
proceeds is probable.<br />
Comparatives<br />
Certain comparative information has been reclassified, where<br />
required, to conform with the current year’s presentation.<br />
CHANGES IN ACCOUNTING POLICIES<br />
There have been no changes in accounting policies and cost<br />
allocation policies since the date of the last audited financial<br />
statements. All policies have been applied on a basis consistent<br />
with the previous year.<br />
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NOTES TO THE FINANCIal STATEMENTS<br />
NOTE 1: OTHER INCOME<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
20,500 Accident Compensation Corporation (ACC) – agency fees 20,500<br />
6,725 State Services Commission – SSRSS and KiwiSaver recovery 7,121<br />
1,412 Court cost recovery 2,475<br />
434 Secondment to other agencies – salary recovery 1,773<br />
680 Rulings 794<br />
189 Sub-leases 58<br />
13 Supply of information to other agencies 13<br />
166 Insurance proceeds –<br />
72 Net gains on derivative financial instruments –<br />
123 Other 5<br />
30,314 Total other income 32,739<br />
NOTE 2: PERSONNEL<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
352,363 Salaries and wages 354,531<br />
23,348 Contractors and temporary staff 21,789<br />
6,465 Terminating benefits 13,585<br />
9,138 Employer contributions to defined contribution plans 9,517<br />
1,322 Retiring, long-service and sick leave 4,964<br />
1,867 ACC levies 1,681<br />
1,637 Annual leave 1,214<br />
242 Bonuses 102<br />
7,283 Other 2,283<br />
403,665 Total personnel 409,666<br />
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NOTE 3: OPERATING<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
34,358 Information technology costs 40,491<br />
35,397 Operating lease rentals 31,719<br />
19,256 Printing and postage 18,586<br />
15,240 Communication 17,193<br />
6,650 Consultants 17,478<br />
8,518 Premises costs 9,541<br />
8,410 Legal expenses 7,839<br />
7,634 Travel and transport 7,582<br />
6,913 Training and employee-related costs 6,332<br />
4,415 Office supplies 4,020<br />
3,059 Bank fees 3,260<br />
1,743 Equipment maintenance 1,806<br />
1,917 Advertising and publicity 1,472<br />
1,033 Audit fees for audit of the financial statements 1,033<br />
55 Disbursements for audit of the financial statements 55<br />
368 Net loss on disposal of property, plant and equipment 762<br />
– Net foreign exchange losses 584<br />
100 Bad debts written off 24<br />
– Net loss on disposal of intangible assets 15<br />
(5) Inc/(Dec) in provision for debt impairment (6)<br />
(1,679) Inc/(Dec) in provision for onerous leases (1,416)<br />
5,809 Other operating expenses 6,030<br />
159,191 Total operating 174,400<br />
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NOTE 4: PROPERTY, plaNT AND EQUIPMENT by CATEGORY<br />
IT<br />
equipment<br />
Furniture<br />
and office<br />
equipment<br />
Motor<br />
vehicles<br />
Leasehold<br />
improvements<br />
Assets under<br />
construction<br />
– leasehold<br />
Total<br />
$000 $000 $000 $000 $000 $000<br />
Cost<br />
Balance as at 1 July 2011 56,793 32,590 4,594 85,652 566 180,195<br />
Additions by purchase 14,083 1,251 – 991 2,618 18,943<br />
Reductions – other 1 – – – (662) – (662)<br />
Transfers between category – – – 175 1,128 1,303<br />
Disposals (7,304) (2,652) – (31,536) – (41,492)<br />
Balance as at 30 June <strong>2012</strong> 63,572 31,189 4,594 54,620 4,312 158,287<br />
Depreciation and impairment losses<br />
Balance as at 1 July 2011 45,779 20,994 2,403 52,457 – 121,633<br />
Depreciation charge – expensed 8,095 3,195 479 4,773 – 16,542<br />
Depreciation charge – capitalised 2 65 6 – – – 71<br />
Impairment losses – – – – – –<br />
Transfers between category – – – – – –<br />
Disposals (7,177) (2,228) – (25,105) – (34,510)<br />
Balance as at 30 June <strong>2012</strong> 46,762 21,967 2,882 32,125 – 103,736<br />
Carrying amount as at 30 June <strong>2012</strong> 16,810 9,222 1,712 22,495 4,312 54,551<br />
Cost<br />
Balance as at 1 July 2010 65,773 29,001 4,594 62,536 17,305 179,209<br />
Additions by purchase 5,619 4,511 – 7,723 612 18,465<br />
Reductions – other 1 – – – (305) – (305)<br />
Transfers between category 402 – – 17,351 (17,351) 402<br />
Disposals (15,001) (922) – (1,653) – (17,576)<br />
Balance as at 30 June 2011 56,793 32,590 4,594 85,652 566 180,195<br />
Depreciation and impairment losses<br />
Balance as at 1 July 2010 52,536 18,607 1,923 48,420 – 121,486<br />
Depreciation charge – expensed 7,926 3,221 480 4,873 – 16,500<br />
Depreciation charge – capitalised 2 207 26 – – – 233<br />
Impairment losses 3 43 62 – 513 – 618<br />
Transfers between category – – – – – –<br />
Disposals (14,933) (922) – (1,349) – (17,204)<br />
Balance as at 30 June 2011 45,779 20,994 2,403 52,457 – 121,633<br />
Carrying amount as at 30 June 2011 11,014 11,596 2,191 33,195 566 58,562<br />
1<br />
This relates to the addition/reduction of lease make-good costs on leased buildings.<br />
2<br />
Refers to the depreciation charge for existing assets that are used in the development of new intangible assets under construction.<br />
3<br />
Impairment relates to damages that arose from the Canterbury earthquakes. Refer note 7.<br />
Finance leases – The net carrying amount of IT equipment held under finance leases is $2,354,000 (2010-11 $nil).<br />
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NOTE 5: INTANGIBLE ASSETS by CATEGORY<br />
Software<br />
– developed<br />
Business process<br />
design<br />
Software<br />
and licences<br />
– purchased<br />
Assets under<br />
construction<br />
– intangibles<br />
Total<br />
$000 $000 $000 $000 $000<br />
Cost<br />
Balance as at 1 July 2011 414,025 8,262 114,877 14,776 551,940<br />
Additions by purchase – – 5,450 – 5,450<br />
Additions internally developed 13,282 – – 16,641 29,923<br />
Transfers between category 9,883 – – (11,186) (1,303)<br />
Disposals – – (42) – (42)<br />
Balance as at 30 June <strong>2012</strong> 437,190 8,262 120,285 20,231 585,968<br />
Amortisation and impairment losses<br />
Balance as at 1 July 2011 332,131 5,068 77,217 2,947 417,363<br />
Amortisation charge – expensed 26,336 1,036 9,514 – 36,886<br />
Amortisation charge – capitalised 1 9 – – – 9<br />
Impairment losses 2 16 – 7,435 – 7,451<br />
Transfers between category – – – – –<br />
Disposals – – (29) – (29)<br />
Balance as at 30 June <strong>2012</strong> 358,492 6,104 94,137 2,947 461,680<br />
Carrying amount as at 30 June <strong>2012</strong> 78,698 2,158 26,148 17,284 124,288<br />
Cost<br />
Balance as at 1 July 2010 400,361 8,262 110,225 13,760 532,608<br />
Additions by purchase – – 4,596 – 4,596<br />
Additions internally developed 5,074 – – 10,064 15,138<br />
Transfers between category 8,590 – 56 (9,048) (402)<br />
Disposals – – – – –<br />
Balance as at 30 June 2011 414,025 8,262 114,877 14,776 551,940<br />
Amortisation and impairment losses<br />
Balance as at 1 July 2010 302,018 4,032 65,186 2,947 374,183<br />
Amortisation charge – expensed 30,029 1,036 12,031 (1,820) 41,276<br />
Amortisation charge – capitalised 1 84 – – – 84<br />
Impairment losses – – – 1,820 1,820<br />
Transfers between category – – – – –<br />
Disposals – – – – –<br />
Balance as at 30 June 2011 332,131 5,068 77,217 2,947 417,363<br />
Carrying amount as at 30 June 2011 81,894 3,194 37,660 11,829 134,577<br />
There is no restriction over the title of <strong>Inland</strong> <strong>Revenue</strong>’s intangible assets, nor are any intangible assets pledged as security for liabilities.<br />
1<br />
Refers to the amortisation charge for existing assets that are utilised in the development of new intangible assets.<br />
2<br />
Software and licenses – purchased includes a software license impairment related to student loan redesign.<br />
Software – developed and business process design includes the following items and carrying amounts: FIRST technology environment $47,766,000, KiwiSaver<br />
$19,359,000, student loans $13,732,000 (2010–11, FIRST technology environment $51,121,000, KiwiSaver $29,578,000, student loans $4,389,000)<br />
The amortisation period for these intangible assets range from 5–10 years.<br />
Software and licences – purchased includes the following items and carrying amounts: FIRST technology environment $24,602,000, KiwiSaver $1,543,000 (2010–11,<br />
FIRST technology environment $35,608,000, KiwiSaver $2,051,000)<br />
The amortisation period for these intangible assets range from 5–10 years.<br />
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NOTE 6: CAPITAL CHARGE<br />
<strong>Inland</strong> <strong>Revenue</strong> pays a capital charge to the Crown on taxpayer’s funds as at 30 June and 31 December each year. The capital charge<br />
rate for the year ended 30 June <strong>2012</strong> was 8.0% per annum (2010–11, 7.5%).<br />
NOTE 7: OTHER EXPENSES<br />
2010–11 Note 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
– Canterbury earthquakes – disposal of leasehold improvements 6,152<br />
2,608 Canterbury earthquakes – personnel and operating –<br />
618 Canterbury earthquakes – PPE impairment 4 –<br />
3,226 Total other expenses 6,152<br />
NOTE 8: REPAYMENT OF SURPLUS TO THE CROWN<br />
2010–11 Note 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
(2,579) Total comprehensive income (878)<br />
3,226 Inc/(Dec) Other expense 7 6,152<br />
– Inc/(Dec) Unrealised losses/(gains) in relation to forward foreign exchange contracts 503<br />
647 Repayment of surplus to the Crown 5,777<br />
NOTE 9: DEBTORS AND PREpayMENTS<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Current assets<br />
Debtors<br />
3,165 Accounts receivable 3,657<br />
(5) Less provision for impairment (4)<br />
1,954 Other debtors 322<br />
5,114 Net debtors 3,975<br />
12,874 Prepayments 11,798<br />
17,988 Total current assets 15,773<br />
Non-current assets<br />
305 Prepayments 1,274<br />
305 Total non-current assets 1,274<br />
18,293 Total debtors and prepayments 17,047<br />
Given their short-term nature, the carrying value of accounts receivable and other debtors approximates their fair value.<br />
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Overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below:<br />
Net debtors<br />
Gross debtors<br />
$000<br />
Impairment<br />
$000<br />
Net debtors<br />
$000<br />
2011–12<br />
Due within 30 days 3,573 – 3,573<br />
Overdue by 31 to 60 days 158 – 158<br />
Overdue by 61 to 90 days 110 – 110<br />
Overdue by > 90 days 138 (4) 134<br />
Total 3,979 (4) 3,975<br />
2010–11<br />
Due within 30 days 4,830 – 4,830<br />
Overdue by 31 to 60 days 63 – 63<br />
Overdue by 61 to 90 days 62 (1) 61<br />
Overdue by > 90 days 164 (4) 160<br />
Total 5,119 (5) 5,114<br />
The provision for impairment has been calculated based on expected losses for <strong>Inland</strong> <strong>Revenue</strong>’s pool of debtors. Expected losses<br />
have been determined based on a review of each debtor.<br />
Movements in the provision for impairment are as follows:<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
(25) Opening balance (5)<br />
– Additional provisions made during the year (7)<br />
5 Unused amounts reversed –<br />
15 Receivables written off during the year 8<br />
(5) Closing balance (4)<br />
NOTE 10: INVENTORIES HELD FOR EXTERNAL DISTRIBUTION<br />
Inventories comprise forms, booklets and returns held for external distribution. The carrying amount of inventories held for<br />
distribution that are measured at cost as at 30 June <strong>2012</strong> amounted to $1,233,000 (2010–11, $1,119,000).<br />
The write-down of inventories held for distribution amounted to $54,000 (2010–11, $60,000). There have been no reversals of<br />
write-downs. The carrying amount of inventories held for distribution included the write-down of $54,000.<br />
No inventories are pledged as security for liabilities.<br />
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NOTE 11: CREDITORS AND OTHER payablES<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
9,019 Accounts payable 9,236<br />
12,086 Accrued expenses – other 19,650<br />
6,307 GST payable 7,175<br />
27,412 Total creditors and other payables 36,061<br />
Creditors and other payables are normally settled on 30-day terms, therefore the carrying value of creditors and other payables<br />
approximates their fair value.<br />
NOTE 12: EMPLOYEE ENTITLEMENTS<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Current liabilities<br />
22,955 Annual leave 23,835<br />
615 Terminating benefits 8,071<br />
13,806 Accrued salaries and wages 14,915<br />
1,400 Sick leave 1,290<br />
1,652 Retiring leave 1,368<br />
1,073 Long-service leave 1,013<br />
36 Time off in lieu 21<br />
41,537 Total current liabilities 50,513<br />
Non-current liabilities<br />
27,956 Retiring leave 30,715<br />
7,800 Long-service leave 8,166<br />
35,756 Total non-current liabilities 38,881<br />
77,293 Total employee entitlements 89,394<br />
The present value of retiring and long-service leave obligations depend on a number of factors that are determined on an actuarial<br />
basis by an independent actuary using a number of assumptions. Two key assumptions used in calculating these liabilities include the<br />
discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liabilities.<br />
The discount rates used by the independent actuary for the retiring and long-service leave valuations are based on Treasury<br />
published forward rates at 30 June <strong>2012</strong>. The long-term salary inflation assumption is based on Treasury published rates at 30 June<br />
<strong>2012</strong> and after obtaining advice from the independent actuary. The long-term salary inflation assumption used was 4.00%.<br />
In 2011–12 there was a decrease in the Treasury published forward discount rates. The impact of the forward discount rate movement<br />
was to increase the carrying amounts of the retiring leave liability by $3,515,000 and the long-service leave liability by $810,000.<br />
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The following table provides a sensitivity analysis for the key assumptions:<br />
Discount rate<br />
Salary inflation factor<br />
–1.0% +1.0% –1.0% +1.0%<br />
$000 $000 $000 $000<br />
Retiring leave 2,121 (1,876) (1,919) 2,130<br />
Long-service leave 486 (430) (442) 491<br />
Movements in the provision for terminating benefits are as follows:<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Terminating benefits<br />
694 Opening balance 615<br />
6,236 Additional provisions made 13,585<br />
(6,315) Amounts used (6,129)<br />
– Unused amounts reversed –<br />
615 Closing balance 8,071<br />
The 2010–11 and 2011–12 costs result from organisational restructuring. The 2010–11 provision was fully utilised in the 2011–12<br />
year. The 2011–12 provision is expected to be fully utilised in the <strong>2012</strong>–13 year.<br />
NOTE 13: PROVISION FOR OTHER LIABILITIES<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Current liabilities<br />
1,416 Onerous contracts 392<br />
1,189 Lease make-good 713<br />
2,605 Total current liabilities 1,105<br />
Non-current liabilities<br />
391 Onerous contracts –<br />
2,627 Lease make-good 2,577<br />
3,018 Total non-current liabilities 2,577<br />
5,623 Total provision for other liabilities 3,682<br />
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Onerous Lease Total<br />
contracts make-good<br />
$000 $000 $000<br />
2011–12<br />
Opening balance 1,808 3,816 5,624<br />
Additional provisions made – 65 65<br />
Amounts used (1,416) (317) (1,733)<br />
Unused amounts reversed – (749) (749)<br />
Discount unwind – 475 475<br />
Closing balance 392 3,290 3,682<br />
2010–11<br />
Opening balance 4,809 4,894 9,703<br />
Additional provisions made 1,396 1,325 2,721<br />
Amounts used (4,398) (1,258) (5,656)<br />
Unused amounts reversed – (865) (865)<br />
Discount unwind – (280) (280)<br />
Closing balance 1,807 3,816 5,623<br />
Onerous contracts<br />
The provision for onerous contracts arises from non-cancellable operating leases where the unavoidable costs of meeting the lease<br />
contract exceed the economic benefits to be received from it. <strong>Inland</strong> <strong>Revenue</strong> currently has three leases where it is no longer able to<br />
use the surplus space due to restructuring and floor plan revision.<br />
Lease make-good<br />
For a number of its leased premises, <strong>Inland</strong> <strong>Revenue</strong> is required at the expiry of the lease term to make-good any damage caused to<br />
the premises and remove any fixtures and fittings it has installed.<br />
In some cases, <strong>Inland</strong> <strong>Revenue</strong> has the option to renew these leases, which impacts on the timing of expected cash flows to makegood<br />
the premises.<br />
NOTE 14: DERIvaTIVE FINANCIAL INSTRUMENTS<br />
To hedge its currency risk <strong>Inland</strong> <strong>Revenue</strong> enters into foreign currency forward exchange contracts with New Zealand Debt<br />
Management Office (NZDMO).<br />
The notional principal amount of outstanding forward exchange contract derivatives as at 30 June <strong>2012</strong> was NZD $34,000,000<br />
(2010–11, $nil). The contracts consist of the purchase of USD $26,467,640 (2010-11, $nil). The unrealised loss on the forward<br />
exchange contract derivative as at 30 June <strong>2012</strong> is $503,000.<br />
The fair value of forward exchange contracts entered into during the financial year was determined by reference to published price<br />
quotations in an active market.<br />
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NOTE 15: FINANCE LEASES<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Total minimum lease payments payable<br />
– Not later than one year 1,988<br />
– Later than one year and not later than five years 539<br />
– Later than five years –<br />
– Total minimum lease payments 2,527<br />
– Future finance charges (173)<br />
– Present value of minimum lease payments 2,354<br />
Present value of minimum lease payments payable<br />
– Not later than one year 1,867<br />
– Later than one year and not later than five years 487<br />
– Later than five years –<br />
– Total present value of minimum lease payments 2,354<br />
Represented by:<br />
– Current 1,867<br />
– Non-current 487<br />
– Total finance leases 2,354<br />
<strong>Inland</strong> <strong>Revenue</strong> has entered into an agreement for the provision of telecommunications services that includes finance leases. The net<br />
carrying amount of the leased items within each class of property, plant and equipment is shown in note 4.<br />
In 2010–11 the agreement for the provision of telecommunications services was recognised as an operating lease. In 2011–12 the<br />
agreement was determined to contain finance leases under NZIAS 17 Leases.<br />
There are no restrictions placed on <strong>Inland</strong> <strong>Revenue</strong> by any of the finance leasing arrangements.<br />
Finance lease liabilities are effectively secured, as the rights to the leased assets reverts to the lessor in the event of default in payment.<br />
NOTE 16: OTHER FINANCIal LIabILITIES<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Current liabilities<br />
181 Leasing incentives 113<br />
181 Total current liabilities 113<br />
Non-current liabilities<br />
1,393 Leasing incentives 710<br />
1,393 Total non-current liabilities 710<br />
1,574 Total other financial liabilities 823<br />
106 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
NOTE 17: RECONCILIATION OF NET SURPLUS TO NET CASH FLOW FROM OPERATING ACTIVITIES<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
(2,579) Net surplus/(deficit) (878)<br />
Add non-cash items<br />
17,118 Depreciation and impairment 16,542<br />
43,096 Amortisation and impairment 44,337<br />
60,214 Total non-cash items 60,879<br />
Add items classified as investing or financing activities<br />
368 Net loss on disposal of property, plant and equipment 6,914<br />
– Net loss on disposal of intangible assets 15<br />
368 Total items classified as investing or financing activities 6,929<br />
Add/(less) working capital movements<br />
(62) (Inc)/Dec in debtor Crown (9,817)<br />
(3,812) (Inc)/Dec in debtors and prepayments 1,246<br />
34 (Inc)/Dec in inventories held for distribution (116)<br />
5,020 Inc/(Dec) in creditors and other payables 8,649<br />
– Inc/(Dec) in derivative financial instruments 503<br />
2,580 Inc/(Dec) in provision for employee benefits 12,101<br />
(4,080) Inc/(Dec) in provision for other liabilities (1,941)<br />
380 Inc/(Dec) in other financial liabilities (751)<br />
– Inc/(Dec) in finance lease liabilities 2,354<br />
60 Net movements in working capital items 12,228<br />
58,063 Net cash inflow from operating activities 79,158<br />
NOTE 18: COMMITMENTS<br />
Capital commitments<br />
Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and<br />
equipment and intangible assets that have not been paid for or recognised as a liability at the balance sheet date.<br />
Operating commitments<br />
Operating commitments for non-cancellable accommodation leases relate to <strong>Inland</strong> <strong>Revenue</strong>’s long-term leases on its premises at<br />
many locations throughout New Zealand. The annual lease payments are regularly reviewed and the amounts disclosed as future<br />
commitments are based on current rental rates. These commitments also include office space vacated by <strong>Inland</strong> <strong>Revenue</strong> as a result of<br />
organisational restructuring and sub-leased. Provision has been made in the financial statements for the expected net expenses for the<br />
duration of these leases.<br />
The total minimum future sub-lease payments expected to be received under non-cancellable sub-leases at balance date is $77,000<br />
(2010–11, $189,000).<br />
<strong>Inland</strong> <strong>Revenue</strong>’s non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no restrictions<br />
placed on <strong>Inland</strong> <strong>Revenue</strong> by any of its leasing arrangements.<br />
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NOTE 19: CONTINGENT LIABILITIES AND CONTINGENT ASSETS<br />
Contingent liabilities<br />
Legal proceedings and disputes – taxpayer<br />
This contingent liability relates to potential net claims against <strong>Inland</strong> <strong>Revenue</strong> for court costs associated with tax disputes and other<br />
legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue under dispute<br />
is recognised as a Crown contingency (refer to Schedule of contingent liabilities and contingent assets – Crown as administered by<br />
<strong>Inland</strong> <strong>Revenue</strong>).<br />
The expected value of the contingent liability is calculated using an outcome probability model that weighs the total potential<br />
liability against outcome probabilities. An estimate of potential court cost recoveries is made and netted off against the contingent<br />
liability. Independent confirmation on the liability has been ascertained on all legal proceedings and tax disputes.<br />
Legal proceedings and disputes – departmental<br />
This contingent liability relates to disputes such as claims made by departmental suppliers.<br />
Personal grievances<br />
Personal grievances represent amounts claimed by employees for alleged breaches of contract against <strong>Inland</strong> <strong>Revenue</strong>.<br />
Contingent assets<br />
Insurance claims – Canterbury earthquakes<br />
<strong>Inland</strong> <strong>Revenue</strong> leases a building in Christchurch that sustained damage as a result of the 4 September 2010 and subsequent<br />
earthquakes. Damage was sustained to leasehold improvements, furniture, IT equipment, and office equipment. In 2011–12<br />
<strong>Inland</strong> <strong>Revenue</strong> received notice that the building has been damaged as to render the premises untenantable. Therefore we have now<br />
written off the leasehold improvements.<br />
<strong>Inland</strong> <strong>Revenue</strong> will be submitting insurance claims for the material damage caused by the earthquakes and associated business<br />
interruption. In 2011–12 these claims are estimated at $20 million (2010–11, $4 million). The final amount of the claim is still being<br />
determined and will be subject to ongoing discussions with our insurance company.<br />
In 2011–12 there were no insurance claim proceeds received relating to the Canterbury earthquakes (2010–11, $166,000).<br />
108 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
NOTE 20: RELATED paRTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL<br />
<strong>Inland</strong> <strong>Revenue</strong> is a wholly owned entity of the Crown. The government significantly influences the role of <strong>Inland</strong> <strong>Revenue</strong> as well<br />
as being its major source of revenue. In 2011–12 <strong>Inland</strong> <strong>Revenue</strong> has been provided with funding from the Crown of $638 million<br />
(2010–11, $611 million) for specific purposes as set out in the scope of relevant government appropriations.<br />
<strong>Inland</strong> <strong>Revenue</strong> enters into numerous related party transactions with other government departments, Crown agencies and stateowned<br />
enterprises which are controlled, significantly influenced, or jointly controlled by the Crown. All related party transactions<br />
have been entered into on an arms’ length basis.<br />
In 2011–12 the purchase of goods and services by <strong>Inland</strong> <strong>Revenue</strong> from entities controlled, significantly influenced, or jointly<br />
controlled by the Crown totalled $30 million (2010–11, $33 million). These purchases include postal services from New Zealand<br />
Post, and air travel from Air New Zealand.<br />
In 2011–12 <strong>Inland</strong> <strong>Revenue</strong> paid the Crown capital charges on taxpayer’s funds totalling $21 million (2010-11, $18 million).<br />
In 2011–12 the services provided by <strong>Inland</strong> <strong>Revenue</strong> to entities controlled, significantly influenced, or jointly controlled by the<br />
Crown totalled $23 million (2010–11, $22 million). These services include the collection of levies payable by earners on behalf of the<br />
Accident Compensation Corporation (ACC), and the supply of information to other agencies.<br />
No provision has been required, nor any expense recognised, for impairment of receivables from related parties.<br />
No related party transactions were entered into with key management personnel during the year.<br />
Compensation to key management personnel<br />
The remuneration of key management personnel during the year was as follows:<br />
2010–11 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
2,784 Short-term employee benefits 2,655<br />
35 Post-employment benefits 56<br />
20 Other long-term benefits 33<br />
2,839 Total key management personnel compensation 2,744<br />
Key management personnel include the Commissioner, five Deputy Commissioners, Chief Tax Counsel, Chief Financial Officer and<br />
those formally acting in those positions during the financial year. The Commissioner’s remuneration is determined and paid by the<br />
State Services Commission.<br />
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NOTE 21: FINANCIAL INSTRUMENTS – CATEGORIES OF FINANCIAL INSTRUMENTS<br />
The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:<br />
2010–11 Notes 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Debtors and receivables<br />
14,666 Cash and cash equivalents 44,540<br />
147,069 Debtor Crown 156,886<br />
5,114 Net debtors 9 3,975<br />
166,849 Total debtors and receivables 205,401<br />
Fair value through surplus or deficit<br />
– Derivative financial instrument liabilities 14 503<br />
– Total fair value through surplus or deficit 503<br />
Financial liabilities measured at amortised cost<br />
27,412 Creditors and other payables 11 36,061<br />
– Finance lease liabilities 15 2,354<br />
1,574 Other financial liabilities 16 823<br />
28,986 Total financial liabilities measured at amortised cost 39,238<br />
NOTE 22: FINANCIAL INSTRUMENTS – FAIR valuE HIERARCHY DISCLOSURES<br />
For those instruments recognised at fair value in the statement of financial position, fair values are determined according to the<br />
following hierarchy:<br />
""<br />
Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.<br />
""<br />
Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in<br />
active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using<br />
models where all significant inputs are observable.<br />
""<br />
Valuation techniques with significant non-observable inputs (level 3) – Financial instruments valued using models where one or<br />
more significant inputs are not observable.<br />
The following table analyses the basis of the valuation of classes of financial instruments measured at fair value in the statement of<br />
financial position.<br />
Quoted market<br />
price<br />
Valuation technique<br />
Observable<br />
inputs<br />
Significant non -<br />
observable inputs<br />
$000 $000 $000 $000<br />
2011–12<br />
Financial liabilities<br />
Foreign exchange derivatives – 503 – 503<br />
– 503 – 503<br />
2010–11<br />
Financial liabilities<br />
Foreign exchange derivatives – – – –<br />
– – – –<br />
There were no transfers between the different levels of the fair value hierarchy.<br />
Total<br />
110 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
NOTE 23: FINANCIAL INSTRUMENTS – FINANCIAL INSTRUMENT RISKS<br />
Market risk<br />
Currency risk<br />
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates is<br />
called currency risk.<br />
Because <strong>Inland</strong> <strong>Revenue</strong> purchases fixed assets and services from overseas suppliers it is exposed to currency risk arising from various<br />
currency exposures, primarily for the United States and Australian dollars. Currency risk arises from future purchases of fixed assets<br />
and services which are denominated in a foreign currency.<br />
<strong>Inland</strong> <strong>Revenue</strong> has policies in place to manage the risks associated with financial instruments and, being risk averse, seeks to<br />
minimise exposure from its treasury activities. <strong>Inland</strong> <strong>Revenue</strong> does not enter into transactions that are speculative in nature.<br />
Under its foreign exchange policy, <strong>Inland</strong> <strong>Revenue</strong> enters into foreign currency forward exchange contracts to manage foreign<br />
exchange exposures when single foreign exchange transactions exceed NZ $100,000, or the transaction exposure for an individual<br />
currency exceeds NZ $100,000. This policy has been approved by Treasury and is in line with the requirements of Treasury<br />
“Guidelines for the Management of Crown and <strong>Department</strong>al Foreign Exchange Exposure”.<br />
Interest rate risk<br />
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<br />
fluctuate, due to changes in market interest rates.<br />
<strong>Inland</strong> <strong>Revenue</strong> has no interest-bearing financial instruments so it has no exposure to interest rate risk.<br />
Credit risk<br />
The risk that a third party will default on its obligations to <strong>Inland</strong> <strong>Revenue</strong>, causing a loss to be incurred is called credit risk. In the<br />
normal course of its business credit risk from trade debtors is concentrated with the Crown and other government agencies.<br />
The carrying amount of financial assets recognised in the Statement of Financial Position best represents <strong>Inland</strong> <strong>Revenue</strong>’s maximum<br />
exposure to credit risk at balance date.<br />
<strong>Inland</strong> <strong>Revenue</strong> does not require any collateral, security, or other credit enhancements to support financial instruments with<br />
financial institutions that it deals with or the New Zealand Debt Management Office, because these entities have high credit ratings.<br />
For its other financial instruments, <strong>Inland</strong> <strong>Revenue</strong> does not have significant concentrations of credit risk.<br />
The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated is not<br />
material.<br />
Liquidity risk<br />
Liquidity risk is the risk that <strong>Inland</strong> <strong>Revenue</strong> will encounter difficulty raising liquid funds to meet commitments as they fall due.<br />
As all but an insignificant proportion of funds come from the New Zealand Government and cash is drawn down on a fortnightly<br />
basis, <strong>Inland</strong> <strong>Revenue</strong> does not have significant liquidity risk. In meeting its liquidity requirements, <strong>Inland</strong> <strong>Revenue</strong> closely monitors<br />
its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. <strong>Inland</strong> <strong>Revenue</strong><br />
maintains a target level of available cash to meet liquidity requirements.<br />
Contractual maturity analysis of financial liabilities, excluding derivatives<br />
The table below analyses <strong>Inland</strong> <strong>Revenue</strong>’s financial liabilities that will be settled, based on the remaining period at the balance sheet<br />
date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.<br />
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Notes<br />
Carrying Contractual Up to 1 1 to 5 Over 5 Total<br />
amount cash flows year years years<br />
$000 $000 $000 $000 $000 $000<br />
2011–12<br />
Creditors and other payables 11 36,061 36,061 36,061 – – 36,061<br />
Finance lease liabilities 15 2,354 2,527 1,988 539 – 2,527<br />
Other financial liabilities 16 823 823 113 437 273 823<br />
Closing balance 39,238 39,411 38,162 976 273 39,411<br />
2010–11<br />
Creditors and other payables 11 27,412 27,412 27,412 – – 27,412<br />
Financial lease liabilities 15 – – – – – –<br />
Other financial liabilities 16 1,574 1,574 181 670 723 1,574<br />
Closing balance 28,986 28,986 27,593 670 723 28,986<br />
Contractual maturity analysis of derivative financial instrument liabilities<br />
The table below analyses <strong>Inland</strong> <strong>Revenue</strong>’s forward exchange contract derivatives into relevant maturity groupings based on the<br />
remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash<br />
flows.<br />
Note<br />
Liability<br />
carrying<br />
amount<br />
Asset<br />
carrying<br />
amount<br />
Contractual<br />
cash flows<br />
NZ$<br />
Less than<br />
6 months<br />
NZ$<br />
6–12<br />
months<br />
NZ$<br />
1–2 years<br />
NZ$<br />
$000 $000 $000 $000 $000 $000<br />
2011–12<br />
Gross settled forward foreign exchange 15 503 –<br />
contracts<br />
–Outflow – – 34,000 – 34,000 –<br />
503 – 34,000 – 34,000 –<br />
2010–11<br />
Gross settled forward foreign exchange<br />
– –<br />
contracts<br />
–Outflow – – – – – –<br />
– – – – – –<br />
The following provides a sensitivity analysis for the key assumptions:<br />
At 30 June <strong>2012</strong>, if the NZ dollar had strengthened by 5% against the US dollar, with all other variables held constant, the surplus<br />
for the year would have been $1,621,000 (2010–11 $nil) higher. At 30 June <strong>2012</strong>, if the NZ dollar had weakened by 5% against the<br />
US dollar, with all other variables held constant, the surplus for the year would have been $1,791,000 (2010–11 $nil) lower. This<br />
movement is attributable to translation of US dollar-denominated creditors.<br />
112 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
NOTE 24: CAPITAL MANAGEMENT<br />
<strong>Inland</strong> <strong>Revenue</strong>’s capital is its equity (or taxpayers’ funds),<br />
which comprise of general funds. Equity is represented by net<br />
assets.<br />
<strong>Inland</strong> <strong>Revenue</strong> manages its revenues, expenses, assets,<br />
liabilities and general financial dealings prudently. <strong>Inland</strong><br />
<strong>Revenue</strong>’s equity is largely managed as a by-product of<br />
managing income, expenses, assets, liabilities, and compliance<br />
with the Government Budget processes and with Treasury<br />
Instructions and the Public Finance Act 1989.<br />
The objective of managing <strong>Inland</strong> <strong>Revenue</strong>’s equity is to<br />
ensure that it effectively achieves its strategic direction, while<br />
remaining a going concern.<br />
NOTE 25: ExplaNATION OF MAJOR vaRIANCES<br />
Statement of Comprehensive Income<br />
The following major budget variations occurred between<br />
2011–12 Actuals and the 2011–12 Estimates of Appropriations<br />
(Main Estimates) in the Statement of Comprehensive Income:<br />
""<br />
Personnel expenses were lower than budget by $27,746,000<br />
(6%). This variance was due to a higher than planned<br />
decrease in staff numbers through a combination of<br />
attrition and organisational restructuring.<br />
""<br />
Operating expenses were higher than budget by $17,240,000<br />
(11%). This variance was mainly due to business<br />
transformation programme costs and an increase in IT<br />
costs.<br />
""<br />
Amortisation and impairment was lower than budget by<br />
$2,896,000 (6%). This variance was due to less than planned<br />
capitalisation of IT projects. The capitalisation of those<br />
projects will now occur in <strong>2012</strong>–13.<br />
""<br />
Other expenses were higher than budget by $6,152,000<br />
(100%). This increase related to the write-off of leasehold<br />
improvements as a result of the Canterbury earthquakes.<br />
Statement of Financial Position<br />
The following major budget variations occurred between<br />
30 June <strong>2012</strong> Actuals and the 2011-12 Estimates of<br />
Appropriations (Main Estimates) in the Statement of Financial<br />
Position:<br />
""<br />
Cash and cash equivalents were higher than budget by<br />
$32,540,000 (271%). The variance was due to a timing issue<br />
relating to year end expenditure and employee benefits<br />
that were paid out in July rather than June. There was a<br />
one to two day delay in making some significant payments.<br />
This resulted in the actual cash payments falling into July,<br />
whereas we had budgeted for the payments to be made at<br />
the end of June.<br />
""<br />
Debtor Crown was higher than budget by $25,683,000 (20%).<br />
The variance was due to funding in Debtor Crown that we<br />
have not yet drawn down due to capital underspending.<br />
""<br />
Debtors and prepayments were higher than budget by<br />
$4,168,000 (32%). This was due to an increase in prepaid IT<br />
maintenance contracts.<br />
""<br />
Property, plant and equipment was lower than budget by<br />
$11,770,000 (18%). This was mainly due to the write-off<br />
of leasehold Improvements in a building <strong>Inland</strong> <strong>Revenue</strong><br />
leased in Christchurch. This building was damaged as a<br />
result of the Canterbury earthquakes, and will now be<br />
demolished by the landlord.<br />
""<br />
Intangible assets were lower than budget by $29,543,000<br />
(19%). This was mainly due to the following:<br />
77<br />
Underspend in capital projects, of which $10,648,000<br />
has been carried forward to the <strong>2012</strong>–13 year.<br />
77<br />
$7,435,000 was in relation to the impairment of IT<br />
software.<br />
""<br />
Creditors and other payables were higher than budget by<br />
$12,861,000 (55%). This was mainly due to the timing of<br />
trade payables and business transformation programme<br />
accruals.<br />
""<br />
Employee entitlements were higher than budget by<br />
$6,054,000 (7%). This was mainly driven by macroeconomic<br />
changes in the actuarial valuations for retiring<br />
and long-service leave in 2011–12, as well as higher than<br />
planned restructuring costs.<br />
""<br />
Provision for other liabilities were higher than budget by<br />
$1,425,000 (63%). This was due to higher than planned<br />
lease make-good provisions for buildings that <strong>Inland</strong><br />
<strong>Revenue</strong> leases.<br />
""<br />
Other financial liabilities were lower than budget by<br />
$530,000 (39%). This was due to a decrease in the lease<br />
incentive (rental inducements) liability, mainly driven by the<br />
exit from our earthquake damaged building in Christchurch.<br />
""<br />
Derivative financial instruments were higher than budget<br />
by $503,000 (100%). This was due to an unrealised loss on a<br />
forward exchange contract at 30 June <strong>2012</strong>. There were no<br />
such losses in the previous financial year.<br />
""<br />
Finance lease liabilities were higher than budget by<br />
$2,354,000 (100%). This was due to the recognition of a<br />
finance lease for telecommunications equipment.<br />
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Statement of <strong>Department</strong>al Expenses and Capital<br />
Expenditure against Appropriations<br />
The following major variations occurred in the Statement<br />
of <strong>Department</strong>al Expenses and Capital Expenditure against<br />
Appropriations between 30 June <strong>2012</strong> Actuals and 2011–12<br />
Appropriations:<br />
""<br />
Property, plant and equipment was lower than the<br />
Appropriation by $4,572,000 (19%). This was mainly due<br />
to the planned replacement of <strong>Inland</strong> <strong>Revenue</strong>’s fleet of<br />
motor vehicles as well as fit-out upgrades for buildings<br />
that <strong>Inland</strong> <strong>Revenue</strong> leases. These will now take place in<br />
<strong>2012</strong>–13.<br />
""<br />
Intangible assets were lower than the Appropriation by<br />
$39,855,000 (54%). This was due to the following:<br />
77<br />
$22,000,000 was due to the planned purchase of<br />
mainframe processing capacity. This purchase is now<br />
planned for <strong>2012</strong>–13.<br />
77<br />
Capital project underspending, of which $10,648,000<br />
has been carried forward to the <strong>2012</strong>–13 year.<br />
77<br />
Reclassification of project capital spend to operating<br />
expenditure.<br />
NOTE 26: EVENTS AFTER balaNCE daTE<br />
No events have occurred between the balance date and date of<br />
signing these financial statements that materially affect these<br />
financial statements.<br />
114 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Part 8<br />
Financial Schedules –<br />
CROWN AS ADMINISTered<br />
by InlAND <strong>Revenue</strong><br />
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SCHEDULE OF REVENUE – CROWN AS<br />
ADMINISTERED by INlaND REVENUE<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Direct taxation<br />
Income tax<br />
Individuals<br />
20,562,208 Source deductions 20,959,663 20,914,000 20,886,000<br />
3,791,029 Other persons 4,231,982 4,342,000 4,242,000<br />
(1,679,127) Refunds (1,736,357) (1,656,000) (1,657,000)<br />
462,327 Fringe benefit tax 461,876 430,000 444,000<br />
23,136,437 Sub-total individuals 23,917,164 24,030,000 23,915,000<br />
Corporate tax<br />
7,924,382 Gross companies tax 8,818,946 8,823,000 8,548,000<br />
(196,732) Refunds (201,593) (400,000) (274,000)<br />
467,290 Non-resident withholding tax 499,785 508,000 451,000<br />
(274) Foreign-source dividend withholding payments 3,895 1,000 5,000<br />
8,194,666 Sub-total corporate tax 9,121,033 8,932,000 8,730,000<br />
Other direct income tax<br />
1,704,194 Resident withholding tax on interest income 1,678,586 1,665,000 1,671,000<br />
194,631 Resident withholding tax on dividend income 292,396 209,000 288,000<br />
680,982 Employer superannuation contribution tax 672,697 722,000 676,000<br />
1,713 Gift duties 146 – –<br />
2,581,520 Sub-total other direct income tax 2,643,825 2,596,000 2,635,000<br />
33,912,623 Total direct taxation 35,682,022 35,558,000 35,280,000<br />
116 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
SCHEDULE OF REVENUE – CROWN AS<br />
ADMINISTERED by INlaND REVENUE (continued)<br />
2010–11 Note 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Indirect taxation<br />
Goods and services tax<br />
22,350,836 Gross goods and services tax 23,746,090 24,200,000 24,164,000<br />
(9,775,501) Refunds (10,626,609) (10,965,000) (11,212,000)<br />
12,575,335 Sub-total goods and services tax 13,119,481 13,235,000 12,952,000<br />
Other indirect taxation<br />
4,076 Cheque duties 3,537 4,000 4,000<br />
82,098 Approved issuer levy 85,167 74,000 86,000<br />
266,081 Gaming duties 270,740 268,000 276,000<br />
4,934 Other indirect taxation 4,895 10,000 5,000<br />
357,189 Sub-total other indirect taxation 364,339 356,000 371,000<br />
12,932,524 Total indirect taxation 13,483,820 13,591,000 13,323,000<br />
46,845,147 Total taxation 49,165,842 49,149,000 48,603,000<br />
Other revenue<br />
509,947 Child support 2 279,448 684,000 303,000<br />
420,371 Interest unwind – student loans 474,452 480,000 480,000<br />
13,486 Other revenue 32,033 6,000 6,000<br />
943,804 Total other revenue 785,933 1,170,000 789,000<br />
47,788,951 Total operating revenue 49,951,775 50,319,000 49,392,000<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
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117
SCHEDULE OF expenditure – CROWN AS<br />
ADMINISTERED by INlaND REVENUE<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Benefits and other unrequited expenses<br />
2,766 Child tax credit 1,998 2,200 2,000<br />
2,129,523 Family tax credit 2,071,040 2,168,100 2,111,000<br />
584,787 In-work tax credit 567,046 567,000 568,000<br />
198 KiwiSaver: Employer tax credit – – –<br />
(50) KiwiSaver: Fee subsidy (18) – –<br />
4,625 KiwiSaver: Interest 5,848 3,000 7,000<br />
312,797 KiwiSaver: Kick-start payment 212,566 209,000 226,000<br />
263,692 KiwiSaver: Member tax credit – – –<br />
460,777 KiwiSaver: Tax credit 469,819 444,000 475,000<br />
9,483 Minimum family tax credit 11,091 10,100 11,000<br />
154,194 Paid parental leave payments 157,615 164,100 156,000<br />
18,966 Parental tax credit 18,385 17,600 18,000<br />
1,574 Payroll subsidy 1,947 2,000 2,000<br />
– Research and development tax credit (68,475) – –<br />
3,943,332 Total benefits and other unrequited expenses 3,448,862 3,587,100 3,576,000<br />
Borrowing expenses<br />
10 Adverse event interest 3 10 10<br />
1,527 Environmental restoration account interest 1,570 2,000 2,000<br />
5,589 Income equalisation interest 3,494 7,000 7,000<br />
7,126 Total borrowing expenses 5,067 9,010 9,010<br />
Other expenses<br />
785,466 Bad debt write-offs 848,618 857,000 857,000<br />
223,953 Impairment of debt 1 263,940 247,000 347,000<br />
280,802 Impairment of debt relating to child support 72,276 446,000 112,000<br />
(94,000) Impairment of debt relating to student loans (286,000) 110,000 (134,404)<br />
– Initial fair value write-down – student loans 103,175 128,222 126,511<br />
1,196,221 Total other expenses 1,002,009 1,788,222 1,308,107<br />
5,146,679 Total expenditure 4,455,938 5,384,332 4,893,117<br />
1<br />
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
118 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
SCHEDULE OF aSSETS – CROWN AS adMINISTERED<br />
BY INLAND REVENUE<br />
as at 30 JuNE <strong>2012</strong><br />
2010–11 Notes 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Assets<br />
Current assets<br />
1,062,519 Cash and cash equivalents 1,418,317 800,000 1,000,000<br />
6,484,079 Receivables 1 6,341,051 5,828,012 6,196,172<br />
3,030 Receivables – child support 2 3,030 73,541 35,406<br />
36,958 Receivables – other 30,670 36,000 45,000<br />
706,000 Student loans 3 930,000 819,000 840,000<br />
8,292,586 Total current assets 8,723,068 7,556,553 8,116,578<br />
Non-current assets<br />
343,100 Receivables 1 409,300 427,565 326,007<br />
52,376 Receivables – child support 2 54,749 – –<br />
5,984,213 Student loans 3 7,360,882 7,002,682 7,352,074<br />
6,329,689 Total non-current assets 7,824,931 7,430,247 7,678,081<br />
14,672,275 Total assets 16,547,999 14,986,800 15,794,659<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
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119
SCHEDULE OF liabilITIES – CROWN AS<br />
ADMINISTERED by INlaND REVENUE<br />
as at 30 JuNE <strong>2012</strong><br />
2010–11 Notes 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Liabilities<br />
Payables and provisions<br />
24,004 Child support 25,875 18,942 24,004<br />
3,737,599 Refundables and payables 4 3,323,245 3,422,809 3,337,599<br />
6,750 Unclaimed monies 5 9,828 6,123 6,750<br />
3,768,353 Total payables and provisions 3,358,948 3,447,874 3,368,353<br />
Reserve schemes<br />
226,765 Reserve schemes 6 278,175 223,219 274,865<br />
226,765 Total value of the reserve schemes 278,175 223,219 274,865<br />
3,995,118 Total liabilities 3,637,123 3,671,093 3,643,218<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
SCHEdulE OF MOVEMENTS BETWEEN<br />
DEPARTMENTS – CROWN AS adMINISTERED by<br />
INLAND REVENUE<br />
FOR THE YEAR ENDED 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
10,086,938 Opening balance 10,677,157 10,215,654 10,677,157<br />
42,642,272 Net result from operating activities 45,495,837 44,934,668 44,498,883<br />
762,203 Asset transfer between departments – Ministry of Social<br />
1,711,108 1,770,375 1,760,968<br />
Development – student loans<br />
(42,814,256) New Zealand Debt Management Office (44,973,226) (45,604,990) (44,785,567)<br />
10,677,157 Closing balance 12,910,876 11,315,707 12,151,441<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
120 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
SCHEDULE OF CONTINGENT liabilITIES AND<br />
CONTINGENT aSSETS – CROWN AS adMINISTERED<br />
BY INLAND REVENUE<br />
as at 30 JuNE <strong>2012</strong><br />
2010–11 Notes 2011–12<br />
Actual<br />
Actual<br />
$000 $000<br />
Quantifiable contingent liabilities<br />
281,285 Legal proceedings and disputes – assessed 7 365,417<br />
54,617 Unclaimed monies 5 79,516<br />
335,902 Total quantifiable contingent liabilities 444,933<br />
Quantifiable contingent assets<br />
635,665 Disputes – non-assessed 7 150,451<br />
635,665 Total quantifiable contingent assets 150,451<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
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STATEMENT OF appROPRIATIONS – CROWN AS<br />
ADMINISTERED by INlaND REVENUE<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Actual Actual Main Supp<br />
estimates estimates<br />
$000 $000 $000 $000<br />
Vote: <strong>Revenue</strong> 1<br />
Benefits and other unrequited expenses<br />
209,128 Child support payments PLA 215,636 226,000 220,000<br />
2,766 Child tax credit PLA 1,998 2,200 2,000<br />
2,129,523 Family tax credit PLA 2,071,040 2,168,100 2,111,000<br />
584,787 In-work tax credit PLA 567,046 567,000 568,000<br />
198 KiwiSaver: Employer tax credit – – –<br />
(50) KiwiSaver: Fee subsidy (18) – –<br />
4,625 KiwiSaver: Interest 5,848 3,000 7,000<br />
312,797 KiwiSaver: Kick-start payment 212,566 209,000 226,000<br />
263,692 KiwiSaver: Member tax credit – – –<br />
460,777 KiwiSaver: Tax credit 469,819 444,000 475,000<br />
9,483 Minimum family tax credit PLA 11,091 10,100 11,000<br />
154,194 Paid parental leave payments PLA 157,615 164,100 156,000<br />
18,966 Parental tax credit PLA 18,385 17,600 18,000<br />
1,574 Payroll subsidy PLA 1,947 2,000 2,000<br />
– Research and development tax credit (68,475) – –<br />
4,152,460 Total benefits and other unrequited expenses 3,664,498 3,813,100 3,796,000<br />
Borrowing expenses<br />
10 Adverse event interest PLA 3 10 10<br />
1,527 Environmental restoration account interest PLA 1,570 2,000 2,000<br />
5,589 Income equalisation interest PLA 3,494 7,000 7,000<br />
7,126 Total borrowing expenses 5,067 9,010 9,010<br />
Other expenses<br />
785,466 Bad debt write-offs 848,618 857,000 857,000<br />
223,953 Impairment of debt 2 263,940 247,000 347,000<br />
280,802 Impairment of debt relating to child support 72,276 446,000 112,000<br />
(43,000) Impairment of debt relating to student loans 3 (371,000) 110,000 (134,404)<br />
– Initial fair value write-down – student loans 103,175 128,222 126,511<br />
1,247,221 Total other expenses 917,009 1,788,222 1,308,107<br />
5,406,807 Total appropriations 4,586,574 5,610,332 5,113,117<br />
1<br />
PLA refers to appropriations established under a permanent legislative authority.<br />
2<br />
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.<br />
3<br />
Excludes remeasurement of $85.0 million (2010–11 ($51.0) million).<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
122 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Statement OF UNAPPROPRIATED EXPENDITURE –<br />
CROWN AS adMINISTERED by INLAND REVENUE<br />
for the year ENded 30 JuNE <strong>2012</strong><br />
In the 2011–12 financial year there were no instances of:<br />
""<br />
expenditure incurred in excess of appropriation (2010–11 $10,797,000).<br />
""<br />
expenditure incurred without appropriation or other authority (2010–11 $198,000).<br />
""<br />
expenditure incurred outside appropriation (2010–11 $nil).<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
SCHEdulE OF TRUST MONEY – CROWN AS<br />
ADMINISTERED by INlaND REVENUE<br />
FOR THE YEAR ENDED 30 JuNE <strong>2012</strong><br />
2010–11 2011–12 2011–12 2011–12<br />
Actual Actual Contributions Distributions<br />
$000 $000 $000 $000<br />
Child support<br />
11,927 Child support trust account 22,222 223,886 (213,591)<br />
319 Reciprocal child support agreement trust account 287 15,300 (15,332)<br />
12,246 Total child support 22,509 239,186 (228,923)<br />
KiwiSaver<br />
137 KiwiSaver returned transactions trust account 204 67 –<br />
137 Total KiwiSaver 204 67 –<br />
12,383 Total trust money 22,713 239,253 (228,923)<br />
The child support trust accounts were established in accordance with sections 139 and 140 of the Child Support Act 1991. <strong>Inland</strong> <strong>Revenue</strong> administers these trust<br />
accounts for amounts collected from liable parents and the subsequent child support payments that are paid to the custodial parents.<br />
The KiwiSaver trust account was established in accordance with section 74(4) of the KiwiSaver Act 2006. <strong>Inland</strong> <strong>Revenue</strong> administers this account to hold<br />
money deposited with the Crown from KiwiSaver scheme providers, primarily for refunds and payments made in error, pending the completion of the financial<br />
transaction.<br />
The accompanying accounting policies and notes form part of these financial schedules.<br />
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<br />
the year ended 30 June <strong>2012</strong>.<br />
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STATEMENT OF ACCOUNTING POLICIES<br />
<strong>REPORT</strong>ING ENTITY<br />
These Crown financial schedules and statements present<br />
financial information on public funds managed by<br />
<strong>Inland</strong> <strong>Revenue</strong> on behalf of the Crown.<br />
These Crown balances are consolidated into the Financial<br />
Statements of the Government of New Zealand for the year<br />
ended 30 June <strong>2012</strong>. For a full understanding of the Crown’s<br />
financial position, results of operations, and cash flows for the<br />
year, refer to the Financial Statements of the Government.<br />
BASIS OF PREPARATION<br />
The Crown schedules and statements have been prepared<br />
in accordance with the accounting policies of the Financial<br />
Statements of the Government, Treasury Instructions, and<br />
Treasury Circulars.<br />
Measurement and recognition rules applied in the preparation<br />
of these schedules and statements are consistent with<br />
New Zealand generally accepted accounting practice as<br />
appropriate for public benefit entities.<br />
ACCOUNTING POLICIES<br />
The following accounting policies, which materially affect the<br />
measurement of financial results and financial position, have<br />
been applied.<br />
<strong>Revenue</strong><br />
Operating revenue<br />
The Crown provides many services and benefits that do not<br />
give rise to revenue. Further, payment of tax does not, in itself,<br />
entitle a taxpayer to an equivalent value of services or benefits,<br />
because there is no direct relationship between paying tax and<br />
receiving Crown services and transfers.<br />
The New Zealand tax system is predicated on self-assessment<br />
where taxpayers are expected to understand the tax laws and<br />
comply with them. This has an impact on the completeness<br />
of tax revenues when taxpayers fail to comply with tax<br />
laws, for example, if they do not report all of their income.<br />
<strong>Inland</strong> <strong>Revenue</strong> has implemented systems and controls in<br />
order to detect and correct situations where taxpayers are<br />
not complying with the various acts it administers. These<br />
systems and controls include performing audits of taxpayer<br />
records where determined necessary by <strong>Inland</strong> <strong>Revenue</strong>.<br />
Such procedures cannot be expected to identify all sources<br />
of unreported income or other cases of non-compliance with<br />
tax laws. <strong>Inland</strong> <strong>Revenue</strong> is unable to estimate the amount of<br />
unreported tax.<br />
Initial fair value write-down – student loans<br />
When new borrowings are made to students, they are written<br />
down immediately to the fair value. The initial write-down<br />
ratio is used to determine this write-down, which is an expense<br />
to <strong>Inland</strong> <strong>Revenue</strong>.<br />
Interest unwind – student loans<br />
Interest unwind on student loans is accrued using the effective<br />
interest rate method. The effective interest rate exactly<br />
discounts estimated future cash receipts through the expected<br />
life of the financial asset to that asset’s net carrying amount.<br />
The effective interest rate is fixed by year of first lending.<br />
Tax revenue is recognised when a taxable event has occurred<br />
and the tax revenue can be reliably measured. The taxable<br />
event is defined as follows:<br />
Tax type<br />
Income tax<br />
Goods and services tax<br />
Taxable activity<br />
The earning of assessable income<br />
during the taxation period by the<br />
taxpayer.<br />
The purchase or sale of taxable<br />
goods and services during the<br />
taxation period.<br />
124 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Expenses<br />
General<br />
Expenses are recognised in the period to which they relate.<br />
Benefits and other unrequited expenses<br />
Expense type<br />
Child tax credit<br />
Family tax credit<br />
In-work tax credit<br />
KiwiSaver: Employer<br />
tax credit<br />
KiwiSaver: Fee subsidy<br />
KiwiSaver: Interest<br />
KiwiSaver: Kick-start<br />
payment<br />
KiwiSaver: Member<br />
tax credit<br />
Definition<br />
Extra assistance for low to middle<br />
income families who do not depend<br />
on the state for financial support<br />
(expenses incurred pursuant to<br />
section 185 of the Tax Administration<br />
Act 1994).<br />
Family support payments made to<br />
beneficiaries and non-beneficiaries<br />
during the year (expenses incurred<br />
pursuant to section 185 of the Tax<br />
Administration Act 1994).<br />
Extra assistance for low to middle<br />
income families where the person<br />
works a minimum of 20 hours per<br />
week and does not have a partner,<br />
or a person and their partner work<br />
a minimum of 30 hours per week<br />
(expenses incurred pursuant to<br />
section 185 of the Tax Administration<br />
Act 1994).<br />
Tax credit to employers in respect of<br />
their contributions to KiwiSaver as<br />
set out in the Income Tax Act 2007.<br />
This ceased on 31 March 2009.<br />
Fee subsidy to KiwiSaver members in<br />
respect of their scheme provider fees<br />
as set out in the KiwiSaver Act 2006.<br />
This ceased on 31 March 2009.<br />
Interest on KiwiSaver contributions<br />
as set out in the KiwiSaver Act 2006.<br />
One-off payment made on opening a<br />
KiwiSaver account for members who<br />
meet the required eligibility criteria<br />
as set out in the KiwiSaver Act 2006.<br />
Tax credit to KiwiSaver members as<br />
set out in the Income Tax Act 2007.<br />
KiwiSaver: Tax credit<br />
Minimum family tax<br />
credit<br />
Paid parental leave<br />
payments<br />
Parental tax credit<br />
Payroll subsidy<br />
Research and<br />
development tax<br />
credit<br />
Tax credit to KiwiSaver members and<br />
the payment of residual tax credits to<br />
employers as set out in the Income<br />
Tax Act 2007.<br />
Extra payment made to families<br />
where at least one parent is working<br />
for salary or wages (expenses<br />
incurred pursuant to section 185 of<br />
the Tax Administration Act 1994).<br />
Paid parental leave payments made<br />
to parents eligible under the Parental<br />
Leave and Employment Protection<br />
Act 1987.<br />
Additional financial support made<br />
to working families for the eightweek<br />
period following the birth of a<br />
child (expenses incurred pursuant to<br />
section 185 of the Tax Administration<br />
Act 1994).<br />
Subsidy to a payroll agent<br />
undertaking employers’ payrollrelated<br />
tax compliance activities<br />
on their behalf (expenses incurred<br />
pursuant to section 185 of the Tax<br />
Administration Act 1994).<br />
Tax credits for expenditure on<br />
research and development where<br />
the required eligibility criteria is met<br />
as set out in the Income Tax Act<br />
2007. Expenditure incurred up until<br />
31 March 2009 may be eligible for<br />
credits, where claims have been filed<br />
by 31 March <strong>2012</strong>.<br />
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Borrowing expenses<br />
Expense type<br />
Adverse event interest<br />
Environmental<br />
restoration account<br />
interest<br />
Income equalisation<br />
interest<br />
Other expenses<br />
Expense type<br />
Bad debt write-offs<br />
Impairment of debt<br />
relating to child<br />
support<br />
Impairment of debt<br />
Definition<br />
Interest on adverse event income<br />
equalisation reserve accounts held<br />
by taxpayers in the farming and<br />
agriculture business (expenses<br />
incurred pursuant to section 185 of<br />
the Tax Administration Act 1994).<br />
Interest on environmental restoration<br />
accounts (expenses incurred<br />
pursuant to section 185 of the Tax<br />
Administration Act 1994).<br />
Interest on income equalisation<br />
reserve scheme accounts held by<br />
taxpayers in the farming, fishing or<br />
forestry industries (expenses incurred<br />
pursuant to section 185 of the Tax<br />
Administration Act 1994).<br />
Definition<br />
Bad debt write-offs for Crown debt<br />
administered by <strong>Inland</strong> <strong>Revenue</strong>.<br />
These write-offs relate to general tax,<br />
KiwiSaver and Working for Families<br />
Tax Credits debt.<br />
Impairment arising from objective<br />
evidence of one or more loss events<br />
that occurred after the initial<br />
recognition of the debt, and the loss<br />
event (or events) has had a reliably<br />
measurable impact on the estimated<br />
future cash flows of the collective<br />
book of child support debt.<br />
Impairment arising from objective<br />
evidence of one or more loss events<br />
that occurred after the initial<br />
recognition of the debt, and the loss<br />
event (or events) has had a reliably<br />
measurable impact on the estimated<br />
future cash flows of the Crown debt<br />
book. This impairment relates to<br />
general tax, KiwiSaver and Working<br />
for Families Tax Credits debt.<br />
Impairment of debt<br />
relating to student<br />
loans<br />
Initial fair value<br />
write-down – student<br />
loans<br />
Impairment arising from objective<br />
evidence of one or more loss events<br />
that occurred after the initial<br />
recognition of the loan, and the loss<br />
event (or events) has had a reliably<br />
measurable impact on the estimated<br />
future cash flows of the collective<br />
book of student loan debt.<br />
The initial fair value write-down is<br />
the amount by which a student loan<br />
is discounted at the time the loan is<br />
made. The discounting reflects the<br />
expected cash flows over the life of<br />
the loan.<br />
Cash and cash equivalents<br />
Cash and cash equivalents include cash on hand, cash in transit<br />
and funds held in bank accounts.<br />
Receivables<br />
Receivables from taxes, levies and fines (and any penalties and<br />
interest associated with these activities) as well as social benefit<br />
receivables that do not arise out of a contract.<br />
Receivables are initially assessed at nominal value, that is,<br />
the receivable reflects the amount of tax owed, levy, fine<br />
charged, or social benefit debt payable. These receivables are<br />
subsequently adjusted for penalties and interest as they are<br />
charged, and tested for impairment annually. Interest and<br />
penalties charged on receivables are presented as revenue in<br />
the Schedule of <strong>Revenue</strong>.<br />
Allowances for estimated irrecoverable amounts are recognised<br />
when there is objective evidence that the asset is impaired.<br />
Impairment movements are recognised in the Schedule of<br />
Expenditure. Impairment losses can be reversed where there is<br />
evidence that the impaired value of the asset has increased.<br />
Financial models have been constructed for <strong>Inland</strong> <strong>Revenue</strong><br />
to calculate the impairment of Crown debt as well as child<br />
support debt. These models apply a number of assumptions on<br />
future repayment behaviour as well as economic assumptions<br />
such as the discount rate and inflation.<br />
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Financial instruments<br />
Financial assets<br />
Student loans<br />
Student loans are designated as loans and receivables under<br />
NZ IAS 39. Student loans are recognised initially at fair<br />
value, plus transaction costs, and subsequently measured at<br />
amortised cost using the effective interest rate method, and<br />
adjusted for impairment movements. Fair value on initial<br />
recognition of student loans is determined by projecting<br />
forward expected repayments and discounting them back at an<br />
appropriate discount rate. The difference between the amount<br />
lent and the fair value on initial recognition is expensed on<br />
initial recognition. The subsequent measurement at amortised<br />
cost is determined using the effective interest rate calculated<br />
at initial recognition. This rate is used to spread the Crown’s<br />
interest income across the life of the loan and determines the<br />
loan’s carrying value at each reporting date.<br />
Allowances for estimated irrecoverable amounts are recognised<br />
when there is objective evidence that <strong>Inland</strong> <strong>Revenue</strong> will not<br />
be able to collect all amounts due according to the original<br />
terms of the receivables. Impairment losses are incurred if,<br />
and only if, there is objective evidence of impairment as a<br />
result of one or more events that occurred after the initial<br />
recognition of the loan and a loss event has an impact on the<br />
estimated future cash flows of the loan that can be reliably<br />
measured. The amount of the provision is the difference<br />
between the asset’s carrying amount and estimated impaired<br />
value. The impairment losses are recognised in the Schedule of<br />
Expenditure.<br />
Contingent assets<br />
Contingent assets are recorded in the Schedule of Contingent<br />
Assets at the point at which the contingency is evident.<br />
Contingent assets are disclosed if it is probable that the<br />
benefits will be realised.<br />
Comparatives<br />
When presentation or classification of items in the financial<br />
schedules are amended or accounting policies are changed<br />
voluntarily, comparative figures have been restated to ensure<br />
consistency with the current period, unless it is impracticable<br />
to do so.<br />
Changes in accounting policies<br />
There have been no changes in accounting policies<br />
applicable to the preparation of financial schedules of Crown<br />
administered by <strong>Inland</strong> <strong>Revenue</strong>. All policies have been applied<br />
on a basis consistent with the previous year.<br />
There has been a change in the methodologies for the initial<br />
fair value write-down of student loans and contingent assets<br />
this year. Information on these changes is available in Note 3<br />
and Note 7, of the Notes to the Financial Schedules.<br />
Impairment losses can be reversed where there is evidence that<br />
the impaired value of the financial asset has increased.<br />
Actuarial models have been constructed by a third party to<br />
calculate the impairment of student loan debt. Refer to Note 3<br />
for more information on this model.<br />
Financial liabilities<br />
Financial liabilities are recognised initially at fair value, less<br />
transaction costs. Financial liabilities entered into with a<br />
duration of less than 12 months are recognised at their<br />
nominal value, unless the effect of discounting is material.<br />
Contingent liabilities<br />
Contingent liabilities are recorded in the Schedule of Contingent<br />
Liabilities at the point at which the contingency is evident.<br />
Contingent liabilities are disclosed if the possibility that they<br />
will crystallise is not remote.<br />
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notes to the FINaNCIal SChedules<br />
NOTE 1: RECEIVABLES<br />
Receivables include general tax receivables, Working for Families Tax Credits and KiwiSaver debt, and excludes student loans and<br />
child support debt.<br />
The recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical<br />
debt data, deducting an estimate of service costs and then discounting using an appropriate rate. If the recoverable amount of<br />
the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the<br />
recoverable amount is more, the carrying amount is increased.<br />
2011–12 2010–11<br />
$000 $000<br />
Receivables<br />
Gross receivables 11,157,058 10,969,946<br />
Impairment receivables (4,406,707) (4,142,767)<br />
Carrying value receivables 6,750,351 6,827,179<br />
Current and non-current apportionment<br />
Receivables – current 6,341,051 6,484,079<br />
Receivables – non-current 409,300 343,100<br />
Carrying value receivables 6,750,351 6,827,179<br />
Ageing profile of receivables – gross<br />
Not due 5,752,946 5,859,550<br />
Past due 1<br />
Less than 6 months 883,894 982,436<br />
6–12 months 453,053 467,202<br />
1–2 years 899,137 1,013,907<br />
Greater than 2 years 3,168,028 2,646,851<br />
Total past due 5,404,112 5,110,396<br />
Total receivables – gross 11,157,058 10,969,946<br />
% Past due 48% 47%<br />
Receivables – impairment<br />
Opening balance 4,142,767 3,918,813<br />
Impairment losses recognised 1,112,558 1,009,420<br />
Amounts written off as uncollectable (848,618) (785,466)<br />
Closing balance 4,406,707 4,142,767<br />
1<br />
The ageing profile of total past due in this note is based on debt element data that separates each component of a taxpayer’s debt with <strong>Inland</strong> <strong>Revenue</strong>. The<br />
debt-ageing profile presented in the front of this Annual Report is based on case information which uses a weighted average of debt element information. An<br />
individual taxpayer may have multiple debt elements (eg, by tax type, by return period) that are represented within a single debt case.<br />
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Receivables are classified as past due when any outstanding revenue is not paid by the taxpayer’s due date. Due dates will vary,<br />
depending on the type of revenue outstanding (eg, income tax, GST, KiwiSaver) and the taxpayer’s balance date. Past due debt<br />
includes debt collected under instalment, debt under dispute, default assessments and debts of taxpayers who are bankrupt,<br />
in receivership or in liquidation. <strong>Inland</strong> <strong>Revenue</strong> has debt management policies and procedures in place to actively manage the<br />
collection of past due debt.<br />
The estimated recoverable amount of this portfolio and significant assumptions underpinning the valuation are:<br />
2011–12 2010–11<br />
$000 $000<br />
Recoverable amount of receivables not due 5,734,710 5,825,389<br />
Recoverable amount of receivables past due 1,015,641 1,001,790<br />
Use-of-money interest rate 8.40% 8.89%<br />
Discount rate 5.60% 6.10%<br />
Impact on the recoverable amount of a 2% increase in discount rate (18,000) (16,000)<br />
Impact on the recoverable amount of a 2% decrease in discount rate 20,000 17,000<br />
The fair value of receivables is not materially different from the carrying value.<br />
Credit risk<br />
In determining the recoverability of receivables <strong>Inland</strong> <strong>Revenue</strong> uses information about the extent to which the taxpayer is<br />
contesting the assessment and experience of the outcomes of such disputes, from lateness of payment and other information<br />
obtained from credit collection actions taken.<br />
Under the Tax Administration Act 1994 <strong>Inland</strong> <strong>Revenue</strong> has broad powers to ensure that people meet their obligations. Part 10 of<br />
the Act sets out the powers of the Commissioner to recover unpaid tax.<br />
The Crown does not hold any collateral or any other credit enhancements over receivables which are past due.<br />
Receivables are widely dispersed over a number of taxpayers and as a result the Crown does not have any material individual<br />
concentrations of credit risk.<br />
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NOTE 2: RECEIVABLES – CHILD SUPPORT<br />
The Crown collects monies from liable parents and remits this to custodial parents. The child support receivable represents<br />
penalties which have been incurred as a result of the under-payment of the debt, and in the main, relates to penalties imposed on<br />
liable parents who default on their payments.<br />
The recovery of debt is challenging as 97% of child support debt is greater than two years old. There are limited provisions under<br />
child support legislation to remit penalties. The non-recoverability of penalties has been allowed for in the impairment figure.<br />
Impairment is calculated by forecasting the expected repayments of this penalty debt based on analysis of historical debt data,<br />
deducting an estimate of service costs and then discounted.<br />
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<br />
other credit enhancements over these receivables.<br />
Child support penalties grow exponentially due to their compounding nature, however, penalty debt has grown at a slower rate as<br />
a result of system purifications undertaken this year to correct child support accounts with incorrect penalties. These purifications<br />
have decreased child support penalty revenue and penalty debt, which in turn decreased the impairment.<br />
2011–12 2010–11<br />
$000 $000<br />
Receivables – child support<br />
Gross receivables 1,817,551 1,742,902<br />
Impairment receivables (1,759,772) (1,687,496)<br />
Total receivables – child support 57,779 55,406<br />
Current and non-current apportionment<br />
Receivables – current 3,030 3,030<br />
Receivables – non-current 54,749 52,376<br />
Carrying value receivables 57,779 55,406<br />
Aging profile of receivables – gross<br />
Not due – –<br />
Past due<br />
Less than 12 months 81,501 316,999<br />
1–2 years 316,999 376,634<br />
Greater than 2 years 1,419,051 1,049,269<br />
Total past due 1,817,551 1,742,902<br />
Total receivables – gross 1,817,551 1,742,902<br />
% Past due 100% 100%<br />
Impairment of receivables – child support<br />
Opening balance 1,687,496 1,406,694<br />
Impairment losses recognised 72,276 280,802<br />
Closing balance 1,759,772 1,687,496<br />
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NOTE 3: STUDENT LOANS<br />
From 1 April <strong>2012</strong> <strong>Inland</strong> <strong>Revenue</strong> is responsible for meeting the initial fair value write-down expense on new lending and Vote<br />
<strong>Revenue</strong> holds the appropriation for this. <strong>Inland</strong> <strong>Revenue</strong> calculates the initial fair value write-down on lending net of refunds.<br />
<strong>Inland</strong> <strong>Revenue</strong> and the Ministry of Social Development have changed the process for student loans. StudyLink (Ministry of Social<br />
Development) continues to process new lending, a small portion of loan repayments from borrowers, and fee refunds when<br />
students receive a partial or full fee refund. From 1 April <strong>2012</strong> StudyLink transactions are transferred to <strong>Inland</strong> <strong>Revenue</strong> on a daily<br />
basis rather than an annual basis. As a result <strong>Inland</strong> <strong>Revenue</strong> holds the total nominal debt and carrying value of the scheme.<br />
Previously both agencies held a portion of nominal debt and carrying value.<br />
2011–12 2010–11<br />
$000 $000<br />
Nominal value student loans 12,968,652 10,730,926<br />
Adjustment to nominal value (4,677,770) (4,040,713)<br />
Carrying value student loans 8,290,882 6,690,213<br />
Current and non-current apportionment<br />
Student loans – current 930,000 706,000<br />
Student loans – non-current 7,360,882 5,984,213<br />
Carrying value student loans 8,290,882 6,690,213<br />
Movement during the year<br />
Opening balance 6,690,213 6,104,251<br />
Impairment reversal 286,000 94,000<br />
Loans transferred from Ministry of Social Development 2,840,784 1,442,129<br />
Fair value write-down on loans transferred from Ministry of Social Development (1,129,676) (679,926)<br />
Initial fair value write-down – student loans (103,175) –<br />
Repayments (767,716) (690,609)<br />
Interest unwind 474,452 420,368<br />
Carrying value student loans 8,290,882 6,690,213<br />
Fair value student loans<br />
Opening balance 6,443,000 5,589,600<br />
Loans transferred from Ministry of Social Development 1,711,108 759,000<br />
Initial fair value write-down – student loans (103,175) –<br />
Repayments (767,716) (690,609)<br />
Interest unwind 480,783 431,000<br />
Administration costs 31,000 24,009<br />
Change in expense assumption (37,000) –<br />
Change in fair value discount rate 436,000 221,000<br />
Impairment reversal 333,000 109,000<br />
Fair value student loans 8,527,000 6,443,000<br />
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Student loan valuation model<br />
The student loan valuation model reflects current student loan policy and macro-economic assumptions. As such, the book value<br />
is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic<br />
factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers.<br />
The data for the student loan valuation model has been integrated by Statistics New Zealand from files provided by <strong>Inland</strong> <strong>Revenue</strong>,<br />
Ministry of Social Development and Ministry of Education. The current data is up to 31 March 2011 and contains information<br />
on borrowings, repayments, income, educational factors and socio-economic factors amongst others, and has been analysed and<br />
incorporated into the valuation model. This integrated data has been supplemented by less detailed, but more recent data to value<br />
student loans at balance date. Given the lead time required to compile and analyse the detailed integrated data it is expected that<br />
there will always be a lag time between the integrated dataset and balance date.<br />
The significant assumptions behind the impaired value and fair value are:<br />
2011–12 2010–11<br />
Carrying value<br />
Carrying value ($000) 8,290,882 6,690,213<br />
Effective interest rate 7.20% 7.11%<br />
Interest rate applied to loans for overseas borrowers 6.4%–6.6% 6.6%–6.7%<br />
Consumer Price Index 1.8%–2.5% 2.5%–2.8%<br />
Future salary inflation 3.2%–3.5% 3.5%–3.8%<br />
Fair value is the amount for which the loan book could be exchanged between knowledgeable, willing parties in an arm’s-length<br />
transaction as at 30 June <strong>2012</strong>. It is determined by discounting the future cash flows at an appropriate discount rate.<br />
Fair values will differ from carrying values due to changes in market interest rates, as the carrying value is not adjusted for such<br />
changes whereas the fair value was calculated on a discount rate that was current at 30 June <strong>2012</strong>. At that date, the fair value was<br />
calculated on a discount rate of 6.03% whereas a weighted average discount rate of 7.20% was used for the carrying value. The<br />
difference between fair value and carrying value does not represent an impairment of the asset.<br />
2011–12 2010–11<br />
Fair value<br />
Fair value ($000) 8,527,000 6,443,000<br />
Discount rate 6.03% 7.10%<br />
Impact on fair value of a 1% increase in discount rate ($000) (396,000) (373,000)<br />
Impact on fair value of a 1% decrease in discount rate ($000) 432,000 426,000<br />
The Student Loan Scheme Annual Report contains more information on the student loan scheme.<br />
In 2011–12 there was a reversal of impairment of the student loan asset totalling $286.0 million, increasing the value of the student<br />
loan asset (in 2010–11 there was a reversal of impairment of $94.0 million). The current year impairment is mainly driven by the<br />
Budget <strong>2012</strong> policy decision to increase the student loan repayment rate from 10% to 12%. This policy decision increased the<br />
forecast future repayments of borrowers resulting in a reversal of impairment. Macroeconomic effects and data and modelling also<br />
had an impact this year. Data is still very sensitive to small changes in certain areas as can be seen from the sources of impairment<br />
set out below:<br />
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2011–12 2010–11<br />
$000 $000<br />
Sources of impairment<br />
Policy and legislative changes 268,000 91,000<br />
Revision of predictive sub-models 57,000 –<br />
Experience variance as a result of new data 26,000 (1,000)<br />
Change in demographic profile of participants 24,000 (21,000)<br />
Revision of mortality and bankruptcy rates (36,000) –<br />
Macroeconomic changes 1 (85,000) 52,000<br />
Remaining model and data changes 32,000 (27,000)<br />
Total sources of impairment 286,000 94,000<br />
1<br />
The remeasurement adjustment portion of the impairment is an expense of $85.0 million. The Schedule of Expenditure and the note above includes<br />
remeasurement adjustments in the impairment figure. However, the Statement of Appropriations excludes remeasurement adjustments. The remeasurement<br />
relates to changes in the macroeconomic assumptions used for the valuation of the receivable.<br />
Credit risk<br />
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<br />
scheme to incur a loss.<br />
The student loan scheme does not require borrowers to provide any collateral or security to support advances made. As the total<br />
sum advanced is widely dispersed over a large number of borrowers, the student loan scheme does not have any material individual<br />
concentrations of credit risk.<br />
The credit risk is reduced by collection of compulsory repayments through the tax system.<br />
Interest rate risk<br />
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in interest rates. Changes could<br />
impact on the Government’s return on loans advanced. The interest rate and the interest write-off provisions attached to student<br />
loans are set by the Government.<br />
NOTE 4: REFUNdablES AND payablES<br />
Refundables and payables are recognised at their nominal value as they are due within 12 months. The nominal value is considered<br />
to approximate their fair value.<br />
Taxes refundable represent refunds due to taxpayers as a result of assessments being filed. Refunds are issued to taxpayers once<br />
account and refund reviews are complete.<br />
2011–12 2010–11<br />
$000 $000<br />
KiwiSaver payable 568,256 913,783<br />
Paid parental leave payable 5,387 4,327<br />
Research and development tax credits payable 5,000 95,817<br />
Taxes refundable 2,744,602 2,723,672<br />
Total refundables and payables 3,323,245 3,737,599<br />
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NOTE 5: UNCLAIMED MONIES<br />
Under the Unclaimed Money Act 1971, entities (eg, financial institutions, insurance companies) hand over money not claimed after<br />
six years to <strong>Inland</strong> <strong>Revenue</strong>. The funds are repaid to the entitled owner on proof of identification.<br />
NOTE 6: RESERVE SCHEMES<br />
2011–12 2010–11<br />
$000 $000<br />
Adverse event income equalisation 63 108<br />
Environmental restoration 54,927 51,650<br />
Income equalisation 223,185 175,007<br />
Total reserve schemes 278,175 226,765<br />
The adverse event income equalisation scheme operates in addition to the income equalisation scheme. Interest at a rate of 6.5%<br />
is paid on deposits. Deposits can be withdrawn immediately, but are transferred to the main income equalisation account if not<br />
withdrawn within 12 months of the deposit.<br />
The environmental restoration account allows businesses to set aside money to cover restoration costs for monitoring, avoiding,<br />
remedying or mitigating the detrimental environmental effects which may occur in later years. Interest at a rate of 3% is paid on the<br />
deposit while it is held in the scheme. Payment is made when the environmental restoration costs are incurred.<br />
The income equalisation scheme allows taxpayers in the farming, fishing and forestry industries to make payments during the year<br />
by way of income equalisation deposits. Interest is paid at a rate of 3%, provided that no withdrawals are made within 12 months of<br />
the date of the deposit.<br />
NOTE 7: CONTINGENCIES<br />
Contingent liabilities<br />
Legal proceedings and disputes – assessed<br />
Contingent liabilities arise if a case is still not resolved at the end of the disputes process, <strong>Inland</strong> <strong>Revenue</strong> will issue an amended<br />
assessment to the taxpayer and recognise revenue. The taxpayer is then able to file proceedings with the Taxation Review Authority<br />
or the High Court disputing the assessment. These are recorded in the Schedule of Contingent Liabilities as legal proceedings and<br />
disputes – assessed. The contingent liability is the maximum liability <strong>Inland</strong> <strong>Revenue</strong> has in respect of these cases.<br />
Unclaimed monies<br />
Unclaimed monies are repaid to the entitled owner on proof of identification. Based on trends from prior years, the estimated likely<br />
amount of unclaimed monies that will be paid out in the next 12 months is recorded as a liability in the Schedule of Liabilities and<br />
the remainder is recorded as a contingent liability in the Schedule of Contingent Liabilities.<br />
Contingent assets<br />
Disputes – non-assessed<br />
Contingent assets arise as part of the tax dispute process, for example, when <strong>Inland</strong> <strong>Revenue</strong> has advised a taxpayer of a proposed<br />
adjustment to their tax assessment through a notice of proposed adjustment. At this point there has been no amended assessment<br />
issued and no revenue has been recognised so these adjustments are recorded in the Schedule of Contingent Assets as disputes –<br />
non-assessed. The taxpayer has the right to dispute this adjustment and a disputes resolution process is entered into. <strong>Inland</strong> <strong>Revenue</strong><br />
quantifies a contingent asset based on the likely cash collectable for the disputes process based on experience and similar prior<br />
cases, net of losses carried forward.<br />
Contingent assets can also arise where the taxpayer has not filed an assessment but <strong>Inland</strong> <strong>Revenue</strong> believes they are liable for<br />
tax. In this situation <strong>Inland</strong> <strong>Revenue</strong> will issue an assessment. Where the taxpayer chooses to dispute the <strong>Inland</strong> <strong>Revenue</strong> initiated<br />
assessment, the assessment is not recognised as revenue and a contingent asset is recorded in the Schedule of Contingent Assets. The<br />
value of the asset is based on the likely collectable portion of the default assessment, net of losses carried forward.<br />
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This financial year there has been a change of methodology to provide a more prudent view of contingent assets for both types of<br />
disputes listed above. Last year contingent assets were quantified based on the likely assessment for the disputes process not the<br />
likely cash collectable.<br />
NOTE 8: ACCIDENT COMPENSATION COLLECTION<br />
2011–12 2010–11<br />
$000 $000<br />
Earner premium – employees – provisional 1,688,720 1,701,367<br />
Total accident compensation collection 1,688,720 1,701,367<br />
<strong>Inland</strong> <strong>Revenue</strong> collects these levies on behalf of the Accident Compensation Corporation and passes the monies directly to them.<br />
The levies do not appear on the Crown schedules.<br />
NOTE 9: EVENTS AFTER balaNCE daTE<br />
No events have occurred between the balance date and date of signing these financial schedules that materially affect the financial<br />
schedules.<br />
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AUDIT <strong>REPORT</strong><br />
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independENT audITor’s <strong>REPORT</strong><br />
To the readers of <strong>Inland</strong> <strong>Revenue</strong>’s financial statements, non-financial performance information and schedules of<br />
non-departmental activities for the year ended 30 June <strong>2012</strong><br />
The Auditor-General is the auditor of <strong>Inland</strong> <strong>Revenue</strong> (the <strong>Department</strong>). The Auditor-General has appointed me, Ajay Sharma, using the<br />
staff and resources of Audit New Zealand, to carry out the audit of the financial statements, non-financial performance information and<br />
the schedules of non-departmental activities of the <strong>Department</strong> on her behalf.<br />
We have audited:<br />
""<br />
the financial statements of the <strong>Department</strong> on pages 82 to 114, that comprise the statement of financial position, statement<br />
of commitments, statement of contingent liabilities and contingent assets as at 30 June <strong>2012</strong>, the statement of comprehensive<br />
income, statement of changes in taxpayers’ funds, statement of departmental expenses and capital expenditure against<br />
appropriations, statement of unappropriated expenditure and capital expenditure, statement of cash flows and statement of<br />
accounting policies for the year ended on that date and the notes to the financial statements that include other explanatory<br />
information;<br />
""<br />
the non-financial performance information of the <strong>Department</strong> that comprises the statement of service performance on<br />
pages 53 to 80 and the report about outcomes on pages 29 and 40 to 41;<br />
""<br />
the schedules of non-departmental activities of the <strong>Department</strong> on pages 116 to 135 that comprise the schedule of assets,<br />
schedule of liabilities and schedule of contingent liabilities and contingent assets as at 30 June <strong>2012</strong>, the schedule of expenditure,<br />
statement of appropriations, statement of unappropriated expenditure, schedule of revenue, schedule of trust money, schedule<br />
of movements between departments and the statement of accounting policies, for the year ended on that date and the notes to<br />
the schedules that include other explanatory information.<br />
Opinion<br />
In our opinion:<br />
""<br />
the financial statements of the <strong>Department</strong> on pages 82 to 114:<br />
••<br />
comply with generally accepted accounting practice in New Zealand; and<br />
••<br />
fairly reflect the <strong>Department</strong>’s:<br />
−−<br />
financial position as at 30 June <strong>2012</strong>;<br />
−−<br />
financial performance and cash flows for the year ended on that date;<br />
−−<br />
expenses and capital expenditure incurred against each appropriation administered by the <strong>Department</strong> and each class of<br />
outputs included in each output expense appropriation for the year ended 30 June <strong>2012</strong>; and<br />
−−<br />
unappropriated expenses and capital expenditure for the year ended 30 June <strong>2012</strong>.<br />
""<br />
the non-financial performance information of the <strong>Department</strong> on pages 29 and 40 to 41 and 53 to 80:<br />
••<br />
complies with generally accepted accounting practice in New Zealand; and<br />
••<br />
fairly reflects the <strong>Department</strong>’s service performance and outcomes for the year ended 30 June <strong>2012</strong>, including for each class of<br />
outputs:<br />
−−<br />
−−<br />
its service performance compared with the forecasts in the statement of forecast service performance at the start of the<br />
financial year; and<br />
its actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the<br />
start of the financial year.<br />
138 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
""<br />
the schedules of non-departmental activities of the <strong>Department</strong> on pages 116 to 135:<br />
••<br />
comply with generally accepted accounting practice in New Zealand; and<br />
••<br />
fairly reflect:<br />
−−<br />
−−<br />
the assets, liabilities, contingencies, and trust monies as at 30 June <strong>2012</strong> managed by the <strong>Department</strong> on behalf of the Crown;<br />
and<br />
the revenues, expenditure, expenditure against appropriations, movements between <strong>Department</strong>s, unappropriated<br />
expenditure and trust monies for the year ended on that date managed by the <strong>Department</strong> on behalf of the Crown.<br />
Our audit was completed on 28 September <strong>2012</strong>. This is the date at which our opinion is expressed.<br />
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Chief Executive and our<br />
responsibilities, and we explain our independence.<br />
Basis of opinion<br />
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International<br />
Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out<br />
our audit to obtain reasonable assurance about whether the financial statements, non-financial performance information and the<br />
schedules of non-departmental activities are free from material misstatement.<br />
Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of<br />
the financial statements, non-financial performance information and the schedules of non-departmental activities. If we had found<br />
material misstatements that were not corrected, we would have referred to them in our opinion.<br />
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements,<br />
non-financial performance information and the schedules of non-departmental activities. The procedures selected depend on<br />
our judgement, including our assessment of risks of material misstatement of the financial statements, non-financial performance<br />
information and the schedules of non-departmental activities, whether due to fraud or error. In making those risk assessments,<br />
we consider internal control relevant to the <strong>Department</strong>’s preparation of the financial statements, non-financial performance<br />
information and the schedules of non-departmental activities that fairly reflect the matters to which they relate. We consider<br />
internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing<br />
an opinion on the effectiveness of the <strong>Department</strong>’s internal control.<br />
An audit also involves evaluating:<br />
""<br />
the appropriateness of accounting policies used and whether they have been consistently applied;<br />
""<br />
the reasonableness of the significant accounting estimates and judgements made by the Chief Executive;<br />
""<br />
the appropriateness of the reported non-financial performance information within the <strong>Department</strong>’s framework for reporting<br />
performance;<br />
""<br />
the adequacy of all disclosures in the financial statements, non-financial performance information and the schedules of<br />
non-departmental activities; and<br />
""<br />
the overall presentation of the financial statements, non-financial performance information and the schedules of<br />
non-departmental activities.<br />
We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements, non-financial<br />
performance information and the schedules of non-departmental activities. We have obtained all the information and explanations<br />
we have required and we believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.<br />
ird.govt.nz<br />
aUDIT RepoRT<br />
139
Responsibilities of the Chief Executive<br />
The Chief Executive is responsible for preparing:<br />
""<br />
financial statements and non-financial performance information that:<br />
••<br />
comply with generally accepted accounting practice in New Zealand;<br />
••<br />
fairly reflect the <strong>Department</strong>’s financial position, financial performance, cash flows, expenses and capital expenditure incurred<br />
against each appropriation and its unappropriated expenses and capital expenditure; and<br />
••<br />
fairly reflect its service performance and outcomes; and<br />
""<br />
schedules of non-departmental activities, in accordance with the Treasury Instructions 2011 that:<br />
••<br />
comply with generally accepted accounting practice in New Zealand; and<br />
••<br />
fairly reflect those activities managed by the <strong>Department</strong> on behalf of the Crown.<br />
The Chief Executive is also responsible for such internal control as is determined is necessary to enable the preparation of financial<br />
statements, non-financial performance information and schedules of non-departmental activities that are free from material<br />
misstatement, whether due to fraud or error.<br />
The Chief Executive’s responsibilities arise from the Public Finance Act 1989.<br />
Responsibilities of the Auditor<br />
We are responsible for expressing an independent opinion on the financial statements, non-financial performance information and<br />
the schedules of non-departmental activities and reporting that opinion to you based on our audit. Our responsibility arises from<br />
section 15 of the Public Audit Act 2001 and the Public Finance Act 1989.<br />
Independence<br />
When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the<br />
independence requirements of the New Zealand Institute of Chartered Accountants.<br />
Other than the audit, we have no relationship with or interests in the <strong>Department</strong>.<br />
Ajay Sharma<br />
Audit New Zealand<br />
On behalf of the Auditor-General<br />
Wellington, New Zealand<br />
140 New Zealand <strong>Inland</strong> <strong>Revenue</strong> Annual Report <strong>2012</strong> ird.govt.nz
Matters relating to the electronic presentation of the audited financial statements<br />
This audit report relates to the financial statements, non-financial performance information and schedules of nondepartmental<br />
activities of the <strong>Inland</strong> <strong>Revenue</strong> <strong>Department</strong> for the year ended 30 June <strong>2012</strong> included on <strong>Inland</strong> <strong>Revenue</strong>’s<br />
web site. The Commissioner is responsible for the maintenance and integrity of <strong>Inland</strong> <strong>Revenue</strong>’s web site. We have not been<br />
engaged to report on the integrity of <strong>Inland</strong> <strong>Revenue</strong>’s web site. We accept no responsibility for any changes that may have<br />
occurred to the financial statements, non-financial performance information and schedules of non-departmental activities<br />
since they were initially presented on the web site.<br />
The audit report refers only to the financial statements, non-financial performance information and schedules of nondepartmental<br />
activities named above. It does not provide an opinion on any other information which may have been<br />
hyperlinked to/from the financial statements, non-financial performance information or schedules of non-departmental<br />
activities. If readers of this report are concerned with the inherent risks arising from electronic data communication they<br />
should refer to the published hard copy of the audited financial statements, non-financial performance information and<br />
schedules of non-departmental activities and related audit report dated 28 September <strong>2012</strong> to confirm the information<br />
included in the audited financial statements, non-financial performance information and schedules of non-departmental<br />
activities presented on this web site.<br />
Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in<br />
other jurisdictions.