ANNUAL REPORT 2012 - Inland Revenue Department

annual report
2012
B-23

Crown Copyright © 2012
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ISSN 2230-6005 (Print)
ISSN 2230-6013 (Online)
ird.govt.nz
Presented to the House of Representatives pursuant to the Public Finance Act 1989 and the Tax Administration Act 1994.

CONTENTS
Commissioner’s introduction 5
PART 1 – Our strategic direction 9
PART 2 – Making it easier for customers to comply 17
PART 3 – Detecting and responding to non-compliant customers 21
PART 4 – Our performance 27
PART 5 – Improving the way we work 35
APPENDIX 40
PART 6 – Statement of Service Performance 51
PART 7 – Departmental Financial Statements 81
PART 8 – Financial Schedules – Crown as administered by
Inland Revenue
115
Audit report 137
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3

To the Minister OF Revenue
Under the provisions of the Public Finance Act 1989 and the
Tax Administration Act 1994, I present the following report
on my administration of the Inland Revenue Acts for the
year ended 30 June 2012, and on the operations of the Inland
Revenue Department for that year, together with the audited
financial statements.
Naomi Ferguson
Chief Executive and Commissioner of Inland Revenue
4 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Commissioner’s INTROduCTION
This is my first Annual Report as the Commissioner of
Inland Revenue, having taken over the role from Bob Russell in
July 2012. I thank Bob for his leadership of Inland Revenue over
the past six years. I also acknowledge his focus on ensuring we
improved the quality of the services we provide to customers
and our key stakeholders.
We had a number of highlights this year despite facing
significant operating challenges, especially the effort we have
put into supporting the Canterbury rebuild.
Our FOCus ON the GovERNMENT’s
pRIORITIES
In early 2012, the Government announced its priorities and
Better Public Services programme. We are committed to
making positive contributions to this in the coming years. This
builds on work done in the past few years with a number of
government agencies to develop and deliver effective services.
We are committed to improving our performance to ensure
that we provide better services to our customers, that deliver
value for money for government.
Transforming the way we do our work
Our business transformation programme will help us to deliver
on the goals set out in IR for the future and respond to the
Government’s priorities and Better Public Services programme.
It will also result in fundamental changes to the way we work.
Due to the complexity of the changes required, this will be a
long-term work programme. The scale of the changes needed
to transform our business will present us with resource
challenges that we need to manage carefully.
During the year, we worked closely with our business partner,
Capgemini, to build an in-depth view of our business that
will inform our thinking about our future transformation. We
are developing options for the transformation effort, which
Ministers will consider later this year.
Supporting the CaNTERbury REbuild
I am proud of our people in Christchurch. Their work in
difficult conditions provides inspiration to all of us. New ways
of working in Christchurch have given us insights about how
to work together with other government agencies. We will use
these lessons to design new service approaches that we will
adopt in other sites.
Our loss of capacity and the disruption associated with
working out of a large number of sites in Christchurch,
continues to cause service performance issues. We moved
some of the functions carried out in Christchurch to our
other sites, which has helped us maintain service levels for our
customers.
We are playing an active role in the rebuilding of Christchurch
and will continue to assist a number of public and private
sector agencies as they go about their various activities.
Managing COMpliaNCE
The ongoing disruption in Christchurch, a large volume of work
carried over from June 2011 and other capacity issues affected
our service performance this year. We achieved 38 out of 55 of
our performance standards, down on last year’s result. This was
disappointing given our results in recent years.
We manage compliance by making it easier for our customers
to self-manage their obligations and by taking action to
improve the behaviour of non-compliant customers.
We are focusing on providing more services online and
reducing the need for customers to contact us. This year, we
introduced a new mobile app for smartphones. This was a first
for us. The app gives our customers access to some of our most
commonly used online services. The new voice ID function
in our telephone system lets customers quickly verify their
identity when they call us, which saves them 40 seconds per
call. We introduced a new service for GST customers to make it
faster and easier for them to file their returns online.
Our focus on debt prevention and early intervention has
helped reduce debt under two years old by 16% this year.
We have also focused our recovery and enforcement action
on the cases with the greatest potential for cash collection.
While these have produced good results, we continue to face
a challenge with debt over two years old. Funding received in
Budget 2012 will help us address this issue in the future.
We continued to address non-compliance in our hidden
economy and property programmes. We produced good
returns on investment in these programmes, either meeting or
exceeding our two-year targets.
Managing debt and addressing non-compliance are both areas
where we expect to see ongoing improvements.
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5

Challenges we face
We will need to address a number of challenges in the coming
year, including system constraints and the fiscal environment
we operate in.
Our ageing infrastructure continues to constrain our ability
to easily and economically deliver system changes to support
legislative requirements. Our business transformation
programme will address these issues in the long term. We are
also facing ongoing financial pressures associated with reducing
baselines and the need to find funding for major business
transformation projects. We are carefully managing these
challenges to ensure we can deliver what we have committed
to and also ensure that we make ongoing efficiency gains for
government.
I am committed to leading Inland Revenue, driving the change
programme, delivering better services for our customers and
meeting the Government’s priorities.
The commitment, professionalism and expertise of our people
give me great confidence that we will continue to deliver
improved outcomes for all New Zealanders.
Naomi Ferguson
Chief Executive and Commissioner of Inland Revenue
6 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

INLAND REVENUE’S chaRTER
How we will
work with you
Inland Revenue collects money to pay for public services. We help
people to meet their obligations and receive their entitlements.
We work within the Inland Revenue Acts and other relevant laws,
and our actions are consistent with the spirit of the Treaty of Waitangi.
How we will
work with you
Reliable advice
and information
Confidentiality
We will be easy to deal with, prompt,
courteous and professional.
We will follow through on what
we say we will do.
We will be responsive to individual,
cultural and special needs.
The person you are dealing with will
give you their name.
We will value your feedback and use
it to improve our services.
We will provide you with reliable and
correct advice and information about
your entitlements and obligations.
We will assist you to get in touch
with the right people for your needs.
We will be well-trained and
competent.
We will keep looking for better
ways to provide you with advice
and information.
We will treat all information about
you as private and confidential, and
keep it secure. We will only use or
disclose it in accordance with the
law.
Consistency
and equity
Your right to
question us
We will apply the law consistently so
everyone receives their entitlements
and pays the right amount.
We will take your particular
circumstances into account as
far as the law allows.
We will make it easy for you to
question the information, advice
and service we give you. We will
inform you about options available
if you disagree with us, and we will
work with you to reach an outcome
quickly and simply.
For this charter to work effectively,
we rely on each customer to provide
all relevant information when dealing
with Inland Revenue.
Naomi Ferguson
Commissioner of Inland Revenue
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7

Part 1
Our STRATegic DIReCTION
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PART 1
Our stRAtegic direction
9

Government pRIORITIES
Inland Revenue makes an important contribution to the
economic and social wellbeing of New Zealanders by collecting
revenue and making payments. We contribute significantly to
the achievement of the Government’s priorities, including the
Better Public Services programme. We also interact with more
New Zealanders than any other government agency.
In January 2012, the Government outlined these four priorities:
""
To responsibly manage the Government’s finances.
""
To build a more competitive and productive economy.
""
To deliver better public services within tight financial
constraints.
""
To rebuild Canterbury.
Much of the work we do aligns to these priorities. Our tax
policy work programme continues to improve New Zealand’s
tax and social policy legislation. We continue to implement our
e-services programme, which makes it easier for customers to
interact with us. While the ongoing effects of the Canterbury
earthquakes continue to present us with challenges, they also
provide us with opportunities for innovative solutions we can
apply to other parts of our business.
Better public servICES
The Government’s Better Public Services programme sets out
ten areas where the public sector can deliver better results and
improved services for New Zealanders.
We are contributing significantly to the achievement of two
results. We will also make a contribution to a third, see Figure 1.
These results are an important focus for us. We will continue to
develop activities to contribute to this programme.
Figure 1 –
Our CONTRIBUTION TO Better Public Services results
Result
Result 9
New Zealand
businesses have a onestop
online shop for
all government advice
and support they need
to run and grow their
business.
Result 10
New Zealanders
can complete their
transactions with
government easily in a
digital environment.
Result 7
Reduce the rates of
total crime, violent
crime and youth crime.
Our contribution to date
• We are working with other
agencies to build a common
view of the services government
delivers to businesses.
• We are using the lessons we
learned from the Christchurch
Business Recovery Centre,
established after the 2010–11
earthquakes, to scope and shape
the work for this programme.
• We are one of the leaders in
providing online services and
products. We have more than
one million customers registered
for our online services.
• We introduced a mobile phone
app that lets people access a
subset of our services.
• We have over 400,000 people
registered for voice ID, which
makes it easier for customers to
access our services.
• We have been working on a
proposal to provide taxpayer
information to law enforcement
agencies for serious offences.
10 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Our STRaTEGIC dIRECTION
We set out our mission and strategic direction in our
document IR for the future. It describes what we want to
achieve for New Zealanders. It also aligns with the Government
priorities and the Better Public Services programme.
Our mission is:
We contribute to the economic and social wellbeing of
New Zealanders by collecting and distributing money.
Our two outcomes support our mission:
""
Revenue is available to fund government programmes
through people meeting payment obligations of their own
accord.
""
People receive payments they are entitled to, enabling
them to participate in society.
See page 28 for information about the revenue we collected
and the disbursements we made. Our contribution to our
outcomes is measured through our impact indicators (main
measures, see figure 6).
PerformaNCE measuREMENT
framework
Our performance measurement framework (PMF), measures
and demonstrates the success of our strategies and related
interventions (see figure 2). Our performance for 2011–12
is discussed in Part 4.
Figure 2 –
PeRFORMANCe meASURement FRAMeWORk
Our mission
We contribute to the economic and social wellbeing of New Zealand
by collecting and distributing money
Our outcomes – the goals we are aiming to achieve
Revenue is available to fund government programmes through people
meeting payment obligations of their own accord
Our vision
A world-class revenue organisation recognised for
service and excellence
People receive payments they are entitled to, enabling them to
participate in society
Value for
money
Our impacts – the difference we want to make
We improve compliance
by ensuring:
More customers are able to
self-manage
Our outputs – the activities we do
Services to inform the public about
entitlements and meeting obligations
More customers register
and report accurate
information when required
Our priorities – the key areas we will direct our effort and resources to
We retain, develop
and attract high-calibre
people with the skills
required in the future
– enabling a culture of
service and excellence
We proactively influence
voluntary compliance
and address the causes
of compliance risk and
threats through a range
of interventions
Services to process obligations and
entitlements
More customers claim their
correct entitlements
We move customers to
cost-effective channels
while creating an
environment to make
it easy for customers to
self-manage
Compliance improves if:
Policy advice
More customers pay and file
information on time
Management of debt and
outstanding returns
We improve the
efficiency and effectiveness
of government through
working with other
agencies and private
providers
We use our information
to make timely decisions
and build an intelligenceled
organisation
We address non-compliance
so that:
The behaviour of noncompliant
customers
improves
Taxpayer audit
Our systems meet
current and future needs
Effectiveness Efficiency
Our inputs – the way we use our resources
People Systems Assets
Economy
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Our stRAtegic direction
11

The PMF shows how our resources (our inputs) need to be
organised and used (our strategic priorities) to deliver the
services that we provide to New Zealanders (our outputs).
Through these activities we aim to make a difference by
changing customer behaviour (our impacts) and contribute to
our overall aims (our outcomes).
We also recognise that getting best value for public funds is
important. The PMF shows how we carefully consider the
relationship between our inputs, outputs and impacts to
ensure we stay focused on delivering value for money.
We regularly review the PMF to check that it is relevant to our
overall strategic direction and the Government priorities. It
will be increasingly important for us to do this as our business
transformation goes ahead, we participate in delivering better
public services, work more closely with other government
agencies, and consider the proposed changes to the Public
Finance Act.
12 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

BuSINESS traNSFORMaTION
We need to address a number of challenges, which arise from
an ageing operating model and technology infrastructure, to
deliver what New Zealanders need from us. These are:
""
we are unable to satisfy the changing expectations of our
customers
""
we are unable to rapidly and economically respond to
government policy changes, including Better Public
Services
""
we face an increasing risk of system issues that constrain
our ability to collect and disburse money.
During the year, we worked with our business partner,
Capgemini, to develop an in-depth analysis of our business to
help inform our long-term approach to business transformation.
Our planning effort to date has seen us:
""
develop a new target operating model and business blueprint
""
identify a number of opportunities to improve compliance,
service delivery and standardise our processes and business
rules
""
complete an analysis of our current Information and
Communications Technology (ICT) architecture, systems
and data, and proposals for a future ICT state
""
develop an initial draft plan to achieve our future state.
The resulting business transformation programme will help us
deliver on the goals set out in IR for the future and respond to
the Government’s priorities.
We need to recognise the main components of the
Performance Measurement Framework and the constrained
fiscal environment we will be operating in for the foreseeable
future, in preparing for the transformation. We also need to
respond appropriately to changing customer expectations, and
be able to implement legislative and operational changes in a
more cost-effective and timely manner in the future.
We are still developing the implementation options and
programme level business case we will present to Ministers for
consideration. We aim to have this finalised later in 2012.
Working with OTher aGENCIES
We are working with the Department of Internal Affairs (DIA)
and the Ministry of Social Development (MSD) to deliver
better government services for less and improve overall
service for New Zealanders. We have been actively involved in
the DIA-led work around improving the value for money of
Government ICT. Inland Revenue is part of the ICT council and
the Government enterprise architecture group, and chairs the
cross-Government chief architects’ forum.
We have identified opportunities to share resources with other
government agencies for mutual benefit. For example, we
share call centre resources with StudyLink (MSD) during each
agency’s period of high customer demand.
Working with other agencies is also important in our efforts to
support the Canterbury rebuild, see page 14.
The Business Transformation programme will enable us to
meet changing customer expectations by providing customer
services that make compliance easier, faster and less costly.
It will support the Government’s Better Public Services
programme by delivering customer-centric services at lower
cost for customers and the Government. It will also help us to
focus on cross-government opportunities to improve the way
New Zealanders access government services.
Our transformation programme will also address our system
reliability, which is making it difficult to administer revenue
collection and make payments to customers. Our technology
infrastructure is making it increasingly difficult to make timely
system changes to support legislative change and the Better
Public Services programme.
A successful transformation will also require us to carefully
consider our capacity to implement the change required. We
are developing a strategy to source the skills we need. We will
continue to engage and work with Ministers, central agencies
and other government departments.
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Our stRAtegic direction
13

Information sharing
In August 2011 information sharing provisions were enacted
in the Taxation (Tax Administration and Remedial Matters)
Act to provide a framework for Inland Revenue to share
the information it holds with other government agencies.
The purpose of the proposed information sharing between
Inland Revenue and MSD is to enable relevant information to
be proactively shared between the two agencies to decrease
benefit overpayments and fraud.
An important aspect of information sharing for us is whether
it will affect public attitudes to the integrity of the tax system.
We carried out research to gauge whether there is likely to be
any impact, in particular, whether it will reduce compliance. As
part of the research, people were interviewed and focus groups
were held to engage with a cross-section of New Zealand’s
population.
Most of the research participants had a positive attitude
towards information sharing, believing the practice enabled
better public service provision and increased service
effectiveness. They placed great trust in government and its
agencies, but some considered greater information sharing
increased the power imbalance between government and
citizens, eroded trust, and led to social “sorting”.
This study also investigated the attitudes of representatives
from a range of sectors (academia, industry, government and
the general public) with the aim of understanding how they
see the integrity of the tax system and how this may vary in
response to proposed changes within Inland Revenue and
government. Although participants in this study had trouble
defining the concept of the integrity of the tax system as an
absolute, they considered the integrity of New Zealand’s tax
system to be strong—due to benefits seen to be delivered, and
in comparison to other countries.
Canterbury REbuild
Inland Revenue plays a significant role in the Canterbury
rebuild. We work with other Government agencies, local
authorities, private sector and community groups to provide
leadership and expertise, and deliver effective public services.
Challenges
The Canterbury earthquakes had a major effect on our
staff and customers. Staff numbers have decreased by 25%,
including resignations and transfers. Due to accommodation
issues we have been unable to fill these positions. Our people
have been working at a number of temporary sites, but since
July 2012 we consolidated these to 11 from a peak of 31 in
February 2012. We are now providing all our normal business
services and the contact centre has been operational since late
2011. The level of business interruption has been significant
and productivity continues to be affected by dislocation and
infrastructure constraints.
The ongoing effects of the Canterbury earthquakes affected
our overall performance again this year. Continued disruption
to our accommodation, with our people working at a number
of temporary sites throughout Christchurch, has reduced
capacity. This meant that we did not meet some of our
performance targets.
Capability building
We collaborate with other government agencies to improve
our learning management system. Inland Revenue is part of
the Learning Management Systems cross-agency group, which
enables us to share training resources with ACC, DIA, Ministry
of Justice, MSD, Ministry of Health and Statistics New Zealand.
14 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Working together for our Canterbury customers
We continue to build on the knowledge and expertise
gained during the last eighteen months, as well as exploring
opportunities to improve service to our Canterbury customers.
Some examples of this collaboration include:
""
Co-location front-of-house—we opened up a number
of front-of-house (counter/reception) services for our
customers in co-located MSD sites.
""
Co-located contact centre—we are establishing a
co-located contact centre with MSD to open in early 2013.
""
Front-of-house project with MSD and DIA—in December
2012 we will open a joint front-of-house (reception/
counter) facility promoting our e-services and customer
self-management.
""
Recover Canterbury—we are working with government
agencies and private sector organisations to deliver a
joined-up service response to business customers, assisting
their recovery and development.
""
Providing support for other agencies and organisations—
we continue to provide resources to organisations
throughout the recovery and rebuild phases. At the
height of our involvement we had more than 100 people
seconded to them.
""
Participation in joint agency initiatives—we contribute
to public sector initiatives in Canterbury, such as
the Canterbury Government Leaders Group and the
Canterbury Earthquake Support Coordination Group.
Tax relief
Co-locating
We introduced a number
with other
of practical tax relief
government
measures aimed at
agencies in
removing tax obstacles
Christchurch is a
for people affected by the
great model for
Canterbury earthquakes.
providing better
Relief measures were
included in the Taxation
services for
(Tax Administration and
customers.
Remedial Matters) Bill
(enacted August 2011).
They included rollover
relief for depreciation
recovery income and addressing the issue of the timing of
deemed sales of destroyed insured assets. Three Orders in
Council were continued. These provided for the discretionary
extension of statutory tax deadlines, the remission of useof-money
interest, and for information sharing with other
government agencies providing earthquake-relief. There are a
few outstanding tax technical issues unique to the Canterbury
earthquakes, but the Commissioner has adequate powers to
respond.
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part 1
Our stRAtegic direction
15

Advising ON govERNMENT policy
During the year we continued developing policy to make
the tax system fairer and more efficient, and to support the
Government’s priorities.
Making the tax sySTEM faIRER and
MORE EFFICIENT
We continue to develop policy to make the tax system
fairer and protect the revenue base. This included several
consultation papers announced in Budget 2011.
Herd scheme elections proposed to make the livestock
valuation rules fairer by tightening the tax rules to prevent
farmers who change valuation schemes, receiving an
unintended tax break. Mixed use assets provided options
to address unfairness in the tax treatment of assets, such as
holiday houses used for both private and income-earning
purposes. Recognising salary trade-offs as income looked at
options for broadening the tax rules relating to non-cash
benefits employees receive as a substitute for salary or wages.
In October 2011 the Child Support Amendment Bill was
introduced following extensive public consultation on options
to make the child support scheme fairer.
Improving efficiency and fairness across the tax system was also
confirmed as a priority for 2012–13 in the Government’s tax
policy work programme, released in March 2012.
Further changes, aimed at moving us towards more taxpayerfocused
service delivery, were included in the Taxation (Annual
Rates, Returns Filing, and Remedial Matters) Bill introduced in
September 2011. The changes aim to simplify returns filing and
record-keeping requirements for taxpayers through reducing
the use of paper forms and enabling more use of online
services.
Building a MORE COMpETITIve and
produCTIve ECONOMy
We also progressed or completed a number of businessfriendly
initiatives to reduce the complexity of the tax system
and make compliance easier.
A number of changes to the GST rules were proposed in a
Government discussion document, GST: Business-to-business
neutrality across borders, released in August 2011. These
changes will help prevent the rules impeding transactions
between non-resident and New Zealand businesses.
Measures in the Taxation (Tax Administration and Remedial
Matters) Bill abolished outdated gift duty rules and streamlined
the procedural rules for tax disputes.
The Taxation (International Investment and Remedial
Matters) Bill (enacted May 2012), continued the reform of our
international tax rules. These changes bring New Zealand’s
international tax rules into line with those of other countries,
and also help New Zealand-based companies to compete more
effectively overseas.
We strengthened New Zealand’s international cross-border
trade and investment partnerships by signing new double
tax agreements (DTAs) with Canada, Chile, Hong Kong and
Mexico. We also reached an agreement in principle to a new
DTA with Japan in June 2012.
Two major pieces of legislation were enacted, aimed at
improving the repayment rates of student loan borrowers. In
August 2011 legislation was passed allowing the student loans
of serious defaulters to be recalled in full. The Student Loan
Scheme Amendment Bill (enacted April 2012) introduced
changes to improve the efficiency and fairness of the student
loan scheme and encourage borrowers to take greater
responsibility for their loan repayments.
16 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Part 2
Making IT easier FOR CUSTOMers
to COMPly
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PART 2
Making it easier for customers to comply
17

Making IT eaSIER FOR cuSTOMERS TO COMply
We aim to make it easier for our customers to comply with
their obligations and receive their entitlements by continuing
to focus on delivering better services. Better services also
deliver better value for money to the government. This year, we:
""
improved certainty that customers complied with their
obligations
""
removed the need for customers to contact us for some
basic services
""
offered more self-service options
""
made our existing self-service options more effective and
accessible.
Providing CERTaINTy about the law
We provide taxpayer rulings and adjudications to give
customers certainty about the correct interpretation of tax law
and to resolve technical issues or disputes. This helps maintain
confidence in the tax system and improve compliance.
Providing taxpayer rulings as quickly as possible is important
for our customers to understand the tax implications of
their plans. We significantly reduced the delivery time of our
rulings by introducing improved processes and better project
management. This year, we delivered 60% more draft taxpayer
rulings than in 2010–11 and took 20% less time to do them.
We responded to the Supreme Court judgment in the Penny
and Hooper case (see page 23) by issuing an important
draft interpretation statement on tax avoidance for public
consultation. There was strong interest among taxpayers and
agents and we are currently considering the submissions we
received.
Developing our e-SERvICES
We have over
1.2 million
customers
registered for
our e-services,
almost 30%
more than last
year. More than
1 million of these
accounts have
been activated
by customers.
This year, we introduced
some new e-services
for our customers
and strengthened and
stabilised existing ones to
provide more consistent
service. E-services make
it easier for customers
to manage their
own obligations and
entitlements, reducing
the need for them to
contact us, particularly
for routine enquiries.
This lets our people focus on more complex technical work.
We provide certainty to our e-services customers by sending
them an automatically generated confirmation whenever they
make a transaction online. Customers can also log in after
filing and check that their requests are being processed. We
now include this functionality with all new e-services that
we develop. Sending a confirmation to customers reduces
telephone calls to our contact centres because they know that
we have received their information.
We have been very successful in our TV and online advertising
promotion of e-services to encourage customers to register for
them. Our customer services staff also actively promote our
self-service options when they speak to customers.
At 30 June 2012 we had 1.2 million customers registered for our
e-services, an increase of almost 30% from last year. Customers
have activated more than 1 million of these accounts.
New e-service products
In April 2012 we launched a mobile web app, which has
received very positive customer feedback. Our app lets
customers access some of our more commonly used e-services
through their smartphones and tablets. The app has been
viewed 15,000 times by customers with 45% of them logging in
and using the services.
We improved services for business customers with a new
process for authenticating eGST returns and registrations. It
removes the need for paper returns and document lodgement
numbers, and streamlines the registration and return processes
for customers. This will improve the compliance of GST
customers, decrease the risk of GST fraud, and reduce our
printing, stationery and postage costs.
Improving e-service quality
We are strengthening and stabilising our e-services to provide
fast, consistent and integrated customer service through our
website. We upgraded our portal to provide a more stable
platform for our e-services.
We are moving third-party electronic transactions from the
portal to a separate business-to-business (B2B) channel. For
example, we introduced the Tax Agent Web Service (TAWS),
which lets tax agents view their clients’ accounts in their own
accounting systems. This increases the reliability, stability
and speed of our portal and gives B2B customers, such as tax
agents, improved service. The introduction of TAWS was the
main reason for the decrease in Look at Account Information
enquiries this year.
18 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

The improvement in our e-service quality is shown in the high
level of customer satisfaction (95%) with our e-services this
year. In our pilot survey in 2010–11, 95% of business customers
and 89% of individuals were satisfied with our online services.
student loans made eaSIER FOR
cuSTOMERS to manage
Student loan
borrowers can
now access a
complete, upto-date
picture
of their loan
online.
This year, we implemented
significant improvements
for student loan borrowers
that made it easier for
them to manage their
loans. This included the
biggest system changes
we have made since
implementing KiwiSaver.
Since April 2012, student
loan repayment obligations
are calculated each pay period instead of each tax year. Most
student loan borrowers will not require an annual square-up
of their loan repayments, which reduces the need for them to
contact us.
Our voice ID
system has
400,000 registered
customers, makes
up nearly a third
of our calling
volume and saves
our customers
40 seconds per
call.
This year, we improved
the navigation features
and information quality
of our telephone selfservices
to make them
faster and easier for our
customers to use. We
also extended telephone
self-service to more
call enquiries. These
improvements have
helped our customers to
remain in our telephone
self-services system rather
than having to speak to a customer service specialist (CSS). At
30 June, our initiative had reduced calls to our CSSs by 35,000
in only four months.
Customers who call us after hours or when our contact centres
are busy, are finding our new virtual hold feature especially
useful. This new feature lets customers choose the time and
date for us to call them back.
We also rolled out new e-services for student loan borrowers.
They can now:
""
see an up-to-date consolidated loan balance through our
e-services
""
apply online for a special deduction rate (eg, a borrower
who has two jobs) or repayment obligation exemption
(eg, a full-time student who is also working).
improving our self-servICE TElephONE
opTIONS
We continue to invest in our telephone services to develop and
improve self-service options.
Our voice ID service lets customers prove their identity based
on their voice biometrics. Over 400,000 customers have
enrolled in voice ID since we introduced it in November 2011.
This is a huge achievement that confirms our voice ID service
as a leading solution. We have the fastest-growing voice
biometrics application per capita, in the world. Our customers
find voice ID easier and faster to use than our PIN verification
system and it is more secure. Customers can access our services
after hours, including the activation of online accounts and
resetting online passwords. Voice ID customers now make
up nearly a third of our calling volume, and save more than
40 seconds in talk time for each call.
ird.govt.nz
part 2
Making it easier for customers to comply
19

Part 3
detecting AND reSPONDING TO
NON-COMPlIANT CUSTOMers
ird.govt.nz
PART 3
detecting and responding to non-compliant customers
21

Detecting and RESpondING TO NON-COMpliant
cuSTOMERS
We know that most of our customers comply voluntarily, but
there are always some who do not. Our customers need to
believe in our ability and willingness to address non-compliance.
This in turn improves the effectiveness of the tax system and
increases government revenue.
Our approach to non-compliance includes investigations of
the tax affairs of businesses and individuals. When we detect
serious non-compliance we follow up with court action where
appropriate. We also address non-compliance by preventing
and collecting overdue debt.
Our compliance work includes major multi-year initiatives,
such as those for the hidden economy, property sector and
debt management. In these programmes we have developed
and implemented innovative ways to educate customers
about their obligations. We have also developed new tools that
promote compliance and draw non-compliant customers into
the legitimate economy.
Helping cuSTOMERS who want TO
COMply
We responded
to our
customers’
needs by
offering flexible
payment
options, eg,
taking credit
card payments
over the phone.
We use a number of
approaches to educate
and promote compliance
for customers who want
to comply but need some
assistance.
Our community
compliance officers provide
information and assistance
to individuals, businesses
and tax agents. This year, we
reshaped the community
compliance role.
Our people are now doing more face-to-face work with their
customers and use a three-part approach to delivering services
in the community:
""
advice and education
""
local compliance enforcement
""
managing relationships.
Our approach to influencing voluntary compliance relies on
informing our customers of the compliance issues that we
focus on. This includes:
""
publishing Helping you get it right: Inland Revenue’s
compliance focus 2012–13, which informs our customers
of our intentions and concerns about compliance, our
priorities and the actions we take to address them
""
educational campaigns to address the hidden economy
and improve compliance by property traders
""
engaging with community and business organisations
to inform customers of their obligations and promote
compliance
""
providing information and tools on our website to help
promote compliance.
Using intellIGENCE TO dETECT
NON-COMpliaNCE
We made improvements to the way we identify compliance
risk and monitor returns and claims. We enhanced the
analytical tools we use that take information and analysis from
third parties and our own data, to identify and predict risks.
This is now done in a near real-time environment, speeding up
intelligence gathering and its application to the screening of
assessments and refund claims.
Our initial focus has been on GST refunds. We process about
$10 billion in GST refunds each year and it is critical that we
issue these as quickly as possible for legitimate claims. We
are aware of fraudulent activity, ranging from complex and
organised crime to basic scams, and we are now making sure
that we detect and investigate fraudulent claims more quickly.
We are extending the use of these intelligence-based systems
into other areas, where we know there is non-compliance,
eg, the hidden economy and property transactions.
InvestigaTIONS
Discrepancies arise when an investigation finds differences
between the taxpayer’s self-assessment and the liability
determined by our investigations. In 2011–12 we identified
over $1.2 billion of discrepancies, almost 10% above our
target. See figure 16 in the appendix for full details of our audit
discrepancies.
Some taxpayers make voluntary disclosures of under-reported
tax before or during an investigation. In 2011–12 there were
over 2,500 disclosures with a value of $400 million. About half
were prompted by our compliance activity.
22 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Avoidance using trusts and companies
The Supreme
Court’s decision
in the Penny
and Hooper
case resulted
in more than
100 voluntary
disclosures
from previously
non-compliant
taxpayers.
In August 2011, the
Supreme Court’s decision
in the Penny and Hooper
case ended a longstanding
dispute over the
interpretation of legislation
around income diversion
using trusts and company
structures in tax avoidance.
We then reissued a Revenue
Alert 1 and, with the
New Zealand Institute of
Chartered Accountants,
completed a joint roadshow
to contact intermediaries
and taxpayers who may
have taken tax positions similar to those in the Penny and
Hooper case. Our actions resulted in more than 100 voluntary
disclosures from this group, with shortfalls averaging $25,000
in tax.
Misuse of charities
We are working closely with the Charities Commission to
tackle the misuse of the tax-exempt or concessionary status of
charities. Where appropriate, we share relevant information,
provide training and share knowledge on tax and charity
risks. We developed charity risk referral processes for specific
risk cases and recently agreed on our first joint investigation
protocol.
We also completed a joint submission with the Charities
Commission and the Australian Taxation Office, to the External
Reporting Board on reporting requirements for charities.
Large enterprises
We continued to refine our risk identification and monitoring
process to detect groups entering into complex, innovative
and potentially non-compliant financing transactions. We
improved our risk assessment process so we can focus on
groups that pose a high compliance risk.
We also continued piloting cooperative compliance
agreements with large enterprises. This approach commits us
and the large enterprise to a set of obligations and may lower
compliance costs for both parties.
Specially funded COMpliaNCE
pROGRammes
In Budget 2010 the Government gave us extra funding over
several years for initiatives targeting non-compliance in the
hidden economy, property trading and overdue debt.
We used the funding to develop campaigns that have
significantly improved compliance and increased revenue in
the targeted areas.
The hidden economy
Some individuals and businesses fail to record all cash income
or find other ways to avoid paying the correct amount of
tax on all income earned. By doing this, they gain an unfair
advantage over other taxpayers.
Our approach to the hidden economy includes campaigns to
educate customers about their obligations, targeted audits
of specific industries, and new tools to make it easier for
customers to comply.
We also investigate cases of non-compliance we find. During
2011–12, we identified $48 million in discrepancies and
collected over 6,000 returns. For the two years to 30 June 2012
we identified over $86 million in discrepancies, nearly 30%
above the target of $67 million over two years.
In April 2012, we published industry benchmarks for the first
time, jointly with Statistics New Zealand, so customers can
compare their performance with similar sized businesses in
their industry. We can identify businesses performing outside
the benchmarks and take appropriate action.
Our compliance programme is supported by research that
gives us insight about why people participate in the hidden
economy. It indicates that participation is relatively common.
We also investigated the attitudes of small and medium
enterprises and industry executives to work out a baseline to
inform our approach to particular industries, technological
change and the potential risks presented by internet-based
businesses.
Property
For this initiative we also use a combination of education and
enforcement actions for specific risks. This includes ensuring
that taxpayers are aware of the increased scrutiny and the
consequences if we detect fraud. We focus on off-plan sales,
property swaps and use of single property trading companies.
1
A Revenue Alert is issued by Inland Revenue and provides information
about significiant and/or emerging tax planning issues that concern us.
ird.govt.nz
part 3
detecting and responding to non-compliant customers
23

We have developed tools to help us to monitor property
transactions more closely, particularly tracking property that
has been subject to a GST claim and is then sold or advertised.
We are also acting faster to recover debt.
In 2011–12, we identified $40 million in discrepancies against a
target for the year of $45 million. For the two years to 30 June
2012, we identified discrepancies of $89 million, 1% below the
target of $90 million. We also have several cases before the
courts.
Managing overdue debt
In recent years we have
had significant success
This year, our
in managing debt by
debt prevention
using a customer-centred
strategy reduced
approach that focuses on
debt under two
preventing debt. We base
years old by
this on the understanding
$430 million.
that, in the long term,
debt prevention is the
most effective way of
improving compliance and
will generate more revenue for government. During 2011–12:
""
we reduced the value of debt less than two years old by 16%,
and the number of debt cases less than two years old by 4%
""
we collected $4.2 billion cash, of which $2.7 billion was
from tax pooling (2010–11: $2.5 billion cash including
$0.9 billion from tax pooling)
""
total overdue debt increased by $394 million (7%) to
$5.9 billion (2010–11: $370 million increase or 7%). This
included a 1% decrease in collectable debt and a 26%
increase in non-collectable debt.
Our approach to managing debt is aimed at preventing our
customers from going into debt, intervening early where
necessary and focusing our collection efforts on the cases
that have the greatest prospect of cash collection. We do this
because it is consistent with the needs of our customers and
the government, as well as being the most efficient use of our
people and resources.
We have adopted a mix of new and innovative interventions
for managing debt. They include reminder letters, text
messages and online advertising (including Facebook) to
remind customers at risk of going into debt about their
payments before the due date. We also use outbound calls
to intervene early when customers do not pay on time. We
used Budget 2010 funding to invest in new automatic dialler
technology and recruit extra specialist staff, which have
significantly improved the capacity and effectiveness of our
outbound calling campaigns.
This year, for the Budget 2010-funded initiative, we collected
$231 million (target $200 million), a return on investment of
$12.5:1 (target: $10.2:1).
We ran a successful campaign to improve on-time payment
by customers with payments due on 7 February. This year,
81% of tax due on 7 February was paid on time. This is similar
to the 83% paid on time for the same campaign last year and
significantly higher than the 72% paid on time for 7 February
2010.
Where prevention has been unsuccessful, we concentrate on
assisting customers to get out of debt early, before it becomes
unmanageable for them. The earliest possible intervention
matters because it gives customers peace of mind and, as debt
ages, it becomes increasingly difficult and expensive for us to
collect.
A key part of our early intervention focus is setting up
repayment arrangements. This year, we helped over 175,000
customers into arrangements to settle their debt. At 30 June
2012, we had $1.2 billion of debt under arrangement,
$30 million more than last year. The most important feature of
repayment arrangements is that they provide more certainty to
our customers and government, and help limit the growth of
uncollectable debt.
The proportion of collectable debt decreased and the level
of older debt increased, due to our focus on debt prevention
and early intervention. The proportion of total overdue debt
more than two years old is 61%. A substantial proportion of
the increase in older debt
Our debt
prevention
strategy has
improved ontime
payment
by customers.
81% of tax due
on 7 February
was paid on
time, compared
to 72% two
years ago.
is penalties and interest,
which now makes up 46% of
total overdue debt. Funding
received in Budget 2012 will
help us address this issue in
the future.
We respond to older cases
by taking recovery and
enforcement action where
necessary. Our priority
areas for recovery and
enforcement include auditassessed
debt, a selection
of the top 1,000 high-risk
24 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

customers, debt associated with large enterprises and highwealth
individuals. We have the best prospect of collecting
cash from these areas.
See figure 17 in the appendix for a detailed breakdown of our
debt portfolio.
Collecting overdue student loan repayments
We have
improved
compliance by
New Zealandbased
student
loan borrowers.
In the past
two years we
reduced the
overdue amount
by 28%.
At 30 June 2012 overdue
student loan repayments
were more than
$500 million, an increase
of almost 25% from the
previous year. For the
past three years there has
been a trend of improving
compliance among
New Zealand-based
borrowers and declining
compliance among
overseas-based borrowers.
We have improved
compliance among
New Zealand-based
borrowers by making sure that they use the right tax
code and taking proactive steps to prevent new debt. The
capitalisation of small debts under $344 also reduced the
number of new debt cases.
Overseas-based borrowers initiative
We are using the overseas-based borrower compliance
initiative to reduce the growth of overdue repayments for
overseas-based borrowers, which increased by 42% this year.
Overseas-based borrowers make up 15% of all student
loan borrowers but have 80% of overdue repayments.
These borrowers are mainly based in Australia and the
United Kingdom. We are building on the success of an earlier
pilot programme that focused on 1,000 defaulting borrowers
in Australia.
We also use private sector debt collection services to track and
trace borrowers, collect debt, and start legal action against
non-compliant overseas-based borrowers.
Since October 2011, we have:
""
reviewed over 7,600 cases in Australia and the United
Kingdom
""
collected almost $20 million of repayments. The return on
investment was $11.40:1 at 30 June 2012.
Managing child support debt
At 30 June 2012, total child support debt was $2.5 billion, an
increase of more than $180 million 2 (8%) from last year. Of the
increase in total child support debt 21% is assessments and
79% is penalties. See figure 20 in the appendix for a breakdown
of the child support debt portfolio.
The biggest influence on the growth in child support debt is
penalties on aged debt, with 77% of child support debt over
five years old. Of this, 16% is assessments and 84% is penalties.
The high level of aged debt is mainly because we are required to
collect all outstanding child support debt, even if recovery may
be unlikely, eg, due to bankruptcy. We can only write off a valid
assessment if the liable parent dies or if a court orders us to.
Changes in the Child Support Amendment Bill before
Parliament will help address the growth of child support debt
in the future. The significant reforms proposed include:
""
revising the child support formula to take into account the
cost of raising children, lower levels of shared care and both
parents’ income
""
the compulsory deduction of child support from paying
parents’ employment income
""
introducing a two-stage late payment penalty, reducing the
current monthly penalty after a set period, and relaxing the
circumstances in which debt can be written off.
We contact these borrowers in a number of ways, such as
direct campaigns and online advertising. To make it easier
for overseas borrowers to make payments, we offer them the
option to pay by credit card or use online payment services.
2
This increase includes $71 million of penalties charged on Australian child
support cases that we are collecting under the reciprocal agreement with
the Australian Child Support Program. We did not include these penalties
in previous years.
ird.govt.nz
part 3
detecting and responding to non-compliant customers
25

We had success with these three initiatives aimed at overseasbased
child support debtors.
""
The New Zealand Customs Service notified us of 9,700
liable parents crossing the border. As a result, we set up
repayment arrangements for $93 million of debt and found
350 missing customers.
""
We have had a reciprocal agreement for collecting child
support with the Australian Child Support Program
(ACSP) since July 2000. At 30 June 2012, ACSP managed
11,500 cases (11,200 in debt) for New Zealand, and we
managed 6,400 cases (5,100 in debt) for Australia.
""
Although the reciprocal agreement works well for the
debt cases it covers, we have more liable parents living in
Australia than the ACSP can accept for enforcement. So,
we have set up a direct debt team to test the feasability of
finding liable parents in Australia and influencing them to
comply with their obligations.
Litigation
During the year the first judgment in a group of cases involving
optional convertible notes was handed down. The cases focus
on the deductibility of about $1.2 billion over a period of
13 years claimed by taxpayers. In the first case to be heard,
the High Court upheld our view that the arrangements in the
Alesco case were tax avoidance. The decision is important for
other litigants in this group.
guilty to 87 charges of providing us with false or misleading
information and two charges of evading GST. The tax
evaded was over $600,000, resulting in a loss in tax revenue
approaching $300,000.
In another case, a property developer was sentenced to four
and a half years in prison after being found guilty of tax evasion
involving more than $2.1 million. He had faced seven charges
of attempting to evade the assessment and payment of tax
relating to GST and income tax.
In August 2012 we also concluded a major case of tax fraud.
Two tax advisors were found guilty of filing fraudulent tax
returns on behalf of their clients and claiming fictitious
expenses in excess of $9 million. They were also found guilty
of attempting to pervert the course of justice. One received a
prison sentence of eight and a half years and the other, eight
years. These are the longest sentences ever handed down in a
New Zealand tax case.
Three other cases during the year were particularly significant
for us.
""
The Trinity cases are continuing. We are waiting for a
decision from the Supreme Court on taxpayer efforts to
re-litigate the dispute.
""
Our appeal in the Tannadyce case was successful. This
is an important case, because it defines and narrows
the circumstances in which judicial review of disputable
decisions may be available to taxpayers.
""
A complex case involving the insurance industry and the
financial arrangement rules was heard in the last quarter
of the year. The decision, in our favour, was received in
July 2012.
ProsecuTIONS
We continue to prosecute in cases of serious non-compliance.
For example, in February 2012, a taxi driver (and salesperson)
was sentenced to two years in prison for tax fraud and evasion
under the Tax Administration Act 1994. He had pleaded
26 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Part 4
Our performance
ird.govt.nz
PART 4
Our perfoRMAnce
27

Our performaNCE
Scope and SCale OF our buSINESS
We are New Zealand’s principal revenue agency, collecting
about 80% of core Crown revenue. We also have an important
role in administering social policy programmes, often in
conjunction with other agencies.
At 30 June 2012 we employed 5,301 people (FTEs), 6% fewer
than last year.
Tax revenue
We collect revenue mainly from income tax and GST, but we
also collect several special purpose duties and levies. Figure 3
shows revenue for the last three years.
Figure 3 –
Revenue ASSessed
Revenue type 2009–10
$million
2010–11
$million
2011–12
$million
%
change
Direct taxes
Individuals $24,138 $23,136 $23,917 3.4%
Company $7,512 $8,195 $9,121 11.3%
Other direct taxes $2,549 $2,582 $2,644 2.4%
Sub-total direct $34,199 $33,913 $35,682 5.2%
Indirect taxes
GST $11,478 $12,575 $13,119 4.3%
Other indirect taxes $357 $357 $365 2.2%
Sub-total indirect $11,835 $12,932 $13,484 4.3%
Total IR taxation $46,035 $46,845 $49,166 5.0%
For further details on tax revenue see Part 8.
Customer statistics
In the tax year ending March 2011, we collected tax from:
""
Individuals—about 1.1 million individuals filed annual tax
returns
""
Employers—about 200,000 employers filed over 2.1 million
employer monthly schedules
""
Companies—over 400,000 filed annual returns
""
GST payers—640,000 customers registered for GST filed
3.1 million returns.
Inland Revenue manages or shares the administration of these
programmes:
""
Working for Families Tax Credits—in 2011–12 we
distributed $2,670 million 3 in entitlements to support
194,000 working families. The programme is administered
with the Ministry of Social Development.
""
Child support—in 2011–12 we collected $426 million
from 180,000 paying parents and distributed $216 million
to custodial parents. 4
""
KiwiSaver—we administer the scheme by collecting
contributions and transferring them to scheme providers
for investment. In 2011–12, we transferred $2.2 billion
in contributions from almost two million KiwiSaver
members, as well as managing government contributions
of $1.0 billion.
""
Student loans—we jointly administer this programme with
the Ministry of Education and StudyLink (Ministry of Social
Development). In 2011–12, we collected $768 million in
repayments from 701,000 borrowers.
""
Paid parental leave—we make payments, for the
Department of Labour, to parents who take leave from
their job or business to care for a baby. In 2011–12, we paid
$157 million to 25,000 applicants.
Customer services
We support customers through a variety of personal and
automated information services that help them manage their
obligations and receive their entitlements. In 2011–12 we:
""
received 4.1 million person-to-person telephone calls
""
had 15.8 million self-help services contacts (eg, look at
account information, interactive voice responses, businessto-business
KiwiSaver information)
""
received 1.5 million items of correspondence (51% paper,
49% electronic).
3
Includes payments from Inland Revenue and the Ministry of Social
Development.
4
The balance goes to the Crown to offset sole parent benefits paid to
custodial parents by the Ministry of Social Development.
28 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Impact performaNCE
Our impacts describe the difference we want our activities
and interventions to make to improve customer compliance,
to progress towards achieving our outcomes. We use impact
indicators to measure these impacts which, when aggregated,
tell us about the effectiveness of our activities on customer
compliance. The results are shown in figure 4.
Figure 4 also shows an aggregated view of our three-year
aspirational targets set at the indicator level. In setting the
targets, we have taken into account our strategic direction, our
operating environment (including government priorities), the
economy and changing customer expectations.
See figure 6 in the appendix for detailed information on
baseline performance, current results and factors that influence
the targets.
The results show that generally customer compliance levels are
static, with a small improvement in registering and reporting
compliance results. While overall on-time filing and paying
compliance levels are high, on-time paying compliance has
been declining over the last five years.
The results for “Non-compliance improves” in figure 4 imply
a significant increase in performance levels in 2011–12. This
is due to cash collections in the June 2012 quarter being
substantially higher than past years, rather than an underlying
shift in the behaviour of non-compliant customers. These
higher levels of cash collections through tax pooling affected
the cash collected to collectable debt impact indicator
assessment level, which resulted in a higher overall assessment
level for this impact.
Given the significance of our Business Transformation
programme, we will review the Performance Measurement
Framework and the impact indicator targets when we finalise
the detailed transformation plan. The 2014 targets have been
retained in our Statement of Intent for the period ending 2015.
For details about the work we have done this year to contribute
to the achievement of our impacts, see Parts 2 and 3. We have
also included discussion of the impacts our outputs contribute
to in Part 6.
Figure 4 —
IMPACT peRFORMANCe
90%
80%
70%
60%
50%
40%
30%
20%
10%
Excellent
Good
Satisfactory
Needs
Improvement
2008–09
2009–10
2010–11
2011–12
2014 target
0%
Customers
self-manage
Customers register
and report
Customers claim
correctly*
Customers file and
pay on time
Non-compliance
improves*
* The change in prior year data reflects the decision to report perception measures in the Statement of Service Performance.
ird.govt.nz
part 4
Our perfoRMAnce
29

Output pERFORMaNCE
Our outputs are the services we provide. They are grouped into
five output classes:
""
Policy advice
""
Services to inform the public about entitlements and
meeting obligations
""
Services to process obligations and entitlements
""
Management of debt and outstanding returns
""
Taxpayer audit.
Results
We have 55 performance measures for our outputs and
10 activity forecasts that indicate the expected customer
demand for some of our services. In 2011–12 we achieved
38 of our 55 measures (69%). This was a disappointing result for
us because it was lower than we have achieved in recent years.
Our performance has declined, particularly in debt and returns
management and the processing of obligations and entitlements.
Last year, we reviewed our output measures for the 2011–12
year. The purpose of this review was to:
""
ensure that we focus on the vital few external measures
""
create or update measures to reflect changes in our
business
""
rationalise multiple or repeating measures
""
remove items that were not performance measures.
As a result of the review we removed the 5% tolerance that
we had previously applied to performance measure results,
removed 22 measures (36%) and added 16 (26%).
We reported on 38 comparable measures in both 2010–11 and
2011–12. Our performance improved for nine measures (34%),
remained the same for six measures (16%) and deteriorated for
23 of these measures (61%). For 13 (57%) of the 23 measures
where performance deteriorated the change in performance
between years was less than 2%.
Our service performance was affected by the loss of capacity
and disruption to our established work patterns caused by
the Canterbury earthquakes, and a large volume of work
carried over from the previous year. We moved some work to
our other sites and we trained staff to rebuild capability. The
following performance measures have been most affected:
""
minimum percentage of paper correspondence answered
within three weeks of receipt
""
minimum percentage of electronic enquiries responded to
within one week of receipt
""
minimum percentage of priority telephone calls answered
within one minute
""
minimum percentage of tax and social policy registrations
processed within five working days of receipt.
We made it a priority to provide more resources to answer
telephone calls in our high-demand period. This improved
service for our telephone customers, but it had a negative effect
on areas where we had fewer people working, eg, responding to
correspondence and collecting outstanding returns.
Our performance measures also include functional cost
indicators such as the cost per customer contact and
processing a return. These results are shown in figure 5.
See Part 6 for details of our output performance.
Measuring customer satisfaction
Results from customer satisfaction surveys are important
measures in our output class “Services to inform the public
about entitlements and meeting obligations”. As well as
measuring satisfaction for traditional service channels such as
correspondence and telephone services, we have started to
survey customers’ satisfaction with our online services.
Overall, in 2011–12 customers rated our services at the same
level as in the year before. The “satisfied” rating was 86% and
the “very satisfied” rating was 69%. Online services rated as 95%
“satisfied” and 80% “very satisfied”.
We also receive direct feedback from customers through our
complaints service and letters to the Minister of Revenue.
See figure 8 in the appendix for detailed customer satisfaction
results.
OrganisaTIONal ECONOMy, EFFICIENCy
and EFFECTIvENESS
The performance measurement framework (see figure 2) also
provides the basis for demonstrating value for money, using
indicators that reflect the economy, efficiency and effectiveness
of our operations.
Financial results
We collected $49.2 billion of tax and $0.8 billion of other
revenue during the year. This 4.5% increase on the previous
year is mainly the result of improving economic conditions.
Our operating budget for the 2011–12 financial year was
$672.1 million, an increase of $29.2 million compared to the
previous financial year. Most of this increase was for one-off
restructuring costs and funding from Budget 2010 for
additional compliance activity.
30 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Expenditure was managed effectively, with actual expenditure
being $10.5 million (1.6%) under budget. We have managed
cost pressures such as remuneration and additional costs
associated with the Canterbury rebuild within this expenditure.
Cost pressures continued to be a challenge this year, with
net input costs rising by $21.6 million (3.4%). We had net
additional expenditure of $55.5 million, which included
expenditure on business transformation, remuneration
increases, rolling out our new enterprise desktop environment,
restructuring costs and additional costs associated with the
Canterbury rebuild.
This year, we delivered savings of $33.9 million to ensure that
we met our agreed baselines. We saved more than $16 million
of personnel costs through restructuring back-office services,
organisational improvements in front-office services and not
replacing some staff. Operational savings were delivered in
print costs, telecommunications, accommodation rentals
in Wellington and Christchurch, and general contract and
operating efficiencies.
Many of the savings we delivered in 2011–12 are ongoing and
will position us to meet fiscal challenges in upcoming financial
years.
In future, we expect the cost pressures and increased demand
for our services to continue. We are well placed to manage
within future fiscal constraints and will continue to identify
savings to meet demand and cost pressures, but we will
require additional Crown investment to deliver business
transformation.
Economy
In 2011–12 we worked to achieve better economy in our
operations through organisational improvement and by
negotiating favourable contracts for services from third parties.
During the year, we began improving our procurement
processes. We appointed a procurement director, revised our
procurement policy, increased staffing levels, and took steps to
better align the procurement function with internal business
units. We have also continued to engage with the all-ofgovernment
procurement programme, led by the Ministry of
Business, Innovation, and Employment.
During the year, we delivered the following operational savings:
""
$1.4 million in accommodation savings relating to the
consolidation of our Wellington properties footprint
""
$0.4 million in printing costs as a result of continued efforts
to reduce the amount of paper we send to our customers
and improvements made to our online services.
We also renewed our telecommunications contract for four
years, making significant savings on the existing contract.
We are continuing to look for ways to reduce our input costs
and deliver further savings.
Efficiency
Cost indicators
At an operational level, we measure our efficiency through
functional cost indicators. These measure the costs of our
customer-initiated contacts, processing returns and child
support administrative reviews. Figure 5 shows the actual
results and targets for 2011–12, and our performance in
2010–11.
Figure 5 –
FUNCTIONAl COST INDICATORS
Indicator 2010–11 2011–12 2011–12
Actual Target Actual
Cost per telephone contact $28.84 $31.00 $33.28
Cost per correspondence $40.45 $41.00 $37.50
contact
Cost per counter contact $35.12 $45.00 $48.31
Average cost per customerinitiated
contact
$31.97 $34.00 $35.06
Cost per income tax return $5.14 $6.10 $5.49
processed
Cost per GST return processed $1.84 $1.40 $1.45
Cost per employer monthly $4.86 $4.70 $7.12
schedule processed
Average cost per return
processed
$3.77 $4.00 $4.39
Cost of collecting an overdue
return
Cost per child support
administrative review processed
$9.43 $12.50 $7.96
$630.22 $600.00 $768.57
ird.govt.nz
part 4
Our perfoRMAnce
31

The results for 2011–12 show a mixed picture across functional
areas, with the cost of some high-volume activities (eg,
telephone calls) above target, and others (eg, the cost of
processing some returns) below target. The method used
to allocate overheads to activities has a strong effect on the
results reported. In the case of telephone calls, the reduction
in the number of calls received in 2011–12 (see figure 15 in the
appendix) has increased the unit cost, given the fixed nature
of the underlying costs and overheads. Because customers are
encouraged to use more online services, rather than contact us
in traditional ways, we expect to see this trend continue.
This is the first year we have set targets, which show in the
under- and over-performance reported. During the year, we
also amended the calculation of our cost measures to better
reflect the full cost to Inland Revenue of providing these
services.
See Part 6 for a full explanation of our performance compared
to targets.
Cost of collecting revenue
The cost of collecting $100 of revenue is an indicator of
Inland Revenue’s relative efficiency if other conditions are
kept constant. It is particularly relevant in the context of
international comparisons where comparator countries have
tax systems similar to New Zealand. Our historical performance
in OECD surveys shows that we are comparable with the most
efficient tax administrations in the OECD. For example, the
2010 survey showed that it cost Canada $1.33 to collect $100
of revenue, the United Kingdom $1.14, and Australia $1.02.
The data for these costs is from 2008. Our cost of collection
for the same period was $0.88. This has increased slightly to
$0.92 in 2011–12, mainly because of an increase in funding for
compliance activities—investigations and debt collection. The
next edition of the OECD Comparative Information Series will
update the international data available on collection costs.
Operational efficiency programmes
We are running a three-year phased operations management
programme across our Service Delivery business group, which
is implementing industry best practice to help us plan and
manage our operations. The programme uses tools to actively
manage cost, quality and service outcomes. Operations
management enables us to increase productivity by better
planning and managing our work.
We are also continuing to implement a Lean Six Sigma
programme. The benefits so far are:
""
a streamlined approach for using “change of circumstance”
information from customers for child support and Working
for Families Tax Credits
""
a streamlined process for sorting correspondence
""
a significant reduction in security risk for data transfers
between financial institutions and Inland Revenue.
Benchmarking
Inland Revenue takes part in benchmarking exercises to
compare our activities with other organisations. These studies
give us insight into our relative efficiency and are important
ways of exchanging information and ideas to promote
improvement.
In 2010–11 we took part in a benchmarking exercise coordinated
by the HM Revenue and Customs (the United Kingdom
revenue authority). We ranked in the top three (out of
10 participating countries) for 26 of the 42 (62%) indicators
used in the benchmarking study that are comparable and allow
robust interpretation. We were also the highest ranking tax
administration for seven of the indicators.
In 2011–12 we took part in these exercises:
""
OECD Comparative Information Series 5 , which compares
tax administrations and provides detailed operational and
costing information, as well as highlighting developments
in international best practice. The current study is planned
for completion in January 2013.
""
Better Administrative and Support Services (BASS)
benchmarking work conducted by the Treasury 6 .
Inland Revenue has rated relatively well in the BASS
benchmarks in terms of the cost of our human resources,
finance and legal services functions. Our Information and
Communications Technology costs are higher than average.
This reflects the size and complexity of the IT systems
needed to administer revenue collection and disbursement
of payments. Our results for the quality metrics have
consistently rated higher than average for the BASS cohort.
5
For the latest edition, see Tax Administration in OECD and Selected Non-
OECD Countries: Comparative Information Series (2010), available at
oecd.org
6
See treasury.govt.nz/statesector/performance/bass/benchmarking/2010–11
32 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Evaluations
We regularly evaluate the results of policies and major
business projects against their objectives. The findings help
us understand the underlying factors that contribute to their
success or if they are not working as intended.
This year, we continued evaluating the outcomes of the
KiwiSaver programme, focusing mainly on the home ownership
features of the scheme and an initial evaluation of the impact
on retirement savings. In June 2012, we also published Opt-outs
and contributions holidays, giving some insight into the
characteristics of members who have opted out or taken a
holiday from the scheme. In future, we will extend the scope of
our evaluation work to survey individuals and households, and
compare members and non-members.
We also evaluated several aspects of the student loan scheme,
including the following:
""
The effectiveness of the overseas-based borrowers
compliance initiative to assess interventions with student
loan debtors based in Australia. The findings indicated
that the campaign was successful in having borrowers
starting to repay their loans, but most were borrowers with
smaller debts. The study’s findings informed the expansion
of the initiative when we included borrowers in the
United Kingdom in the target group.
""
Opinions of the repayment holiday for borrowers
travelling and living overseas. Our evaluation found that
the repayment holiday had no influence on borrowers’
decisions to return to New Zealand and many had a
significant lack of awareness of their loan. Lack of contact
with Inland Revenue was a major factor in their noncompliance
with student loan repayments.
ird.govt.nz
part 4
Our perfoRMAnce
33

Part 5
Improving THe WAy we WORk
ird.govt.nz
PART 5
iMproving the way we work
35

Improving the way we work
We continue to improve the way we work to ensure we achieve
our desired future.
Implementing IR for the Future
Our strategic document IR for the future sets out our priorities
and what we need to do to achieve our mission, vision and
culture. Our Senior Management Team (SMT) developed an
action plan to implement IR for the future. It contains initiatives
that we report on monthly. These initiatives help keep us on
track to build a better Inland Revenue. Our successes so far
include the following:
""
Implementing our Commissioner’s Award scheme in
January 2012. The Awards recognise the contributions and
hard work of our people.
""
Ensuring that our collective leadership is supported by
clear accountabilities. Our SMT and group managers
meet monthly to discuss issues about our vision, strategic
priorities and the challenges we face.
""
Embedding our leader expectations in our performance
and development framework and in our leaders’
performance agreements.
""
Reviewing our approach to leadership support at each of
our sites. We are taking a fresh look at our site leadership
and our communications approaches to find the best way
to support our people from sites outside National Office.
We are looking at what information our people need and
how we can best make it available to them.
""
Building an internal coaching programme, supported by
a 360 degree feedback process. This has been received
positively and so far, over 100 Inland Revenue leaders have
taken part in the pilot coaching programme.
""
Looking at our investments in existing and new systems,
to make it easier for our people and customers to work
with us. We are piloting an approach to support wider
Inland Revenue input into our design processes and ensure
innovative thinking is a core part of the way we do things.
We also held Making it real workshops to measure the progress
of embedding our organisational values as part of IR for
the future. As a result of feedback, we designed a number
of initiatives which have increased dialogue between our
people and leaders, clarified site leadership and increased staff
involvement in IR for the future initiatives.
OrgaNISaTIONal chaNGE
This year, we have seen significant organisational change.
Senior Management changes
Bob Russell completed his term at Inland Revenue in July 2012
and Naomi Ferguson took up the role of Chief Executive
and Commissioner. Naomi previously spent three years with
Inland Revenue from 2003–06 as Deputy Commissioner
Service Delivery. She has spent the last six years working for
HM Revenue and Customs, including the role of Director of
Local Compliance.
Arlene White came to Inland Revenue to take up the role
of Deputy Commissioner Service Delivery in March 2012.
Previously, Arlene held the position of Assistant Commissioner,
Assessment and Benefit Services Branch, with the Canada
Revenue Agency. Arlene replaced Carolyn Tremain who was
appointed Chief Executive at the New Zealand Customs
Service.
Struan Little was appointed Deputy Commissioner Policy
Advice in September 2011. Struan was previously a Deputy
Secretary at the Treasury. He replaced Robin Oliver as Deputy
Commissioner Policy Advice.
Peter Mersi, Deputy Commissioner Business Transformation,
was appointed Chief Executive of Land Information
New Zealand in August 2012.
Service delivery change and other organisational
change
We are facing significant challenges from customer
expectations, government needs, technology change and
financial pressures. Our Future Direction of Service Delivery
(FDSD) project helps us meet these current challenges, as well
as providing flexibility and delivering value for taxpayers. Our
work on the FDSD project aligns our service delivery area with
IR for the future by ensuring our people are appropriately placed
to address community needs. This work ensures we:
""
deliver more targeted, coordinated and efficient customer
services
""
are flexible enough to evolve how we work in the future, to
meet changing community and business needs
""
provide better value for money
""
deliver the services our customers are looking for.
36 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

The project has been supported by developing regional profiles
of New Zealand. We collected and interpreted external and
internal data sources to show how individual regions have
unique blends of people, industries and geography.
This regional diversity means that national and international
change impacts to varying degrees across the country, and a
“one-size fits all” approach to removing compliance barriers,
or maximising uptake of social policy entitlements, will not
necessarily work. Our research has attracted wide interest
from other government agencies and we received additional
funding to extend it and make results accessible to those other
agencies.
This year, we finished implementing FDSD changes in Rotorua,
New Plymouth, Napier, Nelson and Invercargill. We are now
considering what kinds of work we will do in our main sites,
and the probable impacts of business transformation for our
customers and us.
We also made a number of management changes across
Inland Revenue. We realigned our third-tier management in
the Service Delivery, Business Transformation and Corporate
Services business groups. We also realigned lower management
tiers in several areas to ensure that our management structure
helps Inland Revenue to focus on our future capability.
We also prepared for future change by refreshing our strategic
workforce plan, Our People Our Future 2011–15. This plan
highlights our focus on change leadership, stakeholder
management, co-design of services, programme management
and emerging technology product knowledge.
Outsourcing
We are working with an external contact centre provider,
which gives us additional cost-effective capacity to meet
service requirements in periods of high demand. Their people
are trained to deal with generic queries received by our
contact centres, which lets our people deal with more complex
enquiries.
We also use private sector debt collection services as part of
our overseas-based borrower compliance initiative, which
targets student loan borrowers in Australia and the United
Kingdom who have overdue repayments. We use these services
to track and trace borrowers, collect debt, and take legal action
on our behalf.
Supporting diversity
We continued to focus on supporting the diversity of
our workforce. If our employee composition reflects our
increasingly diverse customer base, we will be able to use their
knowledge to improve our understanding of our customer
needs and provide better services.
We produced a Diversity and Inclusion Framework to help
build a culture of inclusion and diversity of perspective. It
supports our leaders to involve our people in achieving our
vision and outcomes. Our diversity scorecard lets us track
progress against key activities.
For information about our eeO performance, see figure 24 in
the appendix.
Improving our sySTEMS and TOOls
Our focus on ensuring that our systems meet our current and
future needs reflects one of our strategic priorities in IR for
the Future and is critical to achieving our successful business
transformation.
We are committed to giving our people better tools to do their
job. As part of our IT enhancement work, we introduced a new
enterprise desktop environment. It has successfully replaced
our ageing distributed computing software. Our people can
now access and share information more easily, facilitating more
collaborative work.
Accommodation
In Christchurch, we are co-locating staff with the Ministry of
Social Development (MSD) in a purpose-built building. It will
house about 350 people from Inland Revenue and 125 from
MSD. To start with, most of them will be contact centre
and collections staff. We expect the building to be ready by
December 2012. In the meantime, our people are operating
from temporary premises and shared government buildings.
Our Cashel St building in Christchurch will be demolished.
In Auckland we have also moved our contact centre operations
into a more fit-for-purpose facility in the Unisys Building in
Penrose.
We are preparing a national property strategy that will look at
our future business requirements and connect with our longterm
accommodation plans.
ird.govt.nz
part 5
Improving the way we work
37

Managing our RISks
To make progress towards our outcomes we must identify our
key risks and develop approaches to mitigate them. We do
this through our governance structure and risk management
frameworks.
Our risk management framework is based on the ISO Risk
Management Standard (ISO31000:2009) and sets out the
principles for managing risk. This framework:
""
requires business owners to adopt risk management
practices
""
has a strong assurance focus that supports governance
bodies
""
applies to strategic, operational, project, programme and
portfolio risk.
We have established processes for managing risks at the
strategic, operational, programme, portfolio and individual
project level which we regularly review.
GovERNance
The Commissioner chairs the Executive Board which focuses
on longer-term strategy, ethics, integrity, strategic risks and
progress towards our desired future and outcomes. In addition,
the Senior Management Team meets weekly.
The following governance groups support the Executive Board:
""
Portfolio Governance and Investment Committee—
oversees the approval, initiation and implementation of
our change portfolio.
""
Business Transformation Programme Board—provides
assurance that business transformation initiatives will meet
the strategic needs of the organisation.
""
Technical Governance Committee—facilitates and
ensures the coordination and consistency of departmental
work on important technical matters.
In addition to the Executive Board and the supporting
committees above, the Risk and Assurance Committee
provides independent advice to the Commissioner on carrying
out their statutory responsibilities and accountabilities. This
Committee is made up of independent members and also has
an independent chair.
Strategic RISks
We have identified strategic risks to delivering our outcomes
for IR for the Future and developed the following mitigations,
which are set out below.
Revenue
Inland Revenue needs to administer all tax and social policies
to optimise revenues and disbursements to support government
objectives.
We identify and implement policy changes to improve the
fairness of our tax system and ease of compliance (see Part 1
for more information). We have an ongoing focus on
addressing non-compliance through our hidden economy,
debt and property initiatives. Our Business Transformation
programme will also help optimise our tax and social policy
administration.
Reputation and community confidence
Inland Revenue needs to maintain the confidence of the public
and government.
We continue to strengthen our customer and stakeholder
relationships. We are progressively introducing our community
compliance officer roles, which have increased our presence
in regional communities. We provide regular, transparent and
consistent messaging to our customers and to the media by
taking a proactive approach to keeping them informed.
People capability
Inland Revenue needs the right people in the right place at the
right time now and for the future.
We continue to plan our people capability through our
workforce planning efforts. This helps us to identify and
understand what skills and staff we will need in the future.
We have identified future capability gaps and are developing
appropriate approaches to ensure that we can continue to
deliver our services. For example, the Accelerated Capability
Development Programme in our Information, Design and
Systems (IDS) area ensures that IDS has the necessary capability
and capacity.
38 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Information technology
Inland Revenue needs to apply timely technology solutions to
meet our delivery requirements.
We continue to refresh and update our IT strategy. We now
have detailed plans to ensure that Inland Revenue continues
to receive hardware and software support and manage our
forecast demand for increased IT capacity. Our business
transformation programme will include the modernisation of
our IT infrastructure and systems.
Information management
Inland Revenue needs reliable data, and effective management
information systems and processes to make informed decisions.
We recognise that this strategic risk requires our most urgent
attention. Funding was assigned to initiate the Information
Management Programme last year. We have since developed
a comprehensive strategic response plan. We will assess the
phasing of implementation of the plan in conjunction with
Business Transformation planning and prioritisation processes.
Financial
Inland Revenue needs to ensure future capital investment and
operational funding is sufficient in order to provide services, now
and in the future.
We have strong financial management practices, which have
been endorsed by our auditors and are reflected in the findings
of the Performance Improvement Framework report. We have
a rolling four-year budget/business plan to ensure we plan and
budget for our future funding needs. We ensure that options
for proposed policy changes are presented with clear financial
implications. We test our investment decisions, monitor
expenditure and report regularly. We continue to improve our
internal policies and practices, such as the recent launch of our
procurement policy.
External interactions
Inland Revenue needs to ensure that competing priorities are
managed when working together with other agencies and
private providers.
This risk was recently introduced and recognises the need
to manage our interactions with others more effectively
and strategically. We recently implemented a number of
operational responses, eg, webinars with software developers
and committing senior managers to cross-agency committees.
We are planning further work to ensure that Inland Revenue
leads and supports interactions with others.
ird.govt.nz
part 5
Improving the way we work
39

AppENdix
This section contains statistical tables that provide additional information supporting Parts 1 to 5. 7
Measuring pERFORMance
Figure 6 –
IMPACT INDICATORS rePORT – MAIN MEASURES
Impact indicator Recent performance Current performance Target by June 2014
More customers are able to self-manage 8
% of customers who are aware of their Year end June 2011: 80% Year end June 2012: 80% Increase to 85% or more
obligations and entitlements increases
% of customers who find it easy to Year end June 2011: 71% Year end June 2012: 71% Increase to 75% or more
comply increases
Factors that influenced target setting: This impact is key to enabling improved customer compliance and cost-effectiveness in a
fiscally constrained environment.
More customers register and report accurate information when required
% of returns filed without errors increases Year end June 2011: 85% 9 July 2011 – March 2012: Increase to 90% or more
86%
% of applications submitted without
errors increases
March 2011 – June 2011:
84%
Year end June 2012: 89% To be set when more data
is available
Ratio of registrations to population size Year end June 2011: Year end June 2012: n/a
and growth follows an appropriate trend 10 Employers: correlation 99%,
WfFTC: correlation 87% 11 Employers: correlation 99%,
WfFTC: correlation 67%
GST assessed to consumer spending Year end March 2011: Year end March 2012: n/a
follows an appropriate trend 12 Correlation of 93% 13 Correlation of 93%
Factors that influenced target setting: This impact is key to improving customer self-management, reducing unnecessary contacts
and improving end-to-end processing.
More customers claim their correct entitlements 14
% of accurate WfFTC payments
Tax year 2010: 68% Tax year 2011: 69% Tax year 2013: Increase to
increases 15 70% or more
Factors that influenced target setting: The expected impact of the upcoming changes to WfFTC eligibility rules has been taken into
account when assessing our ability to improve accuracy.
7
Figures in the tables may not add up to the stated totals due to rounding.
8
We only include results for the contextual indicator under this impact
“customer compliance costs are minimised” when the data is less than two
years old. The survey that this indicator uses was last undertaken in 2009
and results were included in the 2011 Annual Report.
9
Result updated to June 2011 (results reported in 2012–15 Statement of
Intent and 2011 Annual Report were to March 2011).
10
We report on this indicator to provide additional contextual information.
Employers’ correlation is between the number of employers who register
for PAYE and the percentage of the labour force that is employed (from the
Statistics New Zealand Household Labour Force Survey). WfFTC correlation
is between the number of customers who receive payments from
Inland Revenue and the number of households with dependent children
(from the Statistics New Zealand Household Labour Force Survey).
11
Correlation results updated as result of revised historical data from Statistics
New Zealand for number of households with dependent children.
12
We report on this indicator to provide additional contextual information.
It highlights a link between consumer spending and the amount of GST
assessed, showing the completeness of information provided by GST
customers. As this is an indicator that is beyond our influence, no formal
target has been set.
13
Correlation results updated as a result of revised historical data from
Statistics New Zealand for gross national expenditure.
14
The previously reported entitlements perception indictor has been moved
to the statement of service performance (Part 6) because this is more
a reflection on the quality of our service than the impact on customer
compliance.
15
Payments are considered accurate if customers’ total yearly payments are
within $1,000 of their entitlement. The accuracy of payments is primarily a
reflection of the quality of information provided to us by our customers.
40 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Figure 6 –
IMPACT INDICATORS rePORT – MAIN MEASURES (CONTINUed)
Impact indicator Recent performance Current performance Target by June 2014
More customers pay and file information on time
% of returns filed on time increases Tax year 2010: 82% Tax year 2011: 82% Tax year 2013: Increase to
85% or more
% of payments made by customers on
time increases
Tax year 2010: 87% Tax year 2011: 86% 16 Tax year 2013: Increase to
90% or more
Factors that influenced target setting: This impact is a key compliance driver and consequently stretch targets are appropriate.
The behaviour of non-compliant customers improves 17
The compliance behaviour of customers Year end June 2011: 82% Year end June 2012: 86% Maintain at 80% or more
who received an audit intervention
increases
% of collectable debt to total debt
increases
Year end June 2011: 69% Year end June 2012: 65% Increase to 70% or more
% of cash collected to collectable debt
increases
% of collectable debt to revenue assessed
decreases
Year end June 2011: 65% Year end June 2012: 112% 18 Increase to 70% or more by
year end
Year end June 2011: 8.1% Year end June 2012: 7.6% Decrease to 7.0% or less
Factors that influenced target setting: The economic environment is a significant factor in debt performance. Maintaining or
making small improvements will be challenging.
16
Measured using provisional results. Final results will be confirmed in
October 2012.
17
The previously reported non-compliance perception indicator has been
moved to the statement of service performance (Part 6) because this
is more a reflection on the quality of our service than our impact on
customer compliance.
18
This is the result of increased use of tax pooling. These increases were not
anticipated when the target was set and we will look at options for future
reporting.
ird.govt.nz
appendix
41

Customer satisfaction remained at similar levels to last year, although business satisfaction has declined over the past year.
Figure 7 –
CUSTOMer SATISFACTION
Overall satisfaction 2010–11 2011–12
Customer group Satisfied Very satisfied Satisfied Very satisfied
National results 86% 69% 86% 69%
Individuals (overall) 84% 66% 85% 67%
Working for Families Tax Credits (WfFTC) 88% 73% 88% 72%
Child support 76% 50% 75% 54%
KiwiSaver (employees) 88% 71% 91% 76%
Student loan 84% 70% 84% 66%
Business (overall) 89% 71% 86% 69%
Small and medium enterprises 89% 74% 86% 70%
Large enterprises 89% 71% 88% 75%
Tax agents 89% 71% 90% 70%
Not for profits 88% 69% 81% 61%
Channel
Voice 87% 70% 87% 70%
Correspondence 76% 56% 72% 55%
Online – – 95% 80%
42 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Customer perceptions of Inland Revenue improved this year.
Figure 8 –
CUSTOMer percePTIONS OF THe TAx sySTem
2010–11 2011–12
Agree Strongly
agree
Agree Strongly
agree
Overall fairness 81% 54% 83% 56%
Overall operational 83% 59% 85% 60%
effectiveness
Makes it easy to 75% 44% 79% 47%
get it right
Appropriate
76% 54% 79% 55%
action against
non-compliance
Paying tax
contributes to
New Zealand
96% 86% 96% 87%
Social policy—cuSTOMERS claIMING
thEIR ENTITlEMENTS
We have nearly two million KiwiSaver members.
Figure 9 –
kIWISaver membeRSHIP (AT 30 June)
Enrolment method 2010 2011 2012
Automatically enrolled 541,769 646,725 742,751
Opted in through
211,883 232,131 247,950
employer
Opted in through provider 706,290 877,076 975,743
Total members 1,459,942 1,755,932 1,966,444
We distributed over $3 billion to KiwiSaver scheme providers
this year.
Figure 10 –
kIWISaver FUNDS TO PROviders 19
Contributions from 2009–10
$million
2010–11
$million
2011–12
$million
Members
Employee $1,051 $1,156 $1,322
Employer $626 $740 $866
Voluntary $9 $16 $16
Total member $1,686 $1,911 $2,204
Crown
Member tax credit $573 $664 $799
Kick-start $376 $331 $239
Fee subsidy $9 – –
Interest $5 $5 $6
Total Crown $962 $1,000 $1,044
Total to providers $2,648 $2,911 $3,248
Figure 11 –
CUSTOMers receivING regular WorkING FOR Families
Tax CreDITS PAymeNTS FROM InlAND Revenue
June–10 June–11 June–12
Customers 202,000 200,000 193,600
Average weekly payment $153 $153 $156
FiguRE 12–
STUDeNT lOAN rePAymeNTS
Repayments 2009–10
$million
2010–11
$million
2011–12
$million
PAYE system $473.9 $491.6 $528.0
From borrower $170.5 $199.0 $239.7
Total $644.4 $690.6 $767.7
19
Figures are on a cash accounting basis and are gross (ie, exclude refunds
from providers). They exclude member tax credits paid to complying funds,
and contributions made direct to scheme providers.
ird.govt.nz
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43

Customer SERvICES and CONTaCTS
We had more than 18 million visits to our website this year, and
registrations for our online services reached 1.2 million.
Figure 13 –
Self-service CONTACTS
2010–11 2011–12
Website visits 17,823,263 18,204,485
Total registrations for online
964,904 1,240,629
services (cumulative)
Self-help and online services 16,056,536 15,810,023
Look at account information 12,397,006 12,113,609
Agent client maintenance 507,824 658,829
0800 self-service 695,498 654,347
KiwiSaver member scheme provider
requests
2,456,208 2,383,238
Figure 14 –
CorreSPONDence CONTACTS
2010–11 2011–12 2010–11 2011–12
Paper
Electronic
Income tax 426,533 405,779 470,749 517,556
GST 97,161 78,576 85,827 92,536
Working for Families 30,127 29,722 23,028 27,796
PAye 53,220 62,271 15,142 20,094
Student loan 12,111 16,261 23,876 30,502
Child support 57,381 46,478 18,303 14,825
Other tax types 136,435 145,287 26,088 24,111
KiwiSaver 10,458 8,672 21,721 27,697
Total 823,426 793,046 684,734 755,117
Complying with obligaTIONS – Audit
and dEbt tablES
We identified $1.2 billion in audit discrepancies this year, less
than in the previous year.
Figure 16 –
AUDIT DISCRePANCIes
Audit category
Actual
2010–11
$million
Target
2011–12
$million
Actual
2011–12
$million
Investigations – SMEs $374.3 $398.4 $400.1
Aggressive tax issues $110.3 $169.0 $322.7
Tax evasion and fraud $208.6 $131.1 $141.3
Large enterprises $757.4 $401.5 $340.0
Total discrepancies $1,450.6 $1,100.0 $1,204.1
Adjustments
Less loss reduction
$188.6 – $265.0
adjustments
Less imputation credit $429.0 – $180.7
adjustments
Additional tax assessed $832.0 – $758.4
Notes
1. The table shows net discrepancies by audit category. Net discrepancies
are defined as gross discrepancies less timing adjustments—for errors
found in a return filed for one period, but claimable in another.
2 Further adjustments are made because not all net discrepancies result
in an immediate tax liability or payment of additional tax. Adjustments
to losses and imputation credits can affect current tax liabilities, but are
mainly carried forward to future periods.
Figure 15 –
TelePHONe peRFORMANCe
2010–11 2011–12
Calls received 5,142,339 4,077,317
Calls answered 3,894,454 3,670,987
Average handling time (min:sec) 10:48 10:40
44 New Zealand Inland Revenue Annual Report 2012 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%.
Figure 17 –
COMPOSITION OF OUR debt PORTFOlio (at 30 June)
Debt type ($million) 2010 2011 2012 One-year
change
One-year
change (%)
Debt under arrangement $937.7 $1,146.6 $1,176.3 $29.7 2.6%
Other collectable debt $2,548.6 $2,663.5 $2,582.7 ($80.8) (3.0%)
Total collectable debt $3,486.3 $3,810.2 $3,759.0 ($51.2) (1.3%)
Total non-collectable debt $1,664.3 $1,711.9 $2,157.4 $445.5 26.0%
Total debt $5,150.6 $5,522.1 $5,916.4 $394.3 7.1%
Income tax debt $2,158.1 $2,207.8 $2,372.4 $164.6 7.5%
GST $1,809.4 $1,908.5 $1,947.2 $38.7 2.0%
PAye $532.3 $622.6 $642.1 $19.5 3.1%
Student loan $324.7 $411.7 $512.3 $100.6 24.4%
WfFTC $238.3 $275.1 $320.8 $45.7 16.6%
KiwiSaver $14.6 $19.8 $21.5 $1.7 8.6%
Other $73.2 $76.6 $100.1 $23.5 30.7%
Total debt $5,150.6 $5,522.1 $5,916.4 $394.3 7.1%
Penalties and interest $2,149.7 $2,359.0 $2,711.3 $352.3 14.9%
Penalties and interest (%) 41.7% 42.7% 45.8% 3.1% 7.3%
Customers in debt (total cases) 363,814 389,947 408,606 18,659 4.8%
Annual debt change (%) 1.8% 6.7% 7.1%
Debt under two years old decreased by more than $430 million over last year’s level. Debt over two years old continues to increase.
Figure 18 –
Age OF debt (AT 30 June) 20
2010 2011 2012 One-year change
Debt
($million)
Debt
cases
Debt
($million)
Debt
cases
Debt
($million)
Debt
cases
Debt
($million)
Debt
cases
< 1 year $1,500.3 216,815 $1,377.7 220,597 $1,254.7 224,520 ($123.0) 3,923
1–2 years $1,386.4 84,000 $1,387.7 89,063 $1,079.1 72,219 ($308.6) (16,844)
2–5 years $1,542.0 50,839 $1,787.7 63,840 $2,310.9 92,119 $523.2 28,279
> 5 years $721.9 13,660 $969.0 16,447 $1,271.6 19,748 $302.6 3,301
Total $5,150.6 363,814 $5,522.1 389,947 $5,916.4 408,606 $394.3 18,659
20
This table includes overdue student loan repayments. Figures are based on
cases using a weighted average of debt elements. They are not comparable
with the figures in Part 8, which are based on elements.
ird.govt.nz
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45

Overdue repayments owed by New Zealand-based borrowers
continued to decrease.
Figure 19 –
OveRDUe STUDeNT lOAN rePAymeNTS
Overdue repayments 2009–10
$million
Borrowers based:
2010–11
$million
2011–12
$million
– in New Zealand $142.2 $122.8 $102.6
– overseas $182.5 $288.9 $409.7
Total $324.6 $411.7 $512.3
Total child support debt increased by more than $180 million this year.
Figure 20 –
Child SUPPORT debt (AT 30 June) 21
Child support debt type 2009–10 2010–11 2011–12 22 One year One year
($million)
change change (%)
Penalty debt $1,367.7 $1,666.0 $1,809.5 $143.5 8.6%
Assessment debt $575.8 $604.5 $642.9 $38.4 6.4%
Debt under arrangement $964.2 $1,122.7 $1,067.9 ($54.8) (4.9%)
Uncollectable debt $272.0 $310.9 $348.6 $37.7 12.1%
Not yet under arrangement $707.3 $836.9 $1,035.9 $199.0 23.8%
Total child support debt $1,943.5 $2,270.5 $2,452.4 $181.9 8.0%
Customers in debt (cases) 139,136 141,464 147,177 5,713 4.0%
Figure 21 –
ReCIPROCAl AGReement FOR COlleCTION OF CHIld SUPPORT (at 30 June)
New Zealand cases handled by Australian Child
Support Program
Total debt cases Debt owed Debt collected
$million $million
2011 2012 2011 2012 2011 2012
11,450 11,198 $502.1 $403.4 $43.3 $49.2
Australian cases handled by Inland Revenue 4,978 5,136 $105.8 $116.7 $11.3 $11.4
21
Child Support debt figures do not match the figures in Part 8 because the
Crown financial schedules include accruals and only show the portion of
overdue debt due to the Crown, ie, penalties.
22
From June 2012, penalties charged on Australian Child Support Program
cases that are being collected in New Zealand are included in the total
child support debt figure. Of the $182 million increase in child support
debt, $71 million of the growth relates to these penalties.
46 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

77% of child support debt is more than five years old.
Figure 22 –
Age OF CHIld SUPPORT debt (at 30 June)
Debt
($million)
2010 2011 2012 One year change
Debt Debt Debt Debt Debt Debt
cases ($million) cases ($million) cases ($million)
Debt
cases
< 1 year $75.3 55,406 $72.3 52,944 $71.5 51,710 ($0.8) (1,234)
1–2 years $97.4 21,575 $106.7 23,122 $114.7 23,332 $8.0 210
2–5 years $340.9 30,747 $353.6 31,994 $381.5 35,667 $27.9 3,673
> 5 years $1,429.9 31,408 $1,737.9 33,404 $1,884.7 36,468 $146.8 3,064
Total $1,943.5 139,136 $2,270.5 141,464 $2,452.4 147,177 $181.9 5,713
CapabilITy and EEO
Figure 23 –
WorkFORCe INDICATORS
2009–10 2010–11 2011–12 Public sector comparison
Staff FTEs 5,511 5,646 5,301 Cap: 5,946
Staff turnover 23 6.3% 7.4% 9.4% 2011 public sector average: 10.9%
Staff engagement (mean) 3.77/5 3.77/5 n/a 24 2011 Gallup engagement survey database for
New Zealand State Sector, 50 th percentile: 3.74
Figure 24 –
EEO STATISTICS
2009–10 2010–11 2011–12
Percentage of female staff 66% 65% 64%
Percentage of female team leaders 65% 64% 61%
Percentage of female managers 25 46% 45% 41%
23
In 2010–11 we moved to reporting on unplanned turnover, rather than
total turnover. The 2009–10 and 2010–11 results have been recalculated to
reflect the change in measurement methodology.
24
The 2012 engagement survey was conducted in September 2012.
25
Includes managers down to the fourth tier of management.
ird.govt.nz
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47

AddITIONal INFORMaTION
FiguRE 25 –
PROPerty INFORMATION (AT 30 June)
2010 2011 2012
Accommodation area 121,496 121,481 100,736 26
Other area (m 2 ) 5,147 5,519 927 27
Total area leases (m 2 ) 126,643 127,000 101,663
Vacant accommodation (m 2 ) 719 13,862 5,571
Vacant as a % of total 0.6% 10.9% 5.5%
Average space per person (m 2 ) 21.1 18.5 17.4
Annual rental per person ($) 5,446 5,909 5,760
Utility costs per person ($) 939 857 823
Occupancy cost per person ($) 6,385 6,766 6,583
Figure 26 –
HISTORICAl expeNDITURe on CONSUlTANTS AND CONTRACTORS
Expenditure on consultants and
contractors ($000)
2009–10 2010–11 2011–12
$30,829 $35,173 $47,305
% of total operating expenditure 5.1% 5.5% 7.0%
% of total capital and operating
4.7% 5.2% 6.5%
expenditure
26
Includes temporary sites in Christchurch, but excludes the Cashel Street
building, which will be demolished.
27
The reduction is due to exiting from storage sites.
48 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Figure 27 –
ExpeNDITURe ON CONSUlTANTS AND CONTRACTORS
2010–11
Actual
$000
2011–12
Actual
$000
14,829 Information technology 14,023
13,127 Specialist advice and project management 26,552 28
744 HR and change management services 938
780 Tax issues 1,473
2,936 Property 1,964
1,660 Research 1,448
257 Communications 156
840 Other 751
35,173 Total 47,305
28
The increase in specialist advice and project management is related to
Business Transformation.
ird.govt.nz
appendix
49

Part 6
statement OF service
peRFORMANCe
ird.govt.nz
PART 6 statement of service perfoRMAnce
51

Statement OF RespONSIbility
In terms of the Public Finance Act 1989 I am responsible, as
Chief Executive of Inland Revenue, for the preparation of the
department’s financial statements and statements of service
performance, and for the judgements made in them.
I have the responsibility for establishing a system of internal
control designed to provide reasonable assurance as to the
integrity and reliability of financial reporting.
In my opinion, these financial statements fairly reflect the
financial position and operations of the department for the
year ended 30 June 2012.
Naomi Ferguson
Chief Executive and Commissioner of Inland Revenue
28 September 2012
Countersigned by:
Giles Southwell
Chief Financial Officer
28 September 2012
52 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

STATEMENT OF SERVICE PERFORMANCE
For the year ENded 30 JuNE 2012
RepORTING pERFORMance
Our service performance is divided into two groups:
""
Activity forecasts—these are forecasts of expected customer demand for our services that provide context for our performance
measures results. Significant variation from the forecast figures can influence the achievement of the targets set for our
performance measures.
""
Performance measures—these are measures we use to set our performance targets. They measure our performance in terms of
quantity, quality, timeliness and cost. We are reporting cost measures for the first time.
The following sections report on our performance against our targets. Where a performance measure is expressed in terms of a
range of characteristics that the output should meet, the result is reported as ‘achieved’ or ‘not achieved’ (eg, see Output Expense 1).
We have provided additional information to explain our performance for these performance measures.
We have provided comments for:
""
key activity forecasts where actual demand was outside the expected range
""
performance measures that were not achieved
""
performance measures with a positive variance greater than 10%.
Some performance measures are calculated using a sample of the customer population. We have marked these performance
measures with a hash mark (#) in the 2011–12 Actual column.
In the past, a 5% tolerance was applied to determine whether performance targets had been achieved. From 2011–12 we no longer
apply this tolerance and we adjusted some of our performance targets to reflect this change.
Comparative performance data
Where appropriate we have included comparative performance information against the activity forecast and performance measures
for the previous year (2010–11 Actual). We have not included comparative performance information for new performance
measures, or where there has been a change in the performance measure or measurement methodology that made the results
incomparable. These are indicated by ‘n/a’.
Comparative financial data – Output Statements
Certain comparative information has been restated, where required to conform with the current year’s presentation.
Performance context commentary
We have included information to give context to the performance achieved. For each output expense we have included a summary of:
""
the impacts we want to contribute to. Further information about our performance measurement framework is in part two.
""
factors influencing our performance during 2011–12.
These commentaries form part of the overall performance picture and should be read in conjunction with the activity forecasts and
narrative in the other sections of this report.
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Summary OF SERvICE pERFORMance
Figure 28 summarises the performance measures achieved. This year, we achieved 38 out of 55 (69%) performance measures.
FiguRE 28 – pERFORMaNCE measuRES achieved
2009–10 2010–11 Output expense 2011–12
4 of 4 6 of 6 Policy advice 5 of 5
20 of 21 12 of 14 Services to inform the public about entitlements and meeting obligations 9 of 14
18 of 18 15 of 17 Services to process obligations and entitlements 11 of 17
8 of 9 9 of 15 Management of debt and outstanding returns 6 of 12
9 of 9 9 of 9 Taxpayer audit 7 of 7
59 of 61 51 of 61 Total 38 of 55
Review of 2011–12 output performance measures
Last year we reviewed our output measures for the 2011–12 year. The purpose of this review was to:
""
ensure that we focus on the key external measures
""
create or update measures to reflect changes in our business
""
rationalise multiple or repeating measures
""
remove items that were not performance measures
As a result of the review we removed the 5% tolerance that we had previously applied to performance measure results, removed
22 measures (36%) and added 16 measures (26%).
We reported on 38 comparable measures in both 2010–11 and 2011–12. Our performance improved for nine measures (24%),
remained the same for six measures (16%) and deteriorated for 23 of these measures (60%). For 13 (57%) of the 23 measures where
performance deteriorated, the change in performance between years was less than 2%.
54 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

OUTPUT EXPENSE 1
POLICY advICE
Description
This output expense provides policy advice services jointly with the Treasury that contribute to achieving the government’s tax and
social policy outcomes, and improving the economic and social wellbeing of New Zealanders.
Activities undertaken:
""
advising on all aspects of tax policy and social policy measures that interact with the tax system
""
drafting tax and social policy legislation
""
negotiating and maintaining New Zealand’s network of double tax agreements with other countries
""
forecasting tax revenues
""
providing ministerial services.
Performance context commentary
The impacts we contribute to
Providing policy advice services protects and maintains the integrity of the tax system while ensuring that our tax system is as simple
as possible and is internationally competitive. This contributes to achieving all of our impacts:
""
More customers are able to self-manage
""
More customers register and report accurate information when required
""
More customers claim their correct entitlements
""
More customers pay and file information on time
""
The behaviour of non-compliant customers improves.
When customers comply with their obligations and receive their entitlements we make progress towards Inland Revenue’s
outcomes:
""
Revenue is available to fund government programmes through people meeting payment obligations of their own accord
""
People receive payments they are entitled to, enabling them to participate in society.
Factors influencing performance during 2011–12
Our significant areas of work in 2011–12 were:
""
negotating tax treaties
""
Budget 2012
""
Consultation on a range of issues
""
Canterbury earthquake policy response
""
ongoing work on the Government’s Tax Policy Work Programme, including management of Bills before the House.
See part one for more information about our policy advice work.
Financial performance for the year ended 30 June 2012 ($000)
Revenue Expenses Net surplus/(deficit)
16,149 15,842 307
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Output 1.1 Policy ADvice IN relATION TO TAx AND SOCIAl POlicy
Description
This output involves:
""
advising on all aspects of tax policy and social policy measures that interact with the tax system
""
developing tax and social policy in line with the Generic Tax Policy Process
""
drafting tax legislation for introduction in the House and assisting its passage through the House
""
negotiating and maintaining New Zealand’s network of double tax agreements with other countries
""
forecasting future tax and non-tax Crown revenue receipts and disbursements for the government
""
analysing revenue implications of changes in tax and social policy.
Performance measures
2010–11
Actual
Measure
2011–12
Target Actual Variance
Quantity, quality and timeliness
Achieved We will provide the Minister with: Achieved Achieved* –
tax and social policy advice as agreed in the government’s tax
policy work programme using the Generic Tax Policy Process
(details available at taxpolicy.ird.govt.nz)
draft tax bills as agreed, and support their introduction and
passage through Parliament
budget forecasts and updates, and
regular reports on progress.
n/a Percentage of regulatory impact statements assessed as adequate – 100% 100%** –
advice is complete, convincing, consulted, clear and concise (details
available at treasury.govt.nz/publications/guidance/regulatory).
Achieved We will ensure that the Minister is satisfied with the quality of:
policy advice
tax legislation
revenue forecasts. Achieved Achieved*** –
Explanation for “achieved” rating
We will provide the Minister with tax and social policy advice, draft tax bills, budget forecasts and updates.
The achievement of this measure is based on the delivery of tax policy work, including draft tax bills and budget forecasts, in
accordance with the agreed timeframes to deliver the Government’s tax policy work programme.
* See Explanation for “achieved” rating above and Generic Tax Policy Process on page 57
** See Tax Policy quality assurance assessment criteria on page 57
*** This is measured by using a survey of the Minister near the end of the year.
56 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Generic Tax Policy Process
A process designed to produce better, more effective tax policy. There are five key development stages.
Stage
Strategic
Tactical
Operational
Legislative
Implementation and review
Description
This involves the development of an economic strategy, a fiscal strategy and a revenue strategy.
This involves the development of a work programme and an annual resource plan.
This involves detailed policy design, formal detailed consultation, and Ministerial and Cabinet
approval of detailed policy recommendations.
This stage, which can occur concurrently with the operational stage, involves the translation of
the detailed policy recommendations into legislation.
This involves the implementation of legislation and any post-implementation review.
Tax policy quality assurance assessment criteria
Quality
standard
Complete
Description
All required information (including disclosure statement) is included in the Regulatory Impact Statement (RIS).
All substantive elements of each fully-developed option are included (or the RIS identifies the nature of the
additional policy work required).
Convincing
All substantive economic, social and environmental impacts have been identified (and quantified where
feasible).
Status quo, problem definition and any cited evidence is presented in an accurate and balanced way.
The objectives relate logically to and fully cover the problem definition.
The options offer a proportionate, well-targeted response to the problem.
The level and type of analysis provided is commensurate with the size and complexity of the problem and the
magnitude of the impacts and risk of the policy options.
The nature and robustness of the cited evidence is commensurate with the size and complexity of the
problem and the magnitude of the impacts and risks of the policy options.
Consulted
Clear and concise
The conclusion relate logically and consistently to the analysis of the options.
The RIS shows evidence of efficient and effective consultation with all relevant stakeholders, key affected
parties, government agencies and relevant experts.
The RIS show how any issues raised in consultation have been addressed or dealt with.
Communicated in plain English, with minimal use of jargon and any technical terms explained.
The material is structured in a way that is helpful to the reader.
The material is concisely presented with minimal duplication, appropriate use of tables and diagrams and
references to more detailed source material to help manage the length.
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Output 1.2 MINISTerial services
Description
This output involves all activities associated with ministerial services, including responding to ministerial correspondence and
parliamentary questions. It includes all tax, child support, student loan, KiwiSaver and family assistance ministerial correspondence
and supply of information.
Performance measures
2010–11
Actual Measure
2011–12
Target Actual Variance
Timeliness
95% Minimum percentage of ministerial correspondence responded to within 10 days. 95% 96% 1.0%
100% Percentage of parliamentary questions responded to within required timeframes. 100% 100% –
Output Statement: Policy ADvice
for the year ENded 30 JuNE 2012
2010–11
Actual
$000
2011–12
Actual
$000
2011–12
Main
estimates
$000
2011–12
Final
voted
$000
Revenue
14,655 Crown 15,934 15,434 15,934
178 Other 215 167 167
14,833 Total revenue 16,149 15,601 16,101
Expenses
14,617 Annual appropriations 15,842 15,601 16,101
14,617 Total expenses 15,842 15,601 16,101
216 Net surplus/(deficit) 307 – –
58 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

OUTPUT EXPENSE 2
ServICES TO INFORM the public about ENTITlEMENTS and MEETING obligaTIONS
Description
This output expense provides services that help taxpayers and other customers to meet their payment obligations of their own
accord and to receive payments they are entitled to. This is achieved through a range of proactive and reactive services to make
people aware of their entitlements and obligations, and the services available to help them comply. This output expense also
contributes to confidence in the tax administration system through managing individual customer complaints quickly, fairly and in
confidence.
Activities undertaken:
""
providing information to taxpayers on the application of the tax laws
""
responding to enquiries from taxpayers and social support programme customers
""
providing assistance to the public, businesses and tax agents
""
adjudication on behalf of the Commissioner on proposed taxpayer assessments
""
providing binding rulings and other statements, on the interpretation and application of the law administered by
Inland Revenue.
Performance context commentary
The impacts we contribute to
Providing customers with relevant information and advice, certainty in relation to the application of the law, and a choice in how
they engage with us ensures that customers are aware of and understand their obligations and entitlements. This means more
customers are able to self-manage and consequently:
""
More customers register and report accurate information when required
""
More customers claim their correct entitlements
""
More customers pay and file information on time.
When customers comply with their obligations and receive their entitlements we make progress towards Inland Revenue’s
outcomes:
""
Revenue is available to fund government programmes through people meeting payment obligations of their own accord
""
People receive payments they are entitled to, enabling them to participate in society.
Factors influencing performance during 2011–12
Our approach to managing telephone services in the first quarter influenced year-end performance. Priority resourcing in this area,
combined with new telephone technology, enabled us to improve our customers service experience and answer 89% of attempted
calls (target 70%). This approach had a negative effect on areas such as correspondence where we reduced resourcing.
Our period of high demand is from May to August each year. Filing dates for individual returns (IR3) and issuing of Personal Tax
Summaries are the main drivers for the increase in contacts during this period. We receive about 45% of our annual call volume
during this period.
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
days and had a positive impact on general service calls answered within four minutes. It has negatively affected our ability to answer
priority calls within one minute because rescheduled calls get higher priority.
The ongoing impact from the Canterbury earthquakes also affected our performance, mainly in managing correspondence. The
disruption to our established work patterns because we had fewer staff last year, meant we started this year with higher than
anticipated work on hand, and we were unable to catch up.
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In 2011 we piloted an e-satisfaction survey to increase our understanding of what drives customer satisfaction with our online
service channel. This year, 95% of customers were satisfied with our online services. We have set new performance targets for online
satisfaction for 2012–13.
There were four full days and eight part days where no phone data was captured within the TelstraClear database. As a result there is
a small portion of missing data which we have estimated, but this does not materially affect the reported results.
See part two for more information about how we make it easier for our customers to comply.
Financial performance for the year ended 30 June 2012 ($000)
Revenue Expenses Net surplus/(deficit)
258,335 255,204 3,131
60 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output 2.1 INFORMATION services
Description
This output involves responding to customer enquiries on tax and social support programmes (including child support and
KiwiSaver) through electronic channels, correspondence, telephone, personal appointments, actively providing advice through a
range of communication approaches delivered in the community and through the complaints management service.
Activity forecasts
2010–11
Actual
Activity forecast
2011–12
Forecast
Actual
5.47 million* We expect to receive the following number of customer service contacts,
including:
5.50–6.00 million 5.85 million
523,559 The total number of child support contacts 0.45–0.50 million 0.44 million
16.06 million We expect to receive the following total number of self-help contacts. 18.50–20.50 million 15.81 million
* results are not directly comparable as 2010–11 methodology was based on ‘answered’ rather than ‘received’.
Explanation for demand outside forecast range
The total number of child support contacts received.
This year, there were 7.2% fewer child support service contacts than forecast, primarily due to lower than expected contacts during
the period of high demand. We are investigating the drivers behind this decrease.
We expect to receive the following total number of self-help contacts.
This year there were 2.3% fewer Look at Account Information enquiries than 2010–11. This was mainly because we introduced
the Tax Agents Website Service, which enables tax agents to view their clients accounts within their own accounting systems. This
change was not fully factored into our forecast and has driven the overall decrease in the number of self-help service contacts.
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Performance measures
2010–11
Actual
Measure
2011–12
Target Actual Variance
Quality
86.4%# Minimum percentage of customers who have contacted us and are satisfied
85% 85.5%# 0.6%
with the quality of the service we provide.
74.7% Minimum percentage of all initial telephone enquiries fully resolved at the time. 75% 72.3% (3.6%)
73% Percentage of customers confident that Inland Revenue takes appropriate
action to ensure people received their social support entitlements increases*
– 71% –
Quantity
n/a Minimum percentage of attempted calls that we answer. 70% 89.5% 27.9%
Timeliness
77.4% Minimum percentage of paper correspondence answered within three weeks
of receipt.
64.9% Minimum percentage of all electronic enquiries answered within one week of
receipt.
71.0% Minimum percentage of priority telephone calls responded to within one
minute.
76.5% Minimum percentage of general telephone calls responded to within four
minutes.
80% 69.5% (13.1%)
80% 54.1% (32.4%)
75% 69.2% (7.7%)
75% 75.7% 0.9%
Cost
n/a Maximum average cost of a customer initiated contact. $34.00 $35.06 (3.1%)
# measured using a sample of the customer population.
* 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
than our impact on customer compliance.
Explanation for targets not achieved
Minimum percentage of all initial telephone enquiries fully resolved at the time.
Inland Revenue’s strategy to shift less complex contacts to self-help channels is increasing the breadth and complexity of the
telephone enquiries we receive, making them more difficult to resolve at first contact.
Minimum percentage of paper correspondence answered within three weeks of receipt, and
Minimum percentage of all electronic enquiries answered within one week of receipt.
Our performance was affected by increased work on hand at the beginning of the year due to reduced capacity in Christchurch last
year and the decision to reprioritise resources to the voice channel in the first quarter.
Minimum percentage of priority telephone calls responded to within one minute.
We implemented enhanced customer call back technology that improved our customers service experience and enabled us to
answer more calls. The impact of the new technology is that call backs are given precedence over priority queues making this target
more difficult to achieve.
Maximum average cost of a customer initiated contact.
This is the first year in which we have set a target and we underestimated the cost of providing these services and the level
of expected demand. During the year, we also amended the calculation of our cost measures to better reflect the full cost to
Inland Revenue of providing these services.
62 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Explanation for significant positive variance
Minimum percentage of attempted calls that we answer.
We were able to answer 89.5% of attempted calls by priority resourcing of the voice channel during our period of high demand and
by implementing new technology that has improved our customers service experience.
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Output 2.2 ADJUDICATION AND RulINGS
Description
This output involves:
Adjudication
""
providing a technical review of existing taxation disputes referred to the Adjudication Unit
""
issuing an adjudication report (or other formal communication of conclusions) to the parties concerned
""
issuing, where required, an assessment consistent with the conclusions of the technical review.
Taxpayer rulings
""
considering applications for and providing binding private and product rulings, and statutory determinations
""
preparing statutory determinations and valuations, eg, taxpayer-specific accruals.
Public rulings
""
preparing and issuing binding public rulings
""
developing and publishing non-binding statements on the Commissioner’s view of the law administered by Inland Revenue,
eg, interpretation statements and interpretation guidelines
""
considering applications for and providing taxpayer-specific depreciation determinations
""
preparing and publishing depreciation and other determinations, eg, livestock valuations
""
considering and responding to technical correspondence.
Performance measures
2010–11
Actual
Measure
Quality
100% Percentage of rulings reports, adjudication reports, public items and
technical correspondence or advice that meets the applicable purpose, logic,
alternatives, consultation and practicality standards.
Quantity
28 Number of published or finalised public items (including technical
correspondence), that gives the Commissioner’s interpretation of the law.
Timeliness
94% Minimum percentage of adjudication cases completed within three months of
receipt.
100% Minimum percentage of taxpayer ruling applications that have a draft ruling
completed within three months of receipt.
100% Minimum percentage of non-qualifying taxpayer ruling applications that
have a draft ruling completed within the timeframe agreed with the applicant
(which will not be more than six months from the receipt of the application).
n/a Minimum percentage of public items (including relevant public consultation),
completed within 18 months of allocation.
2011–12
Target Actual Variance
100% 100% –
25–45 25 –
90% 94.7% 5.2%
90% 100% 11.1%
90% 100% 11.1%
90% 92.3% 2.6%
64 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Explanation for significant positive variances
Minimum percentage of taxpayer ruling applications that have a draft ruling completed within three months of receipt, and
Minimum percentage of non-qualifying taxpayer ruling applications that have a draft ruling completed within the timeframe agreed
with the applicant.
This year, we maintained our timeliness performance because of the improved rulings process implemented in February 2010.
We also completed significantly more draft taxpayer rulings than last year.
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Quality criteria definitions
Quality
standard
Purpose
Logic
Alternatives
Consultation
Practicality
Description
The subject matter and conclusions are clearly stated and guidance is provided in a manner useful to those
affected by them.
The assumptions used are explicit, and the argument is logical and supported by appropriate legal authority.
Alternative legal arguments and interpretations are adequately considered and their respective merits
assessed.
There is evidence of appropriate consultation within and outside Inland Revenue, and contrary legal
arguments and practical difficulties identified in such consultation have been considered, as appropriate.
Compliance and administrative costs and problems for customers and Inland Revenue arising from
implementation, including feasibility and timing have been considered, and incorporated in the analysis in so
far as they are relevant to the interpretation and are possible under the legislation, and/or these issues and
their implications have been discussed at the appropriate level with Policy Advice and Service Delivery.
Output Statement: Services TO INFORM THe PUBlic ABOUT eNTITlemeNTS AND meeTING
oblIGATIONS
for the year ENded 30 JuNE 2012
2010–11
Actual
$000
2011–12
Actual
$000
2011–12
Main
estimates
$000
2011–12
Final
voted
$000
Revenue
243,290 Crown 254,105 247,450 254,105
3,629 Other 4,230 2,494 3,694
246,919 Total revenue 258,335 249,944 257,799
Expenses
245,238 Annual appropriations 255,204 249,944 257,799
245,238 Total expenses 255,204 249,944 257,799
1,681 Net surplus/(deficit) 3,131 – –
66 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

OUTPUT EXPENSE 3
ServICES TO pROCESS obligaTIONS and ENTITlEMENTS
Description
This output expense provides services that contribute to the availability of revenue to fund government programmes, as well as
ensuring that taxpayers and other customers receive payments they are entitled to, including tax refunds. This is achieved through
services designed to achieve timely, efficient and effective assessment and processing of:
""
tax payments, tax credit claims and refunds for taxpayers
""
entitlements for social support programmes.
Activities undertaken:
""
registering taxpayers
""
making tax assessments
""
banking tax payments and making refunds
""
processing applications and payments for social support programmes
""
supplying information to other government agencies
""
accounting and reporting the collection of Crown revenue
""
collecting ACC employee earners levy as a component of PAYE deductions.
Performance context commentary
The impacts we contribute to
Accurate, timely, complete and efficient processing of notices, statement and social policy entitlements increases customers
confidence in the tax system. When customers have confidence in the tax system they are more likely to be able to self-manage their
compliance obligations. This means:
""
more customers register and report accurate information when required
""
more customers claim their correct entitlements
""
more customers pay and file information on time.
When customers comply with their obligations and receive their entitlements we make progress towards Inland Revenue’s outcomes:
""
Revenue is available to fund government programmes through people meeting payment obligations of their own accord
""
People receive payments they are entitled to, enabling them to participate in society.
Factors influencing performance during 2011–12
The ongoing impact of the Canterbury earthquakes affected our performance again this year. The disruption to our established
work patterns because we had fewer staff last year, meant we started this year with higher than anticipated work on hand, and we
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
rebuild capability.
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
being lodged. We have set new performance targets for refund timeliness for 2012–13.
Following the Canterbury earthquakes and our subsequent assessment of building safety, our Upper Hutt site was closed in
December to allow remedial strengthening work to be carried out. This unplanned closure caused disruption to our processing
activities over this period.
Financial performance for the year ended 30 June 2012 ($000)
Revenue Expenses Net surplus/(deficit)
116,318 114,077 2,241
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Output 3.1 ReGISTRATIONS, APPlICATIONS AND ASSeSSMeNTS
Description
This output involves processing all registrations, applications and assessments for the tax and social policy programmes we administer.
Activity forecasts
2010–11
Actual
Activity forecast
2011–12
Forecast
Actual
773,253* Number of tax and social policy registrations (excluding child support) received. 730,000–810,000 647,154
58,192* Number of child support applications received. 56,200–62,300 47,174
* Results are not directly comparable as 2010–11 methodology was based on registrations processed rather than received.
Explanation for forecasts outside range
Number of tax and social policy registrations (excluding child support) received.
Tax and social policy registrations were below forecast, mainly due to receiving lower than expected IRD number applications and
KiwiSaver registrations.
Number of child support applications received.
Child support applications received were below forecast. This trend of reduced volumes can be seen across the range of
child support activities, and is also consistent with the trend in other customer contacts. We are investigating the drivers behind this
decrease.
68 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Performance measures
2010–11
Actual
Measure
2011–12
Target Actual Variance
Quality
99.7%# Minimum percentage of notices and statements produced without error. 98.5% 99.2%# 0.7%
Timeliness
84.1% Minimum percentage of social policy and tax registrations processed within
five working days of receipt.
86.3%* Minimum percentage of income tax assessments finalised within four weeks of
receipt.
97.5% Minimum percentage of GST and FBT assessments finalised within three weeks
of receipt.
83.6% Minimum percentage of child support assessments issued within two weeks of
receipt of a properly made application.
88% 83.7% (4.9%)
85% 90.4% 6.4%
95% 98.6% 3.8%
70% 82.7% 18.1%
# measured using a sample of the customer population.
* 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
the return.
Explanation for target not achieved
Minimum percentage of social policy and tax registrations processed within five working days of receipt.
Our performance was affected by reduced capacity in Christchurch last year which resulted in increased work on hand at the
beginning of the year. The movement of work from Christchurch and the need to train staff in other locations further affected our
performance.
Explanation for significant positive variance
Minimum percentage of child support assessments issued within two weeks of receipt of a properly made application.
This result is similar to last year. It was achieved by focusing on issuing assessments early to inform customers of their liability, which
helps to improve compliance. The target for 2012–13 has been increased to better reflect our performance.
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Output 3.2 ADMINISTRATIve Reviews
Description
This output involves providing an administrative process for reviewing child support assessments that is both inexpensive and
readily accessible to custodians and paying parents.
Activity forecasts
2010–11
Actual Activity forecast
2011–12
Forecast
Actual
4,595 Number of applications for administrative review of child support assessments received. 4,400–4,900 4,201
Explanation for forecast outside range
Number of applications for administrative review of child support assessments received.
Demand was affected by an overall decrease in administrative reviews received. A noticeably larger decrease was experienced in
Christchurch due to the disruptions caused by the Canterbury earthquakes.
Performance measures
2010–11
Actual Measure
Timeliness
76.5% Minimum percentage of child support administrative review decisions issued
within seven weeks of receipt of the application.
2011–12
Target Actual Variance
85% 82.9% (2.5%)
Cost
$630.22 Maximum average cost of child support administrative review. $600 $768.57 (28.1%)
Explanation for targets not achieved
Minimum percentage of child support administrative review decisions issued within seven weeks of receipt of the application.
Our performance was affected by reduced capacity in Christchurch last year which resulted in increased work on hand at the
beginning of the year. The movement of work from Christchurch and the need to train staff in other locations further affected our
performance. Lower than expected performance in the last quarter contributed to the target not being achieved.
Maximum average cost of child support administrative review.
This measure has been affected by lower than expected demand driven in part by the Government’s child support review. The lower
volume has driven up the average cost per item.
70 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output 3.3 PaymeNTS, reTURNS, COlleCTIONS AND DISBURSemeNTS
Description
This output involves:
""
issuing rebates and refunds
""
distributing KiwiSaver contributions to scheme providers
""
disbursing child support payments to custodians and the Crown
""
receiving and banking payments (including child support payments from paying parents)
""
accounting and reporting the collection of Crown revenue.
Activity forecasts
2010–11
Actual
Activity forecast
2011–12
Forecast
Actual
7.97 million* Number of returns we expect to receive. 7.45–8.25 million 6.89 million
8.10 million* Number of payments received. 7.60–8.40 million 8.27 million
47.3%* Percentage of returns filed electronically. 50% 53.2%
62.4%* Minimum percentage of payments received electronically. 65% 66.1%
* results are not directly comparable as 2010–11 results were based on processed rather than received.
Explanation for forecast outside range
Number of returns we expect to receive.
Volumes of all return types were below forecast. Results for the previous year were based on returns processed. The change in
methodology to returns received had a more significant impact on reported results than anticipated.
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Performance measures
2010–11
Actual
Measure
2011–12
Target Actual Variance
Quality
99.9% Minimum percentage of payments correctly processed to customers’ accounts. 99.5% 99.8% 0.3%
Quantity
75.6% Minimum percentage of New Zealand based child support assessments collected. 78% 75.0% (3.8%)
n/a Minimum percentage of student loan repayments due from New Zealand based
borrowers that is collected.
95% 127.3% 34%
Timeliness
69.3% Minimum percentage of New Zealand based child support assessments received 70% 67.9% (3.0%)
by the due date.
97.1% Minimum percentage of New Zealand based student loan borrowers who pay on 85% 97.3% 14.5%
time.
91.9% Minimum percentage of tax credit claim payments made within three weeks of 85% 88.5% 4.1%
receipt.
96.3% Minimum percentage of paid parental leave payments issued to customers on the 97% 97.2% 0.2%
first regular pay day following the agreed date of entitlement.
96.5% Minimum percentage of Working for Families Tax Credit (WfFTC) payments
95% 96.1% 1.2%
made on the first regular pay period following the receipt of an application,
excluding end-of-year payments.
98.7% Minimum percentage of payments banked on the day of receipt. 99% 99.2% 0.2%
n/a
Cost
Maximum average cost of processing income tax returns, GST returns and
employer monthly schedules.
$4.00 $4.39 (9.8%)
Explanation for targets not achieved
Minimum percentage of New Zealand based child support assessments collected.
This year’s result is consistent with previous years. Performance was affected by the reallocation of resources to other priority
activities. The target for 2012–13 has been reduced to better reflect our performance.
Minimum percentage of New Zealand based child support assessments received by the due date.
Our performance was affected by the reallocation of resources to other priority activities during our period of high demand.
Maximum average cost of processing income tax returns, GST returns and employer monthly schedules.
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
also amended the calculation of this cost measures to include KiwiSaver costs and to better reflect the full cost to Inland Revenue of
providing these services.
Explanation for significant positive variance
Minimum percentage of student loan repayments due from New Zealand based borrowers that is collected.
This result reflects increased compliance by New Zealand based borrowers. It includes voluntary repayments made by borrowers
who have paid more than required meaning the overall result can exceed 100%. The target for 2012–13 has been increased to better
reflect our performance.
Minimum percentage of New Zealand based student loan borrowers who pay on time.
This year’s result is consistent with previous years and the target for 2012–13 has been increased to better reflect our performance.
72 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output Statement: Services TO PROCess OBlIGATIONS AND eNTITlemeNTS
for the year ENded 30 JuNE 2012
2010–11
Actual
$000
2011–12
Actual
$000
2011–12
Main
estimates
$000
2011–12
Final
voted
$000
Revenue
92,540 Crown 94,181 98,919 94,181
21,905 Other 22,137 23,772 23,772
114,445 Total revenue 116,318 122,691 117,953
Expenses
115,868 Annual appropriations 114,077 122,691 117,953
115,868 Total expenses 114,077 122,691 117,953
(1,423) Net surplus/(deficit) 2,241 – –
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OUTPUT EXPENSE 4
MANAGEMENT OF DEBT AND OUTSTANDING RETURNS
Description
This output expense provides services that contribute to the availability of revenue to fund government programmes. This is
achieved by:
""
ensuring that taxpayers assess their liabilities when required and they and any other customers meet payment obligations (or
understand the action they need to take to meet overdue obligations)
""
taking appropriate enforcement action where people choose not to comply.
Activities undertaken:
""
taking follow-up action where returns are outstanding
""
taking follow-up action where payments are overdue.
Performance context commentary
The impacts we contribute to
Using a tailored approach to our interventions, based on the PARE model*, that reflects customers’ individual circumstances and
compliance behaviour should ensure that:
""
the behaviour of non-compliant customers improves
""
more customers will pay and file information on time.
If more customers comply with their obligations and receive their entitlements, we make progress towards Inland Revenue’s outcomes:
""
Revenue is available to fund government programmes through people meeting payment obligations of their own accord.
""
People receive payments they are entitled to, enabling them to participate in society.
Factors influencing performance during 2011–12
Our decision to reallocate outstanding return staff to other priority activities, particularly during the period of high demand,
affected our overall performance.
Our approach to managing debt is aimed at preventing our customers from going into debt, intervening early where necessary and
focusing our collection efforts on the cases that have the greatest prospect of cash collection.
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
was from tax pooling (2010–11: $2.5 billion cash including $0.9 billion from tax pooling).
We used Budget 2010 funding to run a campaign targeting 250,000 customers owing outstanding returns and debt. We sent them
reminders before major payment due dates and quickly followed up those who did not pay on time. We also focused on risk returns
and taxpayers defaulting on instalment arrangements or accruing further debt.
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
prevention and early intervention. 61% of total overdue debt is more than two years old. A substantial proportion of the increase in
older debt is penalties and interest, which now makes up 46% of total overdue debt.
See part three for more information about our focus on debt prevention.
Financial performance for the year ended 30 June 2012 ($000)
Revenue Expenses Net surplus/(deficit)
110,943 109,661 1,282
* Prevention, assistance, recovery or enforcement.
** Tax pooling allows compliant customers to reduce their exposure to use-of-money interest on underpayments of provisional tax by purchasing funds from, or
depositing money with a tax intermediary. This can create debt for up to 75 days before being paid.
74 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output 4.1 OUTSTANDING reTURNS
Description
This output involves all activities associated with collecting outstanding returns, including taking appropriate follow-up action
against taxpayers who do not file a return.
Performance measures
2010–11
Actual Measure
2011–12
Target Actual Variance
Quantity
n/a Minimum percentage reduction in outstanding returns. 2% (11.7%) (685.0%)
n/a Maximum percentage of outstanding returns over one year old. 57% 60.5% (6.1%)
Timeliness
66% Minimum percentage of outstanding returns finalised within six months
following the due date.
65% 63.4% (2.5%)
Cost
n/a Maximum average cost of finalising an outstanding return. $12.50 $7.96 36.3%
Explanation for targets not achieved
Minimum percentage reduction in outstanding returns.
This target is aspirational and challenging to achieve. Our performance was affected by the reallocation of resources to other priority
activities. However the growth in outstanding returns has slowed from the previous year. We have amended our target for 2012–13.
Maximum percentage of outstanding returns over one year old.
The proportion of returns aged over one year old increased because of our ongoing focus on collecting newer returns, particularly
employer monthly schedules. Our performance was also affected by the reallocation of resources to other priority activities.
Minimum percentage of outstanding returns finalised within six months following the due date.
A large number of income tax returns become overdue during the first quarter each year. This coincides with the period of high
demand for our voice and correspondence channels and we reallocated resources to these activities.
Explanation for significant positive variance
Maximum average cost of finalising an outstanding return.
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
the calculation of our cost measures to better reflect the full cost to Inland Revenue of providing these services.
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Output 4.2 OveRDUe debt
Description
This output covers all activities associated with collecting overdue debt (excluding child support debt). It involves taking
appropriate follow-up action when customers do not meet their obligations, including providing them with assistance on how they
can meet their tax obligations.
Performance measures
2010–11
Actual Measure
2011–12
Target Actual Variance
Quantity
n/a Minimum debt value cleared, expressed as a percentage of debt book (debt
100% 126.0% 26.0%
turnover).
41.3% Maximum percentage of collectable debt value over two years old. 36% 51.0% (41.7%)
Timeliness
66.3% Minimum percentage of debt cases resolved within three months. 65% 62.3% (4.1%)
85.3% Minimum percentage of debt cases resolved within the first 12 months. 85% 81.3% (4.4%)
n/a Minimum percentage of debt value resolved for those customers who did not
have a debt at the start of the year.
65% 82.0% 26.2%
Cost
$52.55 Minimum cash collected for every debt dollar spent. $40.00 $61.28 53.2%
Explanation for targets not achieved
Maximum percentage of collectable debt value over two years old.
The proportion of debt aged over two years old continues to increase as a consequence of our focus on reducing new debt. Penalties
and interest have also contributed to the increase in debt over two years old.
Minimum percentage of debt cases resolved within three months, and
Minimum percentage of debt cases resolved within the first 12 months.
These results have been influenced by fewer people paying in full, but more people entering arrangements to pay over time.
Explanation for significant positive variances
Minimum debt value cleared, expressed as a percentage of debt book (debt turnover), and
Minimum percentage of debt value resolved for those customers who did not have a debt at the start of the year, and
Minimum cash collected for each debt dollar spent.
These results reflect the increased use of tax pooling by large enterprises.
76 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output 4.3 Child SUPPORT debt MANAGement
Description
This output involves all activities associated with the recovery of overdue child support payments. It includes taking appropriate
enforcement action against non-compliers.
Performance measures
2010–11
Actual Measure
Quantity
84.7% Minimum percentage of the value of all child support assessments due over
the last five years which is collected.
2011–12
Target Actual Variance
84% 84.6% 0.7%
n/a
Timeliness
Minimum percentage of paying parent child support debt cases resolved
within 12 months of the due date of payment.
70% 71.9% 2.7%
Output Statement: MANAGement OF debt AND OUTSTANDING reTURNS
for the year ENded 30 JuNE 2012
2010–11
Actual
$000
2011–12
Actual
$000
2011–12
Main
estimates
$000
2011–12
Final
voted
$000
Revenue
95,786 Crown 107,178 106,610 107,178
2,420 Other 3,765 4,155 4,155
98,206 Total revenue 110,943 110,765 111,333
Expenses
99,776 Annual appropriations 109,661 110,765 111,333
99,776 Total expenses 109,661 110,765 111,333
(1,570) Net surplus/(deficit) 1,282 – –
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OUTPUT EXPENSE 5
TaxpayER audIT
Description
This output expense provides services to ensure that the revenue base for funding government programmes is protected. This is
achieved by verifying, through audit activity, that taxpayers across all taxpayer groups are meeting their obligations, specifically
targeting risk areas, and taking appropriate enforcement action when obligations are not being met.
Activities undertaken:
""
identifying risks to revenue and designing audit activities accordingly
""
verifying that tax obligations have been met by auditing a selection of taxpayers
""
managing tax litigation.
Performance context commentary
The impacts we contribute to
We use intelligence analysis to target our compliance activities to customers who are non-compliant or at risk of non-compliance.
This creates an environment where customers believe we will detect non-compliance and are deterred from providing inaccurate
information. It also protects the revenue base and provides certainty to customers in relation to the application of the law.
We also use our compliance activities to educate customers who are unaware of their obligations and only use enforcement action
to the extent necessary. This ensures that:
""
the behaviour of non-compliant customers improves
""
more customers will pay and file information on time.
When customers comply with their obligations and receive their entitlements we make progress towards Inland Revenue’s
outcomes:
""
Revenue is available to fund government programmes through people meeting payment obligations of their own accord
""
People receive payments they are entitled to, enabling them to participate in society.
Factors influencing performance during 2011–12
We have targeted investigations better as a result of strengthening our intelligence gathering and analysis capability. This year, we
assessed over $1.2 billion in discrepancies which resulted in our return on investment being 9.6% higher than the target.
Inland Revenue received additional funding in Budget 2010 to address the hidden economy (2011–12: $8.7 million) and property
compliance (2011–12: $6.6 million). This year, we identified $48 million in discrepancies, 9.6% above the additional discrepancy
target of $44 million in the hidden economy. Our approach to tackling the hidden economy includes campaigns to educate
customers about their obligations, targeted audits of specific industries, and new tools to make it easier for customers to comply.
In our property compliance initiative work, we identified $40 million in discrepancies against a target for the year of $45 million. For
the two years to 30 June 2012 we have identified discrepancies of $89 million, 1.3% below the target of $90 million. We also have
several cases before the courts.
See part three for more information about our investigations work, and our hidden economy and property compliance
programmes.
Financial performance for the year ended 30 June 2012 ($000)
Revenue Expenses Net surplus/(deficit)
169,413 166,775 2,638
78 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Output 5.1 TaxPAyer AUDIT
Description
This output involves:
""
Individual and small to medium enterprise audit—The audit of businesses with a turnover of up to $300 million (excluding
groups in the large enterprise segment). It includes audits of duties, non-residents, investments and salary and wage earners.
""
Large enterprise audit—Auditing and providing services to large businesses with a group turnover of more than $300 million,
plus other specific groups.
Performance measures
2010–11
Actual Measure
Quality
95.8% Minimum percentage of cases completed that are correct, complete, clear and
appropriately referenced.
n/a Minimum percentage of audited customers who are satisfied with their
experience.
n/a Minimum percentage of audits that result in a material discrepancy being
identified.
75% Percentage of customers confident that Inland Revenue takes appropriate
action against those who don’t comply increases*
2011–12
Target Actual Variance
90% 95.4% 6.0%
65% 75.0%# 15.4%
70% 71.3% 1.9%
– 75% –
Timeliness
n/a Minimum percentage of audits completed within 12 months. 85% 85.3% 0.4%
n/a Minimum percentage of disputed cases completed within 15 months. 75% 75.7% 0.9%
92.6% Minimum percentage of open audit cases that are less than two years old. 85% 91.9% 8.1%
Cost
n/a Minimum audit activity assessed for every audit output dollar spent. $7.00 $7.67 9.6%
# measured using a sample of audit cases.
* 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
than our impact on customer compliance. This perception measure also applies to our work under output class 4 – management of debt and outstanding
returns.
Explanation for significant positive variance
Minimum percentage of audited customers who are satisfied with their experience.
This is the first year that we have measured audit customer satisfaction with the results confirmed in June. Targets from 2013–14
onwards will be set to better reflect our performance.
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Output 5.2 lITIGATION MANAGement
Description
This output involves the management of litigation of disputed tax cases, including the requirement to state the case through to
resolution by the courts.
Performance measures
2010–11
Actual Measure
2011–12
Target Actual Variance
Quality
n/a During the year we will undertake work on a range of litigation cases to protect
the integrity of the tax system through ensuring the correct tax is paid and by
See litigation
on page 26
clarifying the law. We will report on the major cases that we are engaged in/
have concluded and their results on a quarterly basis.
75.5% Percentage of litigation judgements found in favour of the Commissioner. –* 68.6% –
* A target will be set for this measure in future years.
Output Statement: TAxPAyer AUDIT
for the year ENded 30 JuNE 2012
2010–11
Actual
$000
2011–12
Actual
$000
2011–12
Main
estimates
$000
2011–12
Final
voted
$000
Revenue
164,440 Crown 167,021 177,921 167,021
2,182 Other 2,392 1,864 1,864
166,622 Total revenue 169,413 179,785 168,885
Expenses
164,495 Annual appropriations 166,775 179,785 168,885
164,495 Total expenses 166,775 179,785 168,885
2,127 Net surplus/(deficit) 2,638 – –
80 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Part 7
DepartmeNTAl FINANCIAl
StatemeNTS
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PART 7 Departmental Financial Statements
81

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2012
2010–11 Notes 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Income
610,711 Revenue Crown 638,419 646,334 638,419
30,314 Other income 1 32,739 32,452 40,152
641,025 Total income 671,158 678,786 678,571
Expenditure
403,665 Personnel 2 409,666 437,412 412,932
159,191 Operating 3 174,400 157,160 176,942
16,500 Depreciation 4 16,542 15,784 17,086
43,096 Amortisation and impairment 5 44,337 47,233 44,172
17,926 Capital charge 6 20,939 21,197 20,939
640,378 Total Output Expenses 665,884 678,786 672,071
3,226 Other expenses 7 6,152 – 6,500
643,604 Total expenditure 672,036 678,786 678,571
(2,579) Net surplus/(deficit) (878) – –
– Other comprehensive income – – –
(2,579) Total comprehensive income (878) – –
The accompanying accounting policies and notes form part of these financial statements.
Refer to Note 25 for explanation of major variances.
82 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

STATEMENT OF CHANGES IN TaxpayERS’ FUNDS
for the year ENded 30 JuNE 2012
2010–11 Note 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
241,292 Balance at start of year 261,737 264,963 261,737
(2,579) Total comprehensive income (878) – –
(647) Repayment of surplus to the Crown 8 (5,777) – –
24,391 Capital contribution 4,869 2,321 4,869
(720) Capital repayment – – –
23,024 (908) 2,321 4,869
261,737 Balance at end of year 259,951 267,284 266,606
The accompanying accounting policies and notes form part of these financial statements.
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83

STATEMENT OF FINANCIal POSITION
AS AT 30 JuNE 2012
2010–11 Notes 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Taxpayers' funds
261,737 Taxpayers' funds 259,951 267,284 266,606
261,737 Total taxpayers' funds 259,951 267,284 266,606
Represented by:
Current assets
14,666 Cash and cash equivalents 44,540 12,000 12,000
147,069 Debtor Crown 156,886 131,203 156,886
17,988 Debtors and prepayments 9 15,773 12,505 17,172
1,119 Inventories held for distribution 10 1,233 1,200 1,300
180,842 Total current assets 218,432 156,908 187,358
Non-current assets
305 Prepayments 9 1,274 374 230
58,562 Property, plant and equipment 4 54,551 66,321 59,061
134,577 Intangible assets 5 124,288 153,831 140,964
193,444 Total non-current assets 180,113 220,526 200,255
374,286 Total assets 398,545 377,434 387,613
Current liabilities
27,412 Creditors and other payables 11 36,061 23,200 33,049
647 Surplus payable to the Crown 8 5,777 – –
41,537 Employee entitlements 12 50,513 45,944 47,105
2,605 Provision for other liabilities 13 1,105 – 1,780
– Derivative financial instruments 14 503 – –
– Finance leases 15 1,867 – –
181 Other financial liabilities 16 113 168 150
72,382 Total current liabilities 95,939 69,312 82,084
Non-current liabilities
35,756 Employee entitlements 12 38,881 37,396 34,853
3,018 Provision for other liabilities 13 2,577 2,257 2,827
– Finance leases 15 487 – –
1,393 Other financial liabilities 16 710 1,185 1,243
40,167 Total non-current liabilities 42,655 40,838 38,923
112,549 Total liabilities 138,594 110,150 121,007
261,737 Net assets 259,951 267,284 266,606
The accompanying accounting policies and notes form part of these financial statements.
Refer to Note 25 for explanation of major variances.
84 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

STATEMENT OF CASH FLOWS
for the year ENded 30 JuNE 2012
2010–11 Note 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Cash flows − operating activities
610,648 Receipts from Crown 628,602 667,141 628,602
6,627 Receipts from government departments 9,221 6,968 16,269
23,284 Receipts from third parties 24,658 24,974 24,903
(403,035) Payments to employees (397,563) (431,248) (408,266)
(162,412) Payments to suppliers (165,688) (156,956) (173,057)
(17,926) Payments for capital charge (20,939) (21,197) (20,939)
877 Goods and Services tax (net) 867 4,500 428
58,063 Net cash flow from operating activities 17 79,158 94,182 67,940
Cash flows − investing activities
2 Receipts from sale of property, plant and equipment 67 – –
(18,329) Purchase of property, plant and equipment (19,513) (22,000) (24,085)
(19,249) Purchase of intangible assets (34,060) (62,503) (50,743)
(37,576) Net cash flow from investing activities (53,506) (84,503) (74,828)
Cash flows − financing activities
24,391 Capital contribution 4,869 2,321 4,869
(44,125) Repayment of surplus (647) (12,000) (647)
(720) Capital repayment – – –
(20,454) Net cash flow from financing activities 4,222 (9,679) 4,222
33 Net increase/(decrease) in cash and cash equivalents 29,874 – (2,666)
14,633 Opening cash and cash equivalents 14,666 12,000 14,666
14,666 Closing cash and cash equivalents 44,540 12,000 12,000
The accompanying accounting policies and notes form part of these financial statements.
The Goods and Services tax (net) component of operating activities reflects the net GST paid to and received from Inland Revenue. The GST components have
been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.
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Departmental Financial Statements
85

STATEMENT OF COMMITMENTS
AS AT 30 JuNE 2012
2010–11 Note 2011–12
Actual
Actual
$000 $000
Capital commitments
3,331 Property, plant and equipment 7,339
894 Intangible assets 338
4,225 Total capital commitments 7,677
Operating commitments
Non-cancellable accommodation leases
32,550 Not later than one year 28,523
87,834 Later than one year and not later than five years 79,249
99,260 Later than five years 78,030
219,644 Total non-cancellable accommodation leases 185,802
249,217 Total commitments 18 193,479
The accompanying accounting policies and notes form part of these financial statements.
STATEMENT OF CONTINGENT LIABILITIES
AND CONTINGENT ASSETS
AS AT 30 JuNE 2012
2010–11 Note 2011–12
Actual
Actual
$000 $000
Contingent liabilities
378 Legal proceedings and disputes - taxpayer 230
120 Legal proceedings and disputes - departmental 3,958
20 Personal grievances –
518 Total contingent liabilities 19 4,188
Contingent assets
4,000 Insurance claims 20,000
4,000 Total contingent assets 19 20,000
The accompanying accounting policies and notes form part of these financial statements.
86 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

STATEMENT OF DEpaRTMENTAL EXPENSES AND
CAPITAL EXPENDITURE AGAINST appROPRIATIONS
for the year ENded 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Expenditure Expenditure 1 Main
estimates
Final
voted 2
$000 $000 $000 $000
Vote: Revenue
Output expenses
14,617 Policy advice 1 15,842 15,601 16,101
255,204 249,944 257,799
245,238 Services to inform the public about entitlements and
meeting obligations 1
115,868 Services to process obligations and entitlements 1 114,077 122,691 117,953
99,776 Management of debt and outstanding returns 1 109,661 110,765 111,333
164,495 Taxpayer audit 1 166,775 179,785 168,885
639,994 Total output expenses 1 661,559 678,786 672,071
3,226 Recovery from Canterbury earthquake 6,152 – 6,500
643,220 Total expenditure 667,711 678,786 678,571
Departmental capital expenditure
18,329 Property, plant and equipment 19,513 22,000 24,085
19,249 Intangible assets 34,060 57,500 73,915
37,578 Total departmental capital expenditure 53,573 79,500 98,000
1
Excludes remeasurement of $4,325,000 (2010-11, $384,000).
2
Includes adjustments made in the Supplementary Estimates and transfers under the Public Finance Act 1989.
The accompanying accounting policies and notes form part of these financial statements.
Refer to Note 25 for explanation of major variances.
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Departmental Financial Statements
87

Transfers under section 26(a) public finance act 1989
Vote: Revenue
Appropriations for output expenses
Supp Section 26(a)
Final
estimates Transfers
voted
$000 $000 $000
Policy advice 16,101 – 16,101
Services to inform the public about entitlements and meeting obligations 251,799 6,000 257,799
Services to process obligations and entitlements 121,953 (4,000) 117,953
Management of debt and outstanding returns 111,333 – 111,333
Taxpayer audit 170,885 (2,000) 168,885
Total appropriations for output expenses 672,071 – 672,071
Appropriation for other expenses
Recovery from Canterbury earthquake 6,500 – 6,500
Total expenditure 678,571 – 678,571
Departmental capital expenditure
Property, plant and equipment 24,085 – 24,085
Intangible assets 73,915 – 73,915
Total departmental capital expenditure 98,000 – 98,000
The accompanying accounting policies and notes form part of these financial statements.
STATEMENT OF UNAPPROPRIATED EXPENSES
AND CAPITAL EXPENDITURE
for the year ENded 30 JuNE 2012
In the 2011–12 financial year there were no instances of:
""
expenses and capital expenditure incurred in excess of appropriation (2010–11, $nil).
""
expenses and capital expenditure incurred without appropriation or other authority, or outside scope of appropriation
(2010–11, $nil).
In the 2011–12 financial year there were no breaches of projected departmental net asset schedules (2010–11, $nil).
The accompanying accounting policies and notes form part of these financial statements.
88 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

STATEMENT OF ACCOUNTING POLICIES
REPORTING ENTITY
Inland Revenue is a government department as defined by
section 2 of the Public Finance Act 1989 and is domiciled in
New Zealand. In addition, Inland Revenue has reported on
Crown activities and trust monies which it administers. It is a
wholly owned entity of the Crown whose primary objective
is to provide services to the public rather than making a
financial return. Accordingly, Inland Revenue has designated
itself as a public benefit entity for the purpose of New Zealand
equivalents to International Financial Reporting Standards
(NZ IFRS).
REPORTING PERIOD
The reporting period for these financial statements is for
the year ended 30 June 2012. The financial statements were
authorised for issue by the Chief Executive of Inland Revenue
on 28 September 2012.
STATEMENT OF COMPLIANCE
The financial statements have been prepared in accordance
with the requirements of the Public Finance Act 1989, which
includes the requirement to comply with New Zealand
generally accepted accounting practice (NZ GAAP), and
Treasury Instructions. These financial statements have been
prepared in accordance with NZ GAAP. They comply with
NZ IFRS, and other applicable financial reporting standards, as
appropriate for public benefit entities.
BASIS OF PREPARATION
The accounting policies set out below have been applied
consistently to all periods presented in these financial
statements.
These financial statements have been prepared on a historical
cost basis, unless otherwise stated.
The accrual basis of accounting has been used, unless
otherwise stated.
These financial statements are presented in New Zealand
dollars, and all values are rounded to the nearest thousand
dollars ($000). The functional currency of Inland Revenue is
New Zealand dollars.
JUDGEMENTS AND ESTIMATIONS
In preparing these financial statements, estimates and
assumptions have been made concerning the future. These
estimates and assumptions may differ from the subsequent
actual results. Estimates and assumptions are continually
evaluated and are based on experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period
the estimate is revised in if the revision affects only that period,
or in the period of the revision and future periods if the
revision affects both current and future periods.
The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year are related to
retiring and long-service leave.
An analysis is provided in Note 12 of the exposure in relation
to estimates and uncertainties surrounding retiring and longservice
leave liabilities.
Finance leases
Determining whether a lease agreement is a finance lease
or an operating lease requires judgement as to whether the
agreement transfers substantially all the risks and rewards
of ownership to Inland Revenue. Judgement is required on
various aspects that include, but are not limited to, the fair
value of the leased asset, the economic life of the leased asset,
whether or not to include renewal options in the lease term,
and determining an appropriate discount rate to calculate the
present value of the minimum lease payments. Classification as
a finance lease means the asset is recognised in the statement
of financial position as property, plant and equipment, whereas
with an operating lease no such asset is recognised.
Inland Revenue has exercised its judgement on the appropriate
classification of equipment leases, and has determined that one
of these arrangements included a finance lease.
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89

STANDARDS AND INTERPRETATIONS ISSUED
AND NOT YET adOPTED
The External Reporting Board (XRB) was given the
responsibility for issuing accounting standards on 1 July 2011.
Prior to that date the Accounting Standards Review Board
(ASRB) issued standards. The XRB is a legal continuation of the
ASRB. All accounting standards on issue on 30 June 2011 have
been carried across to the XRB.
Standards and interpretations issued but not yet effective
that have not been early adopted, and which are relevant to
Inland Revenue, are discussed below.
NZ IFRS 9 Financial Instruments will eventually replace NZ
IAS 39 Financial Instruments: Recognition and Measurement.
This new standard was approved by the Accounting Standards
Review Board in November 2010. NZ IAS 39 is being replaced
through the following three main phases: Phase 1 Classification
and Measurement, Phase 2 Impairment Methodology and
Phase 3 Hedge Accounting. Phase 1 has been completed and
has been published in the new financial instrument standard
NZ IFRS 9. The new standard uses a single approach to
determine whether a financial asset is measured at amortised
cost or fair value, replacing the many different rules in NZ
IAS 39. The approach in NZ IFRS 9 is based on how an entity
manages its financial assets (its business model) and the
contractual cash flow characteristics of the financial assets.
The financial liability requirements are the same as those of
NZ IAS 39, except for when an entity elects to designate a
financial liability at fair value through the surplus or deficit.
The new standard is required to be adopted for the year
ended 30 June 2016. However, as a new Accounting Standards
Framework (“Framework”) will apply before this date, there is
no certainty when an equivalent standard to NZ IFRS 9 will be
applied by public benefit entities.
The effects of the above standard on Inland Revenue’s
departmental financial statements have not yet been assessed.
The Minister of Commerce has approved a new Framework
(incorporating a Tier Strategy) developed by the External
Reporting Board. Under this Framework, Inland Revenue is
classified as a Tier 1 reporting entity and it will be required to
apply full Public Benefit Entity Accounting Standards. These
standards are being developed by the External Reporting
Board based on current International Public Sector Accounting
Standards. The effective date for the new standards for
public sector entities is expected to be for reporting periods
beginning on or after 1 July 2014. This means Inland Revenue
expects to transition to the new standards in preparing its
30 June 2015 financial statements. As the Public Benefit
Entity Accounting Standards are still under development,
Inland Revenue is unable to assess the implications of the new
Framework at this time.
Due to the change in the Framework for public benefit entities,
it is expected that all new NZ IFRS and amendments to existing
NZ IFRS will not be applicable to public benefit entities.
Therefore, the External Reporting Board has effectively frozen
the financial reporting requirements for public benefit entities
up until the new Framework is effective.
ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results and financial position, have
been applied.
Budget figures
The budget figures are those included in the Information
Supporting the Estimates of Appropriations (Main Estimates) for
the year ending 30 June 2012 and the Information Supporting
the Supplementary Estimates of Appropriations (Supplementary
Estimates) for the year ending 30 June 2012. The Main Estimates
are 2011 Budget Economic and Fiscal Update (BEFU 2011)
out-year 1 figures. The Supplementary Estimates are SUPS 2012
out-year 0 figures. The budget figures have been prepared in
accordance with NZ GAAP, using accounting policies that are
consistent with those adopted in preparing these financial
statements.
GST (goods and services tax)
All items in the financial statements, including appropriation
statements, are stated exclusive of GST, except for “debtor
Crown”, “net debtors” and “accounts payable”, which are stated
on a GST-inclusive basis. Where GST is not recoverable as input
tax, it is recognised as part of the related asset or expense.
The net amount of GST owing to or from Inland Revenue
at balance date, being the difference between output GST
and input GST, is included in “creditors and other payables”
or “debtors and prepayments” in the Statement of Financial
Position.
The net GST paid to or received from Inland Revenue, including
the GST relating to investing and financing activities, is classified
as an operating cash flow in the Statement of Cash Flows.
Commitments and contingencies are disclosed exclusive of GST.
90 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Income tax
Government departments are exempt from income tax as
public authorities, so accordingly, no charge for income tax has
been provided for.
Revenue
Revenue is measured at the fair value of consideration received
or receivable. Revenue is recognised as follows:
Revenue Crown
Revenue earned from the supply of outputs to the Crown is
recognised as revenue when earned.
Sale of services
Sale of services are recognised in the accounting period the
services are provided in, by reference to completion of specific
transactions, assessed on the basis of actual services provided
as a proportion of the total services to be provided.
Revenue from recoveries
Revenue from recoveries is recognised as revenue when earned.
Sub-leases
Income from sub-leased property is recognised in the
Statement of Comprehensive Income on a straight-line basis
over the term of the lease.
Insurance proceeds
Insurance claim proceeds are recognised as revenue when
the claim has been accepted by the insurer or when receipt
of the insurance proceeds is considered virtually certain. The
insurance proceeds will be disclosed as a contingent asset if the
receipt is only probable.
Cost allocations
Inland Revenue uses an integrated cost allocation process to
derive the cost of its outputs. This process involves the initial
costing of business processes followed by the full costing of
outputs.
Business processes represent Inland Revenue’s key functional
activities. These business processes are used to capture direct
costs.
Direct personnel costs are charged to business processes, based
on actual hours and standard activity rates. Other related
direct costs, including depreciation, are allocated to business
processes, based on planned hours or relevant activity drivers.
Other indirect costs and corporate overheads that cannot be
attributed directly to a business process are apportioned to
outputs, based on planned business process activity allocation
to outputs.
There have been no material changes in cost accounting
policies since the date of the last audited financial statements.
Capital charge
The capital charge is recognised as an expense in the period to
which the charge relates.
Leases
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards of ownership of an asset, whether
or not title is eventually transferred. A lease is classified as an
operating lease if it does not transfer substantially all the risks
and rewards incidental to the ownership of an asset.
Operating leases
Rentals payable under operating leases are recognised as an
expense on a straight-line basis over the term of the relevant
lease. Lease incentives received as incentive to enter into an
operating lease are also recognised evenly over the term of the
lease as a reduction in the rental expense.
Contractual arrangements considered to be operating leases
have been recognised during the reporting period.
Finance leases
At the commencement of the lease term, finance leases are
recognised as assets and liabilities in the statement of financial
position at the lower of the fair value of the leased item or the
present value of the minimum lease payments.
The finance charge is charged to the surplus or deficit over
the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
The amount recognised as an asset is depreciated over its
useful life. If there is no certainty as to whether Inland Revenue
will obtain ownership at the end of the lease term, the asset
is fully depreciated over the shorter of the lease term and its
useful life.
Contractual arrangements considered to be finance leases have
been recognised during the reporting period.
Premises lease costs are charged to business processes based on
headcount or relevant activities.
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91

Financial instruments
Financial assets
Inland Revenue classifies its financial assets into two categories:
financial assets at fair value through surplus or deficit, and
debtors and receivables. The classification depends on the
purpose for which the assets were acquired.
a) Financial assets at fair value through surplus or deficit
Financial assets designated at fair value through surplus
or deficit are recorded at fair value with any realised and
unrealised gains or losses recognised in the Statement of
Comprehensive Income. Gains or losses from foreign exchange
and other fair value movements are separately reported in
the Statement of Comprehensive Income. Transaction costs are
expensed as they are incurred. Derivatives (eg, foreign currency
forward exchange contracts) are classified under this category.
Derivative financial instruments are recognised both initially on
the date a derivative contract is entered into and subsequently
at fair value at each balance date. They are reported as either
assets or liabilities, depending on whether the derivative is in a
net gain or net loss position, respectively. The fair value gains
or losses on derivatives are recognised in the Statement of
Comprehensive Income.
b) debtors and receivables
Debtors and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are recognised initially at fair value plus
transaction costs and subsequently measured at amortised
cost using the effective interest rate method. Debtors and
receivables issued with durations of less than 12 months
are recognised at their nominal value, unless the effect of
discounting is material.
Impairment of financial assets
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivable. Significant financial difficulties of the
debtor, probability that the debtor will enter into bankruptcy,
and default in payments are considered indicators that the
debtor is impaired.
The amount of the provision is the difference between the
asset’s carrying amount and the estimated impaired value. The
carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the impairment loss is
recognised in the Statement of Comprehensive Income.
Financial liabilities
Inland Revenue classifies its financial liabilities into two
categories: financial liabilities at fair value through surplus or
deficit, and financial liabilities measured at amortised cost. The
classification depends on the purpose for which the liabilities
were incurred.
a) Financial liabilities at fair value through surplus or deficit
Financial liabilities designated at fair value through surplus
or deficit are recorded at fair value with any realised and
unrealised gains or losses recognised in the Statement of
Comprehensive Income. Gains or losses from foreign exchange
and other fair value movements are reported separately in
the Statement of Comprehensive Income. Transaction costs are
expensed as they are incurred. Derivatives (eg, foreign currency
forward exchange contracts) are classified under this category.
b) Financial liabilities measured at amortised cost
Financial liabilities measured at amortised cost are recognised
initially at fair value less transaction costs and subsequently
measured at amortised cost using the effective interest rate
method. Financial liabilities entered into with durations of
less than 12 months are recognised at their nominal value,
unless the effect of discounting is material. Creditors and other
payables are recognised at their nominal value as the effect of
discounting is immaterial.
Cash and cash equivalents
Cash and cash equivalents include all cash held in the bank
accounts. All cash held in bank accounts is held in “on demand”
accounts and no interest is payable to Inland Revenue.
Inventories held for distribution
Inventories held for distribution comprise forms, booklets and
returns held for distribution to the public at no or nominal
consideration in the ordinary course of operations.
Inventories held for distribution for public benefit purposes
are carried at cost, calculated using the first-in, first-out
(FIFO) cost method, adjusted where applicable for any loss
of service potential. The cost of inventories includes all costs
of purchase, costs of conversion and other costs incurred
in bringing the inventories to their present location and
condition. Where inventories are acquired at no cost, or for
nominal consideration, the cost is deemed to be the current
replacement cost at the date of acquisition.
The carrying amount is recognised as an expense in the period
in which the goods are distributed. The amount of any writedown
of inventories and all losses of inventories is recognised
as an expense in the period the write-down or loss occurs.
92 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

The amount of any reversal of any write-down of inventories
is recognised as a reduction in the amount of inventories
recognised as an expense in the period the reversal occurs in.
Hedge accounting, hedging activities and foreign
currency transactions
Inland Revenue’s activities expose it primarily to risks of changes
in foreign exchange rates. Inland Revenue uses derivative
financial instruments (primarily, foreign currency forward
exchange contracts) to mitigate its risks associated with foreign
currency fluctuations relating to certain commitments. The use
of financial derivatives is governed by Inland Revenue’s foreign
exchange policy, which provides written principles on the use
of financial derivatives consistent with Inland Revenue’s risk
management strategy.
Inland Revenue does not hold or issue derivative financial
instruments for trading purposes. It also has not adopted hedge
accounting.
Foreign currency transactions (including those for which
forward exchange contracts are held) are translated into
New Zealand dollars using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions are
recognised in the Statement of Comprehensive Income.
Property, plant and equipment
Inland Revenue has operational assets that include IT
equipment, furniture and office equipment, motor vehicles, and
leasehold improvements. The capitalisation thresholds are:
• IT equipment – desktop computers all
and laptops
• IT equipment – other $2,000 and over
(or $20,000 for
bulk purchased IT
equipment)
• Furniture and office equipment $2,000 and over
(or $20,000 for bulk
purchased furniture)
• Motor vehicles $2,000 and over
• Leasehold improvements $20,000 and over
Property, plant and equipment are shown at historical cost, less
accumulated depreciation and impairment losses. Historical
cost is the value of consideration given to acquire or create the
asset and any directly attributable costs of bringing the asset to
working condition for its intended use.
Additions
The cost of an item of property, plant and equipment is
recognised as an asset if it is probable that future economic
benefits or service potential associated with the item will flow
to Inland Revenue and the cost of the item can be measured
reliably. In most instances, an item of property, plant and
equipment is recognised at its cost. Where an asset is acquired
at no cost, or for a nominal cost, it is recognised at fair value as
at the date of acquisition.
Subsequent costs
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits or service potential
associated with the item will flow to Inland Revenue and
the cost of the item can be measured reliably. All repairs and
maintenance are charged to the Statement of Comprehensive
Income during the financial period in which they are incurred.
Depreciation
Depreciation is provided on a straight-line basis on all property,
plant and equipment, other than assets under construction.
The rate of depreciation will write-off the cost of the asset to
the estimated residual value over the useful life of the asset.
The useful life of major classes of assets have been estimated as
follows:
""
IT equipment 3 to 6 years
""
Furniture and office equipment 5 to 7 years
""
Motor vehicles 5 to 7 years
""
Leasehold improvements up to 10 years
All fixed assets other than motor vehicles are assumed to have
no residual value. Motor vehicles are assumed to have a 20%
residual value.
The cost of leasehold improvements is capitalised and
depreciated over the unexpired period of the lease, or
the estimated remaining useful life of the improvements,
whichever is shorter, up to a maximum of 10 years.
Assets under construction are not depreciated. The total cost
of a capital project is transferred to the appropriate asset class
on its completion and then depreciated.
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
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Impairment
Property, plant and equipment that has a finite useful life
is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not
be recoverable. If any indication of impairment exists, the
recoverable amount is estimated to determine the extent of
the impairment loss, if any.
If an assets’ recoverable amount is less than its carrying
amount, the asset is impaired and it will be reported at its
recoverable amount. The impairment loss is recognised in the
Statement of Comprehensive Income.
The reversal of an impairment loss is also recognised in the
Statement of Comprehensive Income.
Disposals
Gains and losses on disposals are determined by comparing
proceeds with the carrying amount. These are included in the
Statement of Comprehensive Income.
Intangible assets
Inland Revenue has intangible assets in the form of software,
licences, and business process design.
Additions
Intangible assets are initially recorded at cost. Inland Revenue
only has intangible assets with finite useful lives. The three
main categories are: software – developed, software and
licences – purchased, and business process design.
a) Software – developed
The cost of an internally generated intangible asset represents
expenditure incurred in the development phase of the asset
only. The cost of developed computer software comprises
direct labour, material purchased and an appropriate portion
of relevant overheads. These costs are directly associated
with the development of identifiable and unique software
controlled by Inland Revenue, and will generate future
economic benefits.
Expenditure incurred on research of an internally generated
intangible asset is expensed when it is incurred. Where the
research phase cannot be distinguished from the development
phase, the expenditure is expensed when it is incurred.
Costs associated with maintaining computer software
programmes are recognised as an expense when incurred.
Costs of configuring and customising purchased software for
intended use are capitalised.
b) Software and licences – purchased
Intangible assets acquired by Inland Revenue such as computer
software and licences are stated at cost less accumulated
amortisation and impairment losses. Acquired computer
software and licences are capitalised on the basis of costs
incurred to acquire and bring to use the specific software.
Costs associated with maintaining computer software
programmes are recognised as an expense when incurred.
Costs of configuring and customising purchased software for
intended use are capitalised.
c) business process design
Expenditure on development activities, where research
findings are applied to a plan or design for new or
substantially improved business processes, is capitalised if
the business process is technically and commercially feasible
and Inland Revenue has sufficient resources to complete
development. Other development expenditure is recognised
in the Statement of Comprehensive Income as an expense as
incurred.
The capitalisation thresholds for intangible assets are:
""
Software – developed $50,000 and over
""
Software and licences – purchased $5,000 and over
""
Business process design $50,000 and over
Subsequent cost
The cost of intangible assets with finite lives is subsequently
recorded at cost less any amortisation and impairment losses.
Amortisation
The carrying value of an intangible asset with a finite life is
amortised on a straight-line basis over its estimated useful
life. Amortisation begins when the asset is available for use
and ceases at the date that the asset is de-recognised. The
amortisation charge for each period is recognised in the
Statement of Comprehensive Income.
The useful lives of major classes of intangible assets have been
estimated as follows:
""
Software – developed 5 to 10 years
""
Software and licences – purchased 5 to 10 years
""
Business process design 5 to 10 years
Assets under construction are not amortised. The total cost of
a capital project is transferred to the appropriate asset class on
its completion and then amortised.
Staff training costs are recognised as an expense when incurred.
94 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Impairment
Intangible assets including assets under construction are
reviewed for impairment at each balance date. If any indication
of impairment exists, the recoverable amount is estimated to
determine the extent of the impairment loss, if any.
If an intangible asset’s recoverable amount is less than its
carrying amount, the asset is impaired and it will be reported
at its recoverable amount. The impairment loss is recognised in
the Statement of Comprehensive Income.
The reversal of an impairment loss is also recognised in the
Statement of Comprehensive Income.
De-recognition
The gain or loss arising from the de-recognition of an intangible
asset is recognised in the Statement of Comprehensive Income
when the asset is de-recognised.
Employee entitlements
Short-term entitlements
Employee entitlements that Inland Revenue expects to be
settled within 12 months of balance date are measured at
nominal values based on accrued entitlements at current rates
of pay. These include salaries and wages accrued up to balance
date, annual leave and time off in lieu earned up to but not yet
taken at balance date, retiring, long-service leave and sick leave
entitlements expected to be settled within 12 months.
Inland Revenue recognises a liability for sick leave to the extent
that absences in the coming year are expected to be greater
than the sick leave entitlements earned in the coming year.
The amount is calculated based on the unused sick leave
entitlement that can be carried forward at balance date, to the
extent that Inland Revenue anticipates it will be used by staff to
cover those future absences.
Inland Revenue recognises a liability and an expense for
bonuses where it is contractually obliged to pay them, or where
a past practice has created a constructive obligation.
Long-term entitlements
Employee entitlements that are payable beyond 12 months
such as long-service leave and retiring leave have been
calculated on an actuarial basis.
The actuarial calculations for long-service leave and retiring
leave liabilities are based on:
""
Employee contractual entitlements.
""
Years of service accrued to balance date and years
remaining to entitlement.
""
Present value of the estimated future cash outflows using
an applicable discount rate and salary inflation rate.
Superannuation schemes
Obligations for contributions to the Inland Revenue
Superannuation Scheme, State Sector Retirement Savings
Scheme, KiwiSaver, and the Government Superannuation Fund
are accounted for as defined contribution schemes and are
recognised as an expense in the Statement of Comprehensive
Income as they fall due.
Termination benefits
Termination benefits are payable when an employee’s
employment contract is terminated before their normal
retirement or when an employee accepts voluntary
redundancy in exchange for these benefits. Inland Revenue
recognises the expenditure in the Statement of Comprehensive
Income when it is demonstrably committed to either terminate
the employment of current employees, according to a detailed
formal plan without the possibility of withdrawal, or as a result
of an offer for voluntary redundancy.
Termination benefits to be settled within 12 months are
reported at the amount expected to be paid, otherwise they
are reported as the present value of the estimated future cash
outflows.
Provisions
Inland Revenue recognises a provision for future expenditure
of uncertain amounts or timing where there is a present
obligation (either legal or constructive) as a result of a past
event, and it is probable that expenditure will be required to
settle the obligation, and a reliable estimate can be made of
the amount of the obligation. Provisions are not recognised for
future operating losses.
Provisions are recorded at the best estimate of the expenditure
required to settle the obligation. Provisions to be settled
beyond 12 months are recorded at their present value.
Taxpayers’ funds
This is the Crown’s net investment in Inland Revenue. It is
measured as the difference between total assets and total
liabilities. Taxpayers’ funds are disaggregated and classified into
a number of components:
""
Capital contribution
""
Capital repayment
""
Repayment of surplus to the Crown
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Statement of Cash Flows
Cash and cash equivalents mean cash balances in bank
accounts.
Operating activities include cash received from all income
sources of Inland Revenue, and cash payments made for the
supply of goods and services.
Investing activities are those activities relating to the acquisition
and disposal of non-current assets.
Financing activities comprise capital injections by, or repayment
of capital to, the Crown.
Commitments
Expenses and liabilities yet to be incurred on non-cancellable
contracts that have been entered into on or before balance
date are disclosed as commitments to the extent that they are
unperformed obligations.
Contingent liabilities and assets
Contingent liabilities and assets are recorded in the Statement
of Contingent Liabilities and Contingent Assets at the point
at which the contingency is evident. Contingent liabilities
are disclosed if the possibility that they will crystallise is not
remote. Contingent assets are disclosed if it is probable that
the benefits will be realised. Insurance claim proceeds will be
disclosed as a contingent asset if the receipt of the insurance
proceeds is probable.
Comparatives
Certain comparative information has been reclassified, where
required, to conform with the current year’s presentation.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies and cost
allocation policies since the date of the last audited financial
statements. All policies have been applied on a basis consistent
with the previous year.
96 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTES TO THE FINANCIal STATEMENTS
NOTE 1: OTHER INCOME
2010–11 2011–12
Actual
Actual
$000 $000
20,500 Accident Compensation Corporation (ACC) – agency fees 20,500
6,725 State Services Commission – SSRSS and KiwiSaver recovery 7,121
1,412 Court cost recovery 2,475
434 Secondment to other agencies – salary recovery 1,773
680 Rulings 794
189 Sub-leases 58
13 Supply of information to other agencies 13
166 Insurance proceeds –
72 Net gains on derivative financial instruments –
123 Other 5
30,314 Total other income 32,739
NOTE 2: PERSONNEL
2010–11 2011–12
Actual
Actual
$000 $000
352,363 Salaries and wages 354,531
23,348 Contractors and temporary staff 21,789
6,465 Terminating benefits 13,585
9,138 Employer contributions to defined contribution plans 9,517
1,322 Retiring, long-service and sick leave 4,964
1,867 ACC levies 1,681
1,637 Annual leave 1,214
242 Bonuses 102
7,283 Other 2,283
403,665 Total personnel 409,666
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NOTE 3: OPERATING
2010–11 2011–12
Actual
Actual
$000 $000
34,358 Information technology costs 40,491
35,397 Operating lease rentals 31,719
19,256 Printing and postage 18,586
15,240 Communication 17,193
6,650 Consultants 17,478
8,518 Premises costs 9,541
8,410 Legal expenses 7,839
7,634 Travel and transport 7,582
6,913 Training and employee-related costs 6,332
4,415 Office supplies 4,020
3,059 Bank fees 3,260
1,743 Equipment maintenance 1,806
1,917 Advertising and publicity 1,472
1,033 Audit fees for audit of the financial statements 1,033
55 Disbursements for audit of the financial statements 55
368 Net loss on disposal of property, plant and equipment 762
– Net foreign exchange losses 584
100 Bad debts written off 24
– Net loss on disposal of intangible assets 15
(5) Inc/(Dec) in provision for debt impairment (6)
(1,679) Inc/(Dec) in provision for onerous leases (1,416)
5,809 Other operating expenses 6,030
159,191 Total operating 174,400
98 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 4: PROPERTY, plaNT AND EQUIPMENT by CATEGORY
IT
equipment
Furniture
and office
equipment
Motor
vehicles
Leasehold
improvements
Assets under
construction
– leasehold
Total
$000 $000 $000 $000 $000 $000
Cost
Balance as at 1 July 2011 56,793 32,590 4,594 85,652 566 180,195
Additions by purchase 14,083 1,251 – 991 2,618 18,943
Reductions – other 1 – – – (662) – (662)
Transfers between category – – – 175 1,128 1,303
Disposals (7,304) (2,652) – (31,536) – (41,492)
Balance as at 30 June 2012 63,572 31,189 4,594 54,620 4,312 158,287
Depreciation and impairment losses
Balance as at 1 July 2011 45,779 20,994 2,403 52,457 – 121,633
Depreciation charge – expensed 8,095 3,195 479 4,773 – 16,542
Depreciation charge – capitalised 2 65 6 – – – 71
Impairment losses – – – – – –
Transfers between category – – – – – –
Disposals (7,177) (2,228) – (25,105) – (34,510)
Balance as at 30 June 2012 46,762 21,967 2,882 32,125 – 103,736
Carrying amount as at 30 June 2012 16,810 9,222 1,712 22,495 4,312 54,551
Cost
Balance as at 1 July 2010 65,773 29,001 4,594 62,536 17,305 179,209
Additions by purchase 5,619 4,511 – 7,723 612 18,465
Reductions – other 1 – – – (305) – (305)
Transfers between category 402 – – 17,351 (17,351) 402
Disposals (15,001) (922) – (1,653) – (17,576)
Balance as at 30 June 2011 56,793 32,590 4,594 85,652 566 180,195
Depreciation and impairment losses
Balance as at 1 July 2010 52,536 18,607 1,923 48,420 – 121,486
Depreciation charge – expensed 7,926 3,221 480 4,873 – 16,500
Depreciation charge – capitalised 2 207 26 – – – 233
Impairment losses 3 43 62 – 513 – 618
Transfers between category – – – – – –
Disposals (14,933) (922) – (1,349) – (17,204)
Balance as at 30 June 2011 45,779 20,994 2,403 52,457 – 121,633
Carrying amount as at 30 June 2011 11,014 11,596 2,191 33,195 566 58,562
1
This relates to the addition/reduction of lease make-good costs on leased buildings.
2
Refers to the depreciation charge for existing assets that are used in the development of new intangible assets under construction.
3
Impairment relates to damages that arose from the Canterbury earthquakes. Refer note 7.
Finance leases – The net carrying amount of IT equipment held under finance leases is $2,354,000 (2010-11 $nil).
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NOTE 5: INTANGIBLE ASSETS by CATEGORY
Software
– developed
Business process
design
Software
and licences
– purchased
Assets under
construction
– intangibles
Total
$000 $000 $000 $000 $000
Cost
Balance as at 1 July 2011 414,025 8,262 114,877 14,776 551,940
Additions by purchase – – 5,450 – 5,450
Additions internally developed 13,282 – – 16,641 29,923
Transfers between category 9,883 – – (11,186) (1,303)
Disposals – – (42) – (42)
Balance as at 30 June 2012 437,190 8,262 120,285 20,231 585,968
Amortisation and impairment losses
Balance as at 1 July 2011 332,131 5,068 77,217 2,947 417,363
Amortisation charge – expensed 26,336 1,036 9,514 – 36,886
Amortisation charge – capitalised 1 9 – – – 9
Impairment losses 2 16 – 7,435 – 7,451
Transfers between category – – – – –
Disposals – – (29) – (29)
Balance as at 30 June 2012 358,492 6,104 94,137 2,947 461,680
Carrying amount as at 30 June 2012 78,698 2,158 26,148 17,284 124,288
Cost
Balance as at 1 July 2010 400,361 8,262 110,225 13,760 532,608
Additions by purchase – – 4,596 – 4,596
Additions internally developed 5,074 – – 10,064 15,138
Transfers between category 8,590 – 56 (9,048) (402)
Disposals – – – – –
Balance as at 30 June 2011 414,025 8,262 114,877 14,776 551,940
Amortisation and impairment losses
Balance as at 1 July 2010 302,018 4,032 65,186 2,947 374,183
Amortisation charge – expensed 30,029 1,036 12,031 (1,820) 41,276
Amortisation charge – capitalised 1 84 – – – 84
Impairment losses – – – 1,820 1,820
Transfers between category – – – – –
Disposals – – – – –
Balance as at 30 June 2011 332,131 5,068 77,217 2,947 417,363
Carrying amount as at 30 June 2011 81,894 3,194 37,660 11,829 134,577
There is no restriction over the title of Inland Revenue’s intangible assets, nor are any intangible assets pledged as security for liabilities.
1
Refers to the amortisation charge for existing assets that are utilised in the development of new intangible assets.
2
Software and licenses – purchased includes a software license impairment related to student loan redesign.
Software – developed and business process design includes the following items and carrying amounts: FIRST technology environment $47,766,000, KiwiSaver
$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)
The amortisation period for these intangible assets range from 5–10 years.
Software and licences – purchased includes the following items and carrying amounts: FIRST technology environment $24,602,000, KiwiSaver $1,543,000 (2010–11,
FIRST technology environment $35,608,000, KiwiSaver $2,051,000)
The amortisation period for these intangible assets range from 5–10 years.
100 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 6: CAPITAL CHARGE
Inland Revenue pays a capital charge to the Crown on taxpayer’s funds as at 30 June and 31 December each year. The capital charge
rate for the year ended 30 June 2012 was 8.0% per annum (2010–11, 7.5%).
NOTE 7: OTHER EXPENSES
2010–11 Note 2011–12
Actual
Actual
$000 $000
– Canterbury earthquakes – disposal of leasehold improvements 6,152
2,608 Canterbury earthquakes – personnel and operating –
618 Canterbury earthquakes – PPE impairment 4 –
3,226 Total other expenses 6,152
NOTE 8: REPAYMENT OF SURPLUS TO THE CROWN
2010–11 Note 2011–12
Actual
Actual
$000 $000
(2,579) Total comprehensive income (878)
3,226 Inc/(Dec) Other expense 7 6,152
– Inc/(Dec) Unrealised losses/(gains) in relation to forward foreign exchange contracts 503
647 Repayment of surplus to the Crown 5,777
NOTE 9: DEBTORS AND PREpayMENTS
2010–11 2011–12
Actual
Actual
$000 $000
Current assets
Debtors
3,165 Accounts receivable 3,657
(5) Less provision for impairment (4)
1,954 Other debtors 322
5,114 Net debtors 3,975
12,874 Prepayments 11,798
17,988 Total current assets 15,773
Non-current assets
305 Prepayments 1,274
305 Total non-current assets 1,274
18,293 Total debtors and prepayments 17,047
Given their short-term nature, the carrying value of accounts receivable and other debtors approximates their fair value.
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Overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below:
Net debtors
Gross debtors
$000
Impairment
$000
Net debtors
$000
2011–12
Due within 30 days 3,573 – 3,573
Overdue by 31 to 60 days 158 – 158
Overdue by 61 to 90 days 110 – 110
Overdue by > 90 days 138 (4) 134
Total 3,979 (4) 3,975
2010–11
Due within 30 days 4,830 – 4,830
Overdue by 31 to 60 days 63 – 63
Overdue by 61 to 90 days 62 (1) 61
Overdue by > 90 days 164 (4) 160
Total 5,119 (5) 5,114
The provision for impairment has been calculated based on expected losses for Inland Revenue’s pool of debtors. Expected losses
have been determined based on a review of each debtor.
Movements in the provision for impairment are as follows:
2010–11 2011–12
Actual
Actual
$000 $000
(25) Opening balance (5)
– Additional provisions made during the year (7)
5 Unused amounts reversed –
15 Receivables written off during the year 8
(5) Closing balance (4)
NOTE 10: INVENTORIES HELD FOR EXTERNAL DISTRIBUTION
Inventories comprise forms, booklets and returns held for external distribution. The carrying amount of inventories held for
distribution that are measured at cost as at 30 June 2012 amounted to $1,233,000 (2010–11, $1,119,000).
The write-down of inventories held for distribution amounted to $54,000 (2010–11, $60,000). There have been no reversals of
write-downs. The carrying amount of inventories held for distribution included the write-down of $54,000.
No inventories are pledged as security for liabilities.
102 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 11: CREDITORS AND OTHER payablES
2010–11 2011–12
Actual
Actual
$000 $000
9,019 Accounts payable 9,236
12,086 Accrued expenses – other 19,650
6,307 GST payable 7,175
27,412 Total creditors and other payables 36,061
Creditors and other payables are normally settled on 30-day terms, therefore the carrying value of creditors and other payables
approximates their fair value.
NOTE 12: EMPLOYEE ENTITLEMENTS
2010–11 2011–12
Actual
Actual
$000 $000
Current liabilities
22,955 Annual leave 23,835
615 Terminating benefits 8,071
13,806 Accrued salaries and wages 14,915
1,400 Sick leave 1,290
1,652 Retiring leave 1,368
1,073 Long-service leave 1,013
36 Time off in lieu 21
41,537 Total current liabilities 50,513
Non-current liabilities
27,956 Retiring leave 30,715
7,800 Long-service leave 8,166
35,756 Total non-current liabilities 38,881
77,293 Total employee entitlements 89,394
The present value of retiring and long-service leave obligations depend on a number of factors that are determined on an actuarial
basis by an independent actuary using a number of assumptions. Two key assumptions used in calculating these liabilities include the
discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liabilities.
The discount rates used by the independent actuary for the retiring and long-service leave valuations are based on Treasury
published forward rates at 30 June 2012. The long-term salary inflation assumption is based on Treasury published rates at 30 June
2012 and after obtaining advice from the independent actuary. The long-term salary inflation assumption used was 4.00%.
In 2011–12 there was a decrease in the Treasury published forward discount rates. The impact of the forward discount rate movement
was to increase the carrying amounts of the retiring leave liability by $3,515,000 and the long-service leave liability by $810,000.
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The following table provides a sensitivity analysis for the key assumptions:
Discount rate
Salary inflation factor
–1.0% +1.0% –1.0% +1.0%
$000 $000 $000 $000
Retiring leave 2,121 (1,876) (1,919) 2,130
Long-service leave 486 (430) (442) 491
Movements in the provision for terminating benefits are as follows:
2010–11 2011–12
Actual
Actual
$000 $000
Terminating benefits
694 Opening balance 615
6,236 Additional provisions made 13,585
(6,315) Amounts used (6,129)
– Unused amounts reversed –
615 Closing balance 8,071
The 2010–11 and 2011–12 costs result from organisational restructuring. The 2010–11 provision was fully utilised in the 2011–12
year. The 2011–12 provision is expected to be fully utilised in the 2012–13 year.
NOTE 13: PROVISION FOR OTHER LIABILITIES
2010–11 2011–12
Actual
Actual
$000 $000
Current liabilities
1,416 Onerous contracts 392
1,189 Lease make-good 713
2,605 Total current liabilities 1,105
Non-current liabilities
391 Onerous contracts –
2,627 Lease make-good 2,577
3,018 Total non-current liabilities 2,577
5,623 Total provision for other liabilities 3,682
104 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Onerous Lease Total
contracts make-good
$000 $000 $000
2011–12
Opening balance 1,808 3,816 5,624
Additional provisions made – 65 65
Amounts used (1,416) (317) (1,733)
Unused amounts reversed – (749) (749)
Discount unwind – 475 475
Closing balance 392 3,290 3,682
2010–11
Opening balance 4,809 4,894 9,703
Additional provisions made 1,396 1,325 2,721
Amounts used (4,398) (1,258) (5,656)
Unused amounts reversed – (865) (865)
Discount unwind – (280) (280)
Closing balance 1,807 3,816 5,623
Onerous contracts
The provision for onerous contracts arises from non-cancellable operating leases where the unavoidable costs of meeting the lease
contract exceed the economic benefits to be received from it. Inland Revenue currently has three leases where it is no longer able to
use the surplus space due to restructuring and floor plan revision.
Lease make-good
For a number of its leased premises, Inland Revenue is required at the expiry of the lease term to make-good any damage caused to
the premises and remove any fixtures and fittings it has installed.
In some cases, Inland Revenue has the option to renew these leases, which impacts on the timing of expected cash flows to makegood
the premises.
NOTE 14: DERIvaTIVE FINANCIAL INSTRUMENTS
To hedge its currency risk Inland Revenue enters into foreign currency forward exchange contracts with New Zealand Debt
Management Office (NZDMO).
The notional principal amount of outstanding forward exchange contract derivatives as at 30 June 2012 was NZD $34,000,000
(2010–11, $nil). The contracts consist of the purchase of USD $26,467,640 (2010-11, $nil). The unrealised loss on the forward
exchange contract derivative as at 30 June 2012 is $503,000.
The fair value of forward exchange contracts entered into during the financial year was determined by reference to published price
quotations in an active market.
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NOTE 15: FINANCE LEASES
2010–11 2011–12
Actual
Actual
$000 $000
Total minimum lease payments payable
– Not later than one year 1,988
– Later than one year and not later than five years 539
– Later than five years –
– Total minimum lease payments 2,527
– Future finance charges (173)
– Present value of minimum lease payments 2,354
Present value of minimum lease payments payable
– Not later than one year 1,867
– Later than one year and not later than five years 487
– Later than five years –
– Total present value of minimum lease payments 2,354
Represented by:
– Current 1,867
– Non-current 487
– Total finance leases 2,354
Inland Revenue has entered into an agreement for the provision of telecommunications services that includes finance leases. The net
carrying amount of the leased items within each class of property, plant and equipment is shown in note 4.
In 2010–11 the agreement for the provision of telecommunications services was recognised as an operating lease. In 2011–12 the
agreement was determined to contain finance leases under NZIAS 17 Leases.
There are no restrictions placed on Inland Revenue by any of the finance leasing arrangements.
Finance lease liabilities are effectively secured, as the rights to the leased assets reverts to the lessor in the event of default in payment.
NOTE 16: OTHER FINANCIal LIabILITIES
2010–11 2011–12
Actual
Actual
$000 $000
Current liabilities
181 Leasing incentives 113
181 Total current liabilities 113
Non-current liabilities
1,393 Leasing incentives 710
1,393 Total non-current liabilities 710
1,574 Total other financial liabilities 823
106 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 17: RECONCILIATION OF NET SURPLUS TO NET CASH FLOW FROM OPERATING ACTIVITIES
2010–11 2011–12
Actual
Actual
$000 $000
(2,579) Net surplus/(deficit) (878)
Add non-cash items
17,118 Depreciation and impairment 16,542
43,096 Amortisation and impairment 44,337
60,214 Total non-cash items 60,879
Add items classified as investing or financing activities
368 Net loss on disposal of property, plant and equipment 6,914
– Net loss on disposal of intangible assets 15
368 Total items classified as investing or financing activities 6,929
Add/(less) working capital movements
(62) (Inc)/Dec in debtor Crown (9,817)
(3,812) (Inc)/Dec in debtors and prepayments 1,246
34 (Inc)/Dec in inventories held for distribution (116)
5,020 Inc/(Dec) in creditors and other payables 8,649
– Inc/(Dec) in derivative financial instruments 503
2,580 Inc/(Dec) in provision for employee benefits 12,101
(4,080) Inc/(Dec) in provision for other liabilities (1,941)
380 Inc/(Dec) in other financial liabilities (751)
– Inc/(Dec) in finance lease liabilities 2,354
60 Net movements in working capital items 12,228
58,063 Net cash inflow from operating activities 79,158
NOTE 18: COMMITMENTS
Capital commitments
Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and
equipment and intangible assets that have not been paid for or recognised as a liability at the balance sheet date.
Operating commitments
Operating commitments for non-cancellable accommodation leases relate to Inland Revenue’s long-term leases on its premises at
many locations throughout New Zealand. The annual lease payments are regularly reviewed and the amounts disclosed as future
commitments are based on current rental rates. These commitments also include office space vacated by Inland Revenue as a result of
organisational restructuring and sub-leased. Provision has been made in the financial statements for the expected net expenses for the
duration of these leases.
The total minimum future sub-lease payments expected to be received under non-cancellable sub-leases at balance date is $77,000
(2010–11, $189,000).
Inland Revenue’s non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no restrictions
placed on Inland Revenue by any of its leasing arrangements.
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NOTE 19: CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Contingent liabilities
Legal proceedings and disputes – taxpayer
This contingent liability relates to potential net claims against Inland Revenue for court costs associated with tax disputes and other
legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue under dispute
is recognised as a Crown contingency (refer to Schedule of contingent liabilities and contingent assets – Crown as administered by
Inland Revenue).
The expected value of the contingent liability is calculated using an outcome probability model that weighs the total potential
liability against outcome probabilities. An estimate of potential court cost recoveries is made and netted off against the contingent
liability. Independent confirmation on the liability has been ascertained on all legal proceedings and tax disputes.
Legal proceedings and disputes – departmental
This contingent liability relates to disputes such as claims made by departmental suppliers.
Personal grievances
Personal grievances represent amounts claimed by employees for alleged breaches of contract against Inland Revenue.
Contingent assets
Insurance claims – Canterbury earthquakes
Inland Revenue leases a building in Christchurch that sustained damage as a result of the 4 September 2010 and subsequent
earthquakes. Damage was sustained to leasehold improvements, furniture, IT equipment, and office equipment. In 2011–12
Inland Revenue received notice that the building has been damaged as to render the premises untenantable. Therefore we have now
written off the leasehold improvements.
Inland Revenue will be submitting insurance claims for the material damage caused by the earthquakes and associated business
interruption. In 2011–12 these claims are estimated at $20 million (2010–11, $4 million). The final amount of the claim is still being
determined and will be subject to ongoing discussions with our insurance company.
In 2011–12 there were no insurance claim proceeds received relating to the Canterbury earthquakes (2010–11, $166,000).
108 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 20: RELATED paRTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
Inland Revenue is a wholly owned entity of the Crown. The government significantly influences the role of Inland Revenue as well
as being its major source of revenue. In 2011–12 Inland Revenue has been provided with funding from the Crown of $638 million
(2010–11, $611 million) for specific purposes as set out in the scope of relevant government appropriations.
Inland Revenue enters into numerous related party transactions with other government departments, Crown agencies and stateowned
enterprises which are controlled, significantly influenced, or jointly controlled by the Crown. All related party transactions
have been entered into on an arms’ length basis.
In 2011–12 the purchase of goods and services by Inland Revenue from entities controlled, significantly influenced, or jointly
controlled by the Crown totalled $30 million (2010–11, $33 million). These purchases include postal services from New Zealand
Post, and air travel from Air New Zealand.
In 2011–12 Inland Revenue paid the Crown capital charges on taxpayer’s funds totalling $21 million (2010-11, $18 million).
In 2011–12 the services provided by Inland Revenue to entities controlled, significantly influenced, or jointly controlled by the
Crown totalled $23 million (2010–11, $22 million). These services include the collection of levies payable by earners on behalf of the
Accident Compensation Corporation (ACC), and the supply of information to other agencies.
No provision has been required, nor any expense recognised, for impairment of receivables from related parties.
No related party transactions were entered into with key management personnel during the year.
Compensation to key management personnel
The remuneration of key management personnel during the year was as follows:
2010–11 2011–12
Actual
Actual
$000 $000
2,784 Short-term employee benefits 2,655
35 Post-employment benefits 56
20 Other long-term benefits 33
2,839 Total key management personnel compensation 2,744
Key management personnel include the Commissioner, five Deputy Commissioners, Chief Tax Counsel, Chief Financial Officer and
those formally acting in those positions during the financial year. The Commissioner’s remuneration is determined and paid by the
State Services Commission.
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NOTE 21: FINANCIAL INSTRUMENTS – CATEGORIES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:
2010–11 Notes 2011–12
Actual
Actual
$000 $000
Debtors and receivables
14,666 Cash and cash equivalents 44,540
147,069 Debtor Crown 156,886
5,114 Net debtors 9 3,975
166,849 Total debtors and receivables 205,401
Fair value through surplus or deficit
– Derivative financial instrument liabilities 14 503
– Total fair value through surplus or deficit 503
Financial liabilities measured at amortised cost
27,412 Creditors and other payables 11 36,061
– Finance lease liabilities 15 2,354
1,574 Other financial liabilities 16 823
28,986 Total financial liabilities measured at amortised cost 39,238
NOTE 22: FINANCIAL INSTRUMENTS – FAIR valuE HIERARCHY DISCLOSURES
For those instruments recognised at fair value in the statement of financial position, fair values are determined according to the
following hierarchy:
""
Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.
""
Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using
models where all significant inputs are observable.
""
Valuation techniques with significant non-observable inputs (level 3) – Financial instruments valued using models where one or
more significant inputs are not observable.
The following table analyses the basis of the valuation of classes of financial instruments measured at fair value in the statement of
financial position.
Quoted market
price
Valuation technique
Observable
inputs
Significant non -
observable inputs
$000 $000 $000 $000
2011–12
Financial liabilities
Foreign exchange derivatives – 503 – 503
– 503 – 503
2010–11
Financial liabilities
Foreign exchange derivatives – – – –
– – – –
There were no transfers between the different levels of the fair value hierarchy.
Total
110 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 23: FINANCIAL INSTRUMENTS – FINANCIAL INSTRUMENT RISKS
Market risk
Currency risk
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates is
called currency risk.
Because Inland Revenue purchases fixed assets and services from overseas suppliers it is exposed to currency risk arising from various
currency exposures, primarily for the United States and Australian dollars. Currency risk arises from future purchases of fixed assets
and services which are denominated in a foreign currency.
Inland Revenue has policies in place to manage the risks associated with financial instruments and, being risk averse, seeks to
minimise exposure from its treasury activities. Inland Revenue does not enter into transactions that are speculative in nature.
Under its foreign exchange policy, Inland Revenue enters into foreign currency forward exchange contracts to manage foreign
exchange exposures when single foreign exchange transactions exceed NZ $100,000, or the transaction exposure for an individual
currency exceeds NZ $100,000. This policy has been approved by Treasury and is in line with the requirements of Treasury
“Guidelines for the Management of Crown and Departmental Foreign Exchange Exposure”.
Interest rate risk
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument will
fluctuate, due to changes in market interest rates.
Inland Revenue has no interest-bearing financial instruments so it has no exposure to interest rate risk.
Credit risk
The risk that a third party will default on its obligations to Inland Revenue, causing a loss to be incurred is called credit risk. In the
normal course of its business credit risk from trade debtors is concentrated with the Crown and other government agencies.
The carrying amount of financial assets recognised in the Statement of Financial Position best represents Inland Revenue’s maximum
exposure to credit risk at balance date.
Inland Revenue does not require any collateral, security, or other credit enhancements to support financial instruments with
financial institutions that it deals with or the New Zealand Debt Management Office, because these entities have high credit ratings.
For its other financial instruments, Inland Revenue does not have significant concentrations of credit risk.
The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated is not
material.
Liquidity risk
Liquidity risk is the risk that Inland Revenue will encounter difficulty raising liquid funds to meet commitments as they fall due.
As all but an insignificant proportion of funds come from the New Zealand Government and cash is drawn down on a fortnightly
basis, Inland Revenue does not have significant liquidity risk. In meeting its liquidity requirements, Inland Revenue closely monitors
its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. Inland Revenue
maintains a target level of available cash to meet liquidity requirements.
Contractual maturity analysis of financial liabilities, excluding derivatives
The table below analyses Inland Revenue’s financial liabilities that will be settled, based on the remaining period at the balance sheet
date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
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Notes
Carrying Contractual Up to 1 1 to 5 Over 5 Total
amount cash flows year years years
$000 $000 $000 $000 $000 $000
2011–12
Creditors and other payables 11 36,061 36,061 36,061 – – 36,061
Finance lease liabilities 15 2,354 2,527 1,988 539 – 2,527
Other financial liabilities 16 823 823 113 437 273 823
Closing balance 39,238 39,411 38,162 976 273 39,411
2010–11
Creditors and other payables 11 27,412 27,412 27,412 – – 27,412
Financial lease liabilities 15 – – – – – –
Other financial liabilities 16 1,574 1,574 181 670 723 1,574
Closing balance 28,986 28,986 27,593 670 723 28,986
Contractual maturity analysis of derivative financial instrument liabilities
The table below analyses Inland Revenue’s forward exchange contract derivatives into relevant maturity groupings based on the
remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash
flows.
Note
Liability
carrying
amount
Asset
carrying
amount
Contractual
cash flows
NZ$
Less than
6 months
NZ$
6–12
months
NZ$
1–2 years
NZ$
$000 $000 $000 $000 $000 $000
2011–12
Gross settled forward foreign exchange 15 503 –
contracts
–Outflow – – 34,000 – 34,000 –
503 – 34,000 – 34,000 –
2010–11
Gross settled forward foreign exchange
– –
contracts
–Outflow – – – – – –
– – – – – –
The following provides a sensitivity analysis for the key assumptions:
At 30 June 2012, if the NZ dollar had strengthened by 5% against the US dollar, with all other variables held constant, the surplus
for the year would have been $1,621,000 (2010–11 $nil) higher. At 30 June 2012, if the NZ dollar had weakened by 5% against the
US dollar, with all other variables held constant, the surplus for the year would have been $1,791,000 (2010–11 $nil) lower. This
movement is attributable to translation of US dollar-denominated creditors.
112 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

NOTE 24: CAPITAL MANAGEMENT
Inland Revenue’s capital is its equity (or taxpayers’ funds),
which comprise of general funds. Equity is represented by net
assets.
Inland Revenue manages its revenues, expenses, assets,
liabilities and general financial dealings prudently. Inland
Revenue’s equity is largely managed as a by-product of
managing income, expenses, assets, liabilities, and compliance
with the Government Budget processes and with Treasury
Instructions and the Public Finance Act 1989.
The objective of managing Inland Revenue’s equity is to
ensure that it effectively achieves its strategic direction, while
remaining a going concern.
NOTE 25: ExplaNATION OF MAJOR vaRIANCES
Statement of Comprehensive Income
The following major budget variations occurred between
2011–12 Actuals and the 2011–12 Estimates of Appropriations
(Main Estimates) in the Statement of Comprehensive Income:
""
Personnel expenses were lower than budget by $27,746,000
(6%). This variance was due to a higher than planned
decrease in staff numbers through a combination of
attrition and organisational restructuring.
""
Operating expenses were higher than budget by $17,240,000
(11%). This variance was mainly due to business
transformation programme costs and an increase in IT
costs.
""
Amortisation and impairment was lower than budget by
$2,896,000 (6%). This variance was due to less than planned
capitalisation of IT projects. The capitalisation of those
projects will now occur in 2012–13.
""
Other expenses were higher than budget by $6,152,000
(100%). This increase related to the write-off of leasehold
improvements as a result of the Canterbury earthquakes.
Statement of Financial Position
The following major budget variations occurred between
30 June 2012 Actuals and the 2011-12 Estimates of
Appropriations (Main Estimates) in the Statement of Financial
Position:
""
Cash and cash equivalents were higher than budget by
$32,540,000 (271%). The variance was due to a timing issue
relating to year end expenditure and employee benefits
that were paid out in July rather than June. There was a
one to two day delay in making some significant payments.
This resulted in the actual cash payments falling into July,
whereas we had budgeted for the payments to be made at
the end of June.
""
Debtor Crown was higher than budget by $25,683,000 (20%).
The variance was due to funding in Debtor Crown that we
have not yet drawn down due to capital underspending.
""
Debtors and prepayments were higher than budget by
$4,168,000 (32%). This was due to an increase in prepaid IT
maintenance contracts.
""
Property, plant and equipment was lower than budget by
$11,770,000 (18%). This was mainly due to the write-off
of leasehold Improvements in a building Inland Revenue
leased in Christchurch. This building was damaged as a
result of the Canterbury earthquakes, and will now be
demolished by the landlord.
""
Intangible assets were lower than budget by $29,543,000
(19%). This was mainly due to the following:
77
Underspend in capital projects, of which $10,648,000
has been carried forward to the 2012–13 year.
77
$7,435,000 was in relation to the impairment of IT
software.
""
Creditors and other payables were higher than budget by
$12,861,000 (55%). This was mainly due to the timing of
trade payables and business transformation programme
accruals.
""
Employee entitlements were higher than budget by
$6,054,000 (7%). This was mainly driven by macroeconomic
changes in the actuarial valuations for retiring
and long-service leave in 2011–12, as well as higher than
planned restructuring costs.
""
Provision for other liabilities were higher than budget by
$1,425,000 (63%). This was due to higher than planned
lease make-good provisions for buildings that Inland
Revenue leases.
""
Other financial liabilities were lower than budget by
$530,000 (39%). This was due to a decrease in the lease
incentive (rental inducements) liability, mainly driven by the
exit from our earthquake damaged building in Christchurch.
""
Derivative financial instruments were higher than budget
by $503,000 (100%). This was due to an unrealised loss on a
forward exchange contract at 30 June 2012. There were no
such losses in the previous financial year.
""
Finance lease liabilities were higher than budget by
$2,354,000 (100%). This was due to the recognition of a
finance lease for telecommunications equipment.
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Statement of Departmental Expenses and Capital
Expenditure against Appropriations
The following major variations occurred in the Statement
of Departmental Expenses and Capital Expenditure against
Appropriations between 30 June 2012 Actuals and 2011–12
Appropriations:
""
Property, plant and equipment was lower than the
Appropriation by $4,572,000 (19%). This was mainly due
to the planned replacement of Inland Revenue’s fleet of
motor vehicles as well as fit-out upgrades for buildings
that Inland Revenue leases. These will now take place in
2012–13.
""
Intangible assets were lower than the Appropriation by
$39,855,000 (54%). This was due to the following:
77
$22,000,000 was due to the planned purchase of
mainframe processing capacity. This purchase is now
planned for 2012–13.
77
Capital project underspending, of which $10,648,000
has been carried forward to the 2012–13 year.
77
Reclassification of project capital spend to operating
expenditure.
NOTE 26: EVENTS AFTER balaNCE daTE
No events have occurred between the balance date and date of
signing these financial statements that materially affect these
financial statements.
114 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Part 8
Financial Schedules –
CROWN AS ADMINISTered
by InlAND Revenue
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PART 8 Financial Schedules – Crown as administered by Inland Revenue
115

SCHEDULE OF REVENUE – CROWN AS
ADMINISTERED by INlaND REVENUE
for the year ENded 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Direct taxation
Income tax
Individuals
20,562,208 Source deductions 20,959,663 20,914,000 20,886,000
3,791,029 Other persons 4,231,982 4,342,000 4,242,000
(1,679,127) Refunds (1,736,357) (1,656,000) (1,657,000)
462,327 Fringe benefit tax 461,876 430,000 444,000
23,136,437 Sub-total individuals 23,917,164 24,030,000 23,915,000
Corporate tax
7,924,382 Gross companies tax 8,818,946 8,823,000 8,548,000
(196,732) Refunds (201,593) (400,000) (274,000)
467,290 Non-resident withholding tax 499,785 508,000 451,000
(274) Foreign-source dividend withholding payments 3,895 1,000 5,000
8,194,666 Sub-total corporate tax 9,121,033 8,932,000 8,730,000
Other direct income tax
1,704,194 Resident withholding tax on interest income 1,678,586 1,665,000 1,671,000
194,631 Resident withholding tax on dividend income 292,396 209,000 288,000
680,982 Employer superannuation contribution tax 672,697 722,000 676,000
1,713 Gift duties 146 – –
2,581,520 Sub-total other direct income tax 2,643,825 2,596,000 2,635,000
33,912,623 Total direct taxation 35,682,022 35,558,000 35,280,000
116 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

SCHEDULE OF REVENUE – CROWN AS
ADMINISTERED by INlaND REVENUE (continued)
2010–11 Note 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Indirect taxation
Goods and services tax
22,350,836 Gross goods and services tax 23,746,090 24,200,000 24,164,000
(9,775,501) Refunds (10,626,609) (10,965,000) (11,212,000)
12,575,335 Sub-total goods and services tax 13,119,481 13,235,000 12,952,000
Other indirect taxation
4,076 Cheque duties 3,537 4,000 4,000
82,098 Approved issuer levy 85,167 74,000 86,000
266,081 Gaming duties 270,740 268,000 276,000
4,934 Other indirect taxation 4,895 10,000 5,000
357,189 Sub-total other indirect taxation 364,339 356,000 371,000
12,932,524 Total indirect taxation 13,483,820 13,591,000 13,323,000
46,845,147 Total taxation 49,165,842 49,149,000 48,603,000
Other revenue
509,947 Child support 2 279,448 684,000 303,000
420,371 Interest unwind – student loans 474,452 480,000 480,000
13,486 Other revenue 32,033 6,000 6,000
943,804 Total other revenue 785,933 1,170,000 789,000
47,788,951 Total operating revenue 49,951,775 50,319,000 49,392,000
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
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SCHEDULE OF expenditure – CROWN AS
ADMINISTERED by INlaND REVENUE
for the year ENded 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Benefits and other unrequited expenses
2,766 Child tax credit 1,998 2,200 2,000
2,129,523 Family tax credit 2,071,040 2,168,100 2,111,000
584,787 In-work tax credit 567,046 567,000 568,000
198 KiwiSaver: Employer tax credit – – –
(50) KiwiSaver: Fee subsidy (18) – –
4,625 KiwiSaver: Interest 5,848 3,000 7,000
312,797 KiwiSaver: Kick-start payment 212,566 209,000 226,000
263,692 KiwiSaver: Member tax credit – – –
460,777 KiwiSaver: Tax credit 469,819 444,000 475,000
9,483 Minimum family tax credit 11,091 10,100 11,000
154,194 Paid parental leave payments 157,615 164,100 156,000
18,966 Parental tax credit 18,385 17,600 18,000
1,574 Payroll subsidy 1,947 2,000 2,000
– Research and development tax credit (68,475) – –
3,943,332 Total benefits and other unrequited expenses 3,448,862 3,587,100 3,576,000
Borrowing expenses
10 Adverse event interest 3 10 10
1,527 Environmental restoration account interest 1,570 2,000 2,000
5,589 Income equalisation interest 3,494 7,000 7,000
7,126 Total borrowing expenses 5,067 9,010 9,010
Other expenses
785,466 Bad debt write-offs 848,618 857,000 857,000
223,953 Impairment of debt 1 263,940 247,000 347,000
280,802 Impairment of debt relating to child support 72,276 446,000 112,000
(94,000) Impairment of debt relating to student loans (286,000) 110,000 (134,404)
– Initial fair value write-down – student loans 103,175 128,222 126,511
1,196,221 Total other expenses 1,002,009 1,788,222 1,308,107
5,146,679 Total expenditure 4,455,938 5,384,332 4,893,117
1
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
118 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

SCHEDULE OF aSSETS – CROWN AS adMINISTERED
BY INLAND REVENUE
as at 30 JuNE 2012
2010–11 Notes 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Assets
Current assets
1,062,519 Cash and cash equivalents 1,418,317 800,000 1,000,000
6,484,079 Receivables 1 6,341,051 5,828,012 6,196,172
3,030 Receivables – child support 2 3,030 73,541 35,406
36,958 Receivables – other 30,670 36,000 45,000
706,000 Student loans 3 930,000 819,000 840,000
8,292,586 Total current assets 8,723,068 7,556,553 8,116,578
Non-current assets
343,100 Receivables 1 409,300 427,565 326,007
52,376 Receivables – child support 2 54,749 – –
5,984,213 Student loans 3 7,360,882 7,002,682 7,352,074
6,329,689 Total non-current assets 7,824,931 7,430,247 7,678,081
14,672,275 Total assets 16,547,999 14,986,800 15,794,659
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
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SCHEDULE OF liabilITIES – CROWN AS
ADMINISTERED by INlaND REVENUE
as at 30 JuNE 2012
2010–11 Notes 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Liabilities
Payables and provisions
24,004 Child support 25,875 18,942 24,004
3,737,599 Refundables and payables 4 3,323,245 3,422,809 3,337,599
6,750 Unclaimed monies 5 9,828 6,123 6,750
3,768,353 Total payables and provisions 3,358,948 3,447,874 3,368,353
Reserve schemes
226,765 Reserve schemes 6 278,175 223,219 274,865
226,765 Total value of the reserve schemes 278,175 223,219 274,865
3,995,118 Total liabilities 3,637,123 3,671,093 3,643,218
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
SCHEdulE OF MOVEMENTS BETWEEN
DEPARTMENTS – CROWN AS adMINISTERED by
INLAND REVENUE
FOR THE YEAR ENDED 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
10,086,938 Opening balance 10,677,157 10,215,654 10,677,157
42,642,272 Net result from operating activities 45,495,837 44,934,668 44,498,883
762,203 Asset transfer between departments – Ministry of Social
1,711,108 1,770,375 1,760,968
Development – student loans
(42,814,256) New Zealand Debt Management Office (44,973,226) (45,604,990) (44,785,567)
10,677,157 Closing balance 12,910,876 11,315,707 12,151,441
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
120 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

SCHEDULE OF CONTINGENT liabilITIES AND
CONTINGENT aSSETS – CROWN AS adMINISTERED
BY INLAND REVENUE
as at 30 JuNE 2012
2010–11 Notes 2011–12
Actual
Actual
$000 $000
Quantifiable contingent liabilities
281,285 Legal proceedings and disputes – assessed 7 365,417
54,617 Unclaimed monies 5 79,516
335,902 Total quantifiable contingent liabilities 444,933
Quantifiable contingent assets
635,665 Disputes – non-assessed 7 150,451
635,665 Total quantifiable contingent assets 150,451
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
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STATEMENT OF appROPRIATIONS – CROWN AS
ADMINISTERED by INlaND REVENUE
for the year ENded 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Actual Actual Main Supp
estimates estimates
$000 $000 $000 $000
Vote: Revenue 1
Benefits and other unrequited expenses
209,128 Child support payments PLA 215,636 226,000 220,000
2,766 Child tax credit PLA 1,998 2,200 2,000
2,129,523 Family tax credit PLA 2,071,040 2,168,100 2,111,000
584,787 In-work tax credit PLA 567,046 567,000 568,000
198 KiwiSaver: Employer tax credit – – –
(50) KiwiSaver: Fee subsidy (18) – –
4,625 KiwiSaver: Interest 5,848 3,000 7,000
312,797 KiwiSaver: Kick-start payment 212,566 209,000 226,000
263,692 KiwiSaver: Member tax credit – – –
460,777 KiwiSaver: Tax credit 469,819 444,000 475,000
9,483 Minimum family tax credit PLA 11,091 10,100 11,000
154,194 Paid parental leave payments PLA 157,615 164,100 156,000
18,966 Parental tax credit PLA 18,385 17,600 18,000
1,574 Payroll subsidy PLA 1,947 2,000 2,000
– Research and development tax credit (68,475) – –
4,152,460 Total benefits and other unrequited expenses 3,664,498 3,813,100 3,796,000
Borrowing expenses
10 Adverse event interest PLA 3 10 10
1,527 Environmental restoration account interest PLA 1,570 2,000 2,000
5,589 Income equalisation interest PLA 3,494 7,000 7,000
7,126 Total borrowing expenses 5,067 9,010 9,010
Other expenses
785,466 Bad debt write-offs 848,618 857,000 857,000
223,953 Impairment of debt 2 263,940 247,000 347,000
280,802 Impairment of debt relating to child support 72,276 446,000 112,000
(43,000) Impairment of debt relating to student loans 3 (371,000) 110,000 (134,404)
– Initial fair value write-down – student loans 103,175 128,222 126,511
1,247,221 Total other expenses 917,009 1,788,222 1,308,107
5,406,807 Total appropriations 4,586,574 5,610,332 5,113,117
1
PLA refers to appropriations established under a permanent legislative authority.
2
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.
3
Excludes remeasurement of $85.0 million (2010–11 ($51.0) million).
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
122 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Statement OF UNAPPROPRIATED EXPENDITURE –
CROWN AS adMINISTERED by INLAND REVENUE
for the year ENded 30 JuNE 2012
In the 2011–12 financial year there were no instances of:
""
expenditure incurred in excess of appropriation (2010–11 $10,797,000).
""
expenditure incurred without appropriation or other authority (2010–11 $198,000).
""
expenditure incurred outside appropriation (2010–11 $nil).
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
SCHEdulE OF TRUST MONEY – CROWN AS
ADMINISTERED by INlaND REVENUE
FOR THE YEAR ENDED 30 JuNE 2012
2010–11 2011–12 2011–12 2011–12
Actual Actual Contributions Distributions
$000 $000 $000 $000
Child support
11,927 Child support trust account 22,222 223,886 (213,591)
319 Reciprocal child support agreement trust account 287 15,300 (15,332)
12,246 Total child support 22,509 239,186 (228,923)
KiwiSaver
137 KiwiSaver returned transactions trust account 204 67 –
137 Total KiwiSaver 204 67 –
12,383 Total trust money 22,713 239,253 (228,923)
The child support trust accounts were established in accordance with sections 139 and 140 of the Child Support Act 1991. Inland Revenue administers these trust
accounts for amounts collected from liable parents and the subsequent child support payments that are paid to the custodial parents.
The KiwiSaver trust account was established in accordance with section 74(4) of the KiwiSaver Act 2006. Inland Revenue administers this account to hold
money deposited with the Crown from KiwiSaver scheme providers, primarily for refunds and payments made in error, pending the completion of the financial
transaction.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crown’s financial position and the results of its operations, refer to the Financial Statements of the Government of New Zealand for
the year ended 30 June 2012.
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STATEMENT OF ACCOUNTING POLICIES
REPORTING ENTITY
These Crown financial schedules and statements present
financial information on public funds managed by
Inland Revenue on behalf of the Crown.
These Crown balances are consolidated into the Financial
Statements of the Government of New Zealand for the year
ended 30 June 2012. For a full understanding of the Crown’s
financial position, results of operations, and cash flows for the
year, refer to the Financial Statements of the Government.
BASIS OF PREPARATION
The Crown schedules and statements have been prepared
in accordance with the accounting policies of the Financial
Statements of the Government, Treasury Instructions, and
Treasury Circulars.
Measurement and recognition rules applied in the preparation
of these schedules and statements are consistent with
New Zealand generally accepted accounting practice as
appropriate for public benefit entities.
ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results and financial position, have
been applied.
Revenue
Operating revenue
The Crown provides many services and benefits that do not
give rise to revenue. Further, payment of tax does not, in itself,
entitle a taxpayer to an equivalent value of services or benefits,
because there is no direct relationship between paying tax and
receiving Crown services and transfers.
The New Zealand tax system is predicated on self-assessment
where taxpayers are expected to understand the tax laws and
comply with them. This has an impact on the completeness
of tax revenues when taxpayers fail to comply with tax
laws, for example, if they do not report all of their income.
Inland Revenue has implemented systems and controls in
order to detect and correct situations where taxpayers are
not complying with the various acts it administers. These
systems and controls include performing audits of taxpayer
records where determined necessary by Inland Revenue.
Such procedures cannot be expected to identify all sources
of unreported income or other cases of non-compliance with
tax laws. Inland Revenue is unable to estimate the amount of
unreported tax.
Initial fair value write-down – student loans
When new borrowings are made to students, they are written
down immediately to the fair value. The initial write-down
ratio is used to determine this write-down, which is an expense
to Inland Revenue.
Interest unwind – student loans
Interest unwind on student loans is accrued using the effective
interest rate method. The effective interest rate exactly
discounts estimated future cash receipts through the expected
life of the financial asset to that asset’s net carrying amount.
The effective interest rate is fixed by year of first lending.
Tax revenue is recognised when a taxable event has occurred
and the tax revenue can be reliably measured. The taxable
event is defined as follows:
Tax type
Income tax
Goods and services tax
Taxable activity
The earning of assessable income
during the taxation period by the
taxpayer.
The purchase or sale of taxable
goods and services during the
taxation period.
124 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Expenses
General
Expenses are recognised in the period to which they relate.
Benefits and other unrequited expenses
Expense type
Child tax credit
Family tax credit
In-work tax credit
KiwiSaver: Employer
tax credit
KiwiSaver: Fee subsidy
KiwiSaver: Interest
KiwiSaver: Kick-start
payment
KiwiSaver: Member
tax credit
Definition
Extra assistance for low to middle
income families who do not depend
on the state for financial support
(expenses incurred pursuant to
section 185 of the Tax Administration
Act 1994).
Family support payments made to
beneficiaries and non-beneficiaries
during the year (expenses incurred
pursuant to section 185 of the Tax
Administration Act 1994).
Extra assistance for low to middle
income families where the person
works a minimum of 20 hours per
week and does not have a partner,
or a person and their partner work
a minimum of 30 hours per week
(expenses incurred pursuant to
section 185 of the Tax Administration
Act 1994).
Tax credit to employers in respect of
their contributions to KiwiSaver as
set out in the Income Tax Act 2007.
This ceased on 31 March 2009.
Fee subsidy to KiwiSaver members in
respect of their scheme provider fees
as set out in the KiwiSaver Act 2006.
This ceased on 31 March 2009.
Interest on KiwiSaver contributions
as set out in the KiwiSaver Act 2006.
One-off payment made on opening a
KiwiSaver account for members who
meet the required eligibility criteria
as set out in the KiwiSaver Act 2006.
Tax credit to KiwiSaver members as
set out in the Income Tax Act 2007.
KiwiSaver: Tax credit
Minimum family tax
credit
Paid parental leave
payments
Parental tax credit
Payroll subsidy
Research and
development tax
credit
Tax credit to KiwiSaver members and
the payment of residual tax credits to
employers as set out in the Income
Tax Act 2007.
Extra payment made to families
where at least one parent is working
for salary or wages (expenses
incurred pursuant to section 185 of
the Tax Administration Act 1994).
Paid parental leave payments made
to parents eligible under the Parental
Leave and Employment Protection
Act 1987.
Additional financial support made
to working families for the eightweek
period following the birth of a
child (expenses incurred pursuant to
section 185 of the Tax Administration
Act 1994).
Subsidy to a payroll agent
undertaking employers’ payrollrelated
tax compliance activities
on their behalf (expenses incurred
pursuant to section 185 of the Tax
Administration Act 1994).
Tax credits for expenditure on
research and development where
the required eligibility criteria is met
as set out in the Income Tax Act
2007. Expenditure incurred up until
31 March 2009 may be eligible for
credits, where claims have been filed
by 31 March 2012.
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Borrowing expenses
Expense type
Adverse event interest
Environmental
restoration account
interest
Income equalisation
interest
Other expenses
Expense type
Bad debt write-offs
Impairment of debt
relating to child
support
Impairment of debt
Definition
Interest on adverse event income
equalisation reserve accounts held
by taxpayers in the farming and
agriculture business (expenses
incurred pursuant to section 185 of
the Tax Administration Act 1994).
Interest on environmental restoration
accounts (expenses incurred
pursuant to section 185 of the Tax
Administration Act 1994).
Interest on income equalisation
reserve scheme accounts held by
taxpayers in the farming, fishing or
forestry industries (expenses incurred
pursuant to section 185 of the Tax
Administration Act 1994).
Definition
Bad debt write-offs for Crown debt
administered by Inland Revenue.
These write-offs relate to general tax,
KiwiSaver and Working for Families
Tax Credits debt.
Impairment arising from objective
evidence of one or more loss events
that occurred after the initial
recognition of the debt, and the loss
event (or events) has had a reliably
measurable impact on the estimated
future cash flows of the collective
book of child support debt.
Impairment arising from objective
evidence of one or more loss events
that occurred after the initial
recognition of the debt, and the loss
event (or events) has had a reliably
measurable impact on the estimated
future cash flows of the Crown debt
book. This impairment relates to
general tax, KiwiSaver and Working
for Families Tax Credits debt.
Impairment of debt
relating to student
loans
Initial fair value
write-down – student
loans
Impairment arising from objective
evidence of one or more loss events
that occurred after the initial
recognition of the loan, and the loss
event (or events) has had a reliably
measurable impact on the estimated
future cash flows of the collective
book of student loan debt.
The initial fair value write-down is
the amount by which a student loan
is discounted at the time the loan is
made. The discounting reflects the
expected cash flows over the life of
the loan.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in transit
and funds held in bank accounts.
Receivables
Receivables from taxes, levies and fines (and any penalties and
interest associated with these activities) as well as social benefit
receivables that do not arise out of a contract.
Receivables are initially assessed at nominal value, that is,
the receivable reflects the amount of tax owed, levy, fine
charged, or social benefit debt payable. These receivables are
subsequently adjusted for penalties and interest as they are
charged, and tested for impairment annually. Interest and
penalties charged on receivables are presented as revenue in
the Schedule of Revenue.
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that the asset is impaired.
Impairment movements are recognised in the Schedule of
Expenditure. Impairment losses can be reversed where there is
evidence that the impaired value of the asset has increased.
Financial models have been constructed for Inland Revenue
to calculate the impairment of Crown debt as well as child
support debt. These models apply a number of assumptions on
future repayment behaviour as well as economic assumptions
such as the discount rate and inflation.
126 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Financial instruments
Financial assets
Student loans
Student loans are designated as loans and receivables under
NZ IAS 39. Student loans are recognised initially at fair
value, plus transaction costs, and subsequently measured at
amortised cost using the effective interest rate method, and
adjusted for impairment movements. Fair value on initial
recognition of student loans is determined by projecting
forward expected repayments and discounting them back at an
appropriate discount rate. The difference between the amount
lent and the fair value on initial recognition is expensed on
initial recognition. The subsequent measurement at amortised
cost is determined using the effective interest rate calculated
at initial recognition. This rate is used to spread the Crown’s
interest income across the life of the loan and determines the
loan’s carrying value at each reporting date.
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivables. Impairment losses are incurred if,
and only if, there is objective evidence of impairment as a
result of one or more events that occurred after the initial
recognition of the loan and a loss event has an impact on the
estimated future cash flows of the loan that can be reliably
measured. The amount of the provision is the difference
between the asset’s carrying amount and estimated impaired
value. The impairment losses are recognised in the Schedule of
Expenditure.
Contingent assets
Contingent assets are recorded in the Schedule of Contingent
Assets at the point at which the contingency is evident.
Contingent assets are disclosed if it is probable that the
benefits will be realised.
Comparatives
When presentation or classification of items in the financial
schedules are amended or accounting policies are changed
voluntarily, comparative figures have been restated to ensure
consistency with the current period, unless it is impracticable
to do so.
Changes in accounting policies
There have been no changes in accounting policies
applicable to the preparation of financial schedules of Crown
administered by Inland Revenue. All policies have been applied
on a basis consistent with the previous year.
There has been a change in the methodologies for the initial
fair value write-down of student loans and contingent assets
this year. Information on these changes is available in Note 3
and Note 7, of the Notes to the Financial Schedules.
Impairment losses can be reversed where there is evidence that
the impaired value of the financial asset has increased.
Actuarial models have been constructed by a third party to
calculate the impairment of student loan debt. Refer to Note 3
for more information on this model.
Financial liabilities
Financial liabilities are recognised initially at fair value, less
transaction costs. Financial liabilities entered into with a
duration of less than 12 months are recognised at their
nominal value, unless the effect of discounting is material.
Contingent liabilities
Contingent liabilities are recorded in the Schedule of Contingent
Liabilities at the point at which the contingency is evident.
Contingent liabilities are disclosed if the possibility that they
will crystallise is not remote.
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notes to the FINaNCIal SChedules
NOTE 1: RECEIVABLES
Receivables include general tax receivables, Working for Families Tax Credits and KiwiSaver debt, and excludes student loans and
child support debt.
The recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical
debt data, deducting an estimate of service costs and then discounting using an appropriate rate. If the recoverable amount of
the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the
recoverable amount is more, the carrying amount is increased.
2011–12 2010–11
$000 $000
Receivables
Gross receivables 11,157,058 10,969,946
Impairment receivables (4,406,707) (4,142,767)
Carrying value receivables 6,750,351 6,827,179
Current and non-current apportionment
Receivables – current 6,341,051 6,484,079
Receivables – non-current 409,300 343,100
Carrying value receivables 6,750,351 6,827,179
Ageing profile of receivables – gross
Not due 5,752,946 5,859,550
Past due 1
Less than 6 months 883,894 982,436
6–12 months 453,053 467,202
1–2 years 899,137 1,013,907
Greater than 2 years 3,168,028 2,646,851
Total past due 5,404,112 5,110,396
Total receivables – gross 11,157,058 10,969,946
% Past due 48% 47%
Receivables – impairment
Opening balance 4,142,767 3,918,813
Impairment losses recognised 1,112,558 1,009,420
Amounts written off as uncollectable (848,618) (785,466)
Closing balance 4,406,707 4,142,767
1
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 Inland Revenue. The
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
individual taxpayer may have multiple debt elements (eg, by tax type, by return period) that are represented within a single debt case.
128 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Receivables are classified as past due when any outstanding revenue is not paid by the taxpayer’s due date. Due dates will vary,
depending on the type of revenue outstanding (eg, income tax, GST, KiwiSaver) and the taxpayer’s balance date. Past due debt
includes debt collected under instalment, debt under dispute, default assessments and debts of taxpayers who are bankrupt,
in receivership or in liquidation. Inland Revenue has debt management policies and procedures in place to actively manage the
collection of past due debt.
The estimated recoverable amount of this portfolio and significant assumptions underpinning the valuation are:
2011–12 2010–11
$000 $000
Recoverable amount of receivables not due 5,734,710 5,825,389
Recoverable amount of receivables past due 1,015,641 1,001,790
Use-of-money interest rate 8.40% 8.89%
Discount rate 5.60% 6.10%
Impact on the recoverable amount of a 2% increase in discount rate (18,000) (16,000)
Impact on the recoverable amount of a 2% decrease in discount rate 20,000 17,000
The fair value of receivables is not materially different from the carrying value.
Credit risk
In determining the recoverability of receivables Inland Revenue uses information about the extent to which the taxpayer is
contesting the assessment and experience of the outcomes of such disputes, from lateness of payment and other information
obtained from credit collection actions taken.
Under the Tax Administration Act 1994 Inland Revenue has broad powers to ensure that people meet their obligations. Part 10 of
the Act sets out the powers of the Commissioner to recover unpaid tax.
The Crown does not hold any collateral or any other credit enhancements over receivables which are past due.
Receivables are widely dispersed over a number of taxpayers and as a result the Crown does not have any material individual
concentrations of credit risk.
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NOTE 2: RECEIVABLES – CHILD SUPPORT
The Crown collects monies from liable parents and remits this to custodial parents. The child support receivable represents
penalties which have been incurred as a result of the under-payment of the debt, and in the main, relates to penalties imposed on
liable parents who default on their payments.
The recovery of debt is challenging as 97% of child support debt is greater than two years old. There are limited provisions under
child support legislation to remit penalties. The non-recoverability of penalties has been allowed for in the impairment figure.
Impairment is calculated by forecasting the expected repayments of this penalty debt based on analysis of historical debt data,
deducting an estimate of service costs and then discounted.
The concentration of credit risk is limited and this is not a risk that is actively managed. The Crown does not hold any collateral or
other credit enhancements over these receivables.
Child support penalties grow exponentially due to their compounding nature, however, penalty debt has grown at a slower rate as
a result of system purifications undertaken this year to correct child support accounts with incorrect penalties. These purifications
have decreased child support penalty revenue and penalty debt, which in turn decreased the impairment.
2011–12 2010–11
$000 $000
Receivables – child support
Gross receivables 1,817,551 1,742,902
Impairment receivables (1,759,772) (1,687,496)
Total receivables – child support 57,779 55,406
Current and non-current apportionment
Receivables – current 3,030 3,030
Receivables – non-current 54,749 52,376
Carrying value receivables 57,779 55,406
Aging profile of receivables – gross
Not due – –
Past due
Less than 12 months 81,501 316,999
1–2 years 316,999 376,634
Greater than 2 years 1,419,051 1,049,269
Total past due 1,817,551 1,742,902
Total receivables – gross 1,817,551 1,742,902
% Past due 100% 100%
Impairment of receivables – child support
Opening balance 1,687,496 1,406,694
Impairment losses recognised 72,276 280,802
Closing balance 1,759,772 1,687,496
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NOTE 3: STUDENT LOANS
From 1 April 2012 Inland Revenue is responsible for meeting the initial fair value write-down expense on new lending and Vote
Revenue holds the appropriation for this. Inland Revenue calculates the initial fair value write-down on lending net of refunds.
Inland Revenue and the Ministry of Social Development have changed the process for student loans. StudyLink (Ministry of Social
Development) continues to process new lending, a small portion of loan repayments from borrowers, and fee refunds when
students receive a partial or full fee refund. From 1 April 2012 StudyLink transactions are transferred to Inland Revenue on a daily
basis rather than an annual basis. As a result Inland Revenue holds the total nominal debt and carrying value of the scheme.
Previously both agencies held a portion of nominal debt and carrying value.
2011–12 2010–11
$000 $000
Nominal value student loans 12,968,652 10,730,926
Adjustment to nominal value (4,677,770) (4,040,713)
Carrying value student loans 8,290,882 6,690,213
Current and non-current apportionment
Student loans – current 930,000 706,000
Student loans – non-current 7,360,882 5,984,213
Carrying value student loans 8,290,882 6,690,213
Movement during the year
Opening balance 6,690,213 6,104,251
Impairment reversal 286,000 94,000
Loans transferred from Ministry of Social Development 2,840,784 1,442,129
Fair value write-down on loans transferred from Ministry of Social Development (1,129,676) (679,926)
Initial fair value write-down – student loans (103,175) –
Repayments (767,716) (690,609)
Interest unwind 474,452 420,368
Carrying value student loans 8,290,882 6,690,213
Fair value student loans
Opening balance 6,443,000 5,589,600
Loans transferred from Ministry of Social Development 1,711,108 759,000
Initial fair value write-down – student loans (103,175) –
Repayments (767,716) (690,609)
Interest unwind 480,783 431,000
Administration costs 31,000 24,009
Change in expense assumption (37,000) –
Change in fair value discount rate 436,000 221,000
Impairment reversal 333,000 109,000
Fair value student loans 8,527,000 6,443,000
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Student loan valuation model
The student loan valuation model reflects current student loan policy and macro-economic assumptions. As such, the book value
is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic
factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers.
The data for the student loan valuation model has been integrated by Statistics New Zealand from files provided by Inland Revenue,
Ministry of Social Development and Ministry of Education. The current data is up to 31 March 2011 and contains information
on borrowings, repayments, income, educational factors and socio-economic factors amongst others, and has been analysed and
incorporated into the valuation model. This integrated data has been supplemented by less detailed, but more recent data to value
student loans at balance date. Given the lead time required to compile and analyse the detailed integrated data it is expected that
there will always be a lag time between the integrated dataset and balance date.
The significant assumptions behind the impaired value and fair value are:
2011–12 2010–11
Carrying value
Carrying value ($000) 8,290,882 6,690,213
Effective interest rate 7.20% 7.11%
Interest rate applied to loans for overseas borrowers 6.4%–6.6% 6.6%–6.7%
Consumer Price Index 1.8%–2.5% 2.5%–2.8%
Future salary inflation 3.2%–3.5% 3.5%–3.8%
Fair value is the amount for which the loan book could be exchanged between knowledgeable, willing parties in an arm’s-length
transaction as at 30 June 2012. It is determined by discounting the future cash flows at an appropriate discount rate.
Fair values will differ from carrying values due to changes in market interest rates, as the carrying value is not adjusted for such
changes whereas the fair value was calculated on a discount rate that was current at 30 June 2012. At that date, the fair value was
calculated on a discount rate of 6.03% whereas a weighted average discount rate of 7.20% was used for the carrying value. The
difference between fair value and carrying value does not represent an impairment of the asset.
2011–12 2010–11
Fair value
Fair value ($000) 8,527,000 6,443,000
Discount rate 6.03% 7.10%
Impact on fair value of a 1% increase in discount rate ($000) (396,000) (373,000)
Impact on fair value of a 1% decrease in discount rate ($000) 432,000 426,000
The Student Loan Scheme Annual Report contains more information on the student loan scheme.
In 2011–12 there was a reversal of impairment of the student loan asset totalling $286.0 million, increasing the value of the student
loan asset (in 2010–11 there was a reversal of impairment of $94.0 million). The current year impairment is mainly driven by the
Budget 2012 policy decision to increase the student loan repayment rate from 10% to 12%. This policy decision increased the
forecast future repayments of borrowers resulting in a reversal of impairment. Macroeconomic effects and data and modelling also
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
set out below:
132 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

2011–12 2010–11
$000 $000
Sources of impairment
Policy and legislative changes 268,000 91,000
Revision of predictive sub-models 57,000 –
Experience variance as a result of new data 26,000 (1,000)
Change in demographic profile of participants 24,000 (21,000)
Revision of mortality and bankruptcy rates (36,000) –
Macroeconomic changes 1 (85,000) 52,000
Remaining model and data changes 32,000 (27,000)
Total sources of impairment 286,000 94,000
1
The remeasurement adjustment portion of the impairment is an expense of $85.0 million. The Schedule of Expenditure and the note above includes
remeasurement adjustments in the impairment figure. However, the Statement of Appropriations excludes remeasurement adjustments. The remeasurement
relates to changes in the macroeconomic assumptions used for the valuation of the receivable.
Credit risk
Credit risk is the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid, causing the
scheme to incur a loss.
The student loan scheme does not require borrowers to provide any collateral or security to support advances made. As the total
sum advanced is widely dispersed over a large number of borrowers, the student loan scheme does not have any material individual
concentrations of credit risk.
The credit risk is reduced by collection of compulsory repayments through the tax system.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in interest rates. Changes could
impact on the Government’s return on loans advanced. The interest rate and the interest write-off provisions attached to student
loans are set by the Government.
NOTE 4: REFUNdablES AND payablES
Refundables and payables are recognised at their nominal value as they are due within 12 months. The nominal value is considered
to approximate their fair value.
Taxes refundable represent refunds due to taxpayers as a result of assessments being filed. Refunds are issued to taxpayers once
account and refund reviews are complete.
2011–12 2010–11
$000 $000
KiwiSaver payable 568,256 913,783
Paid parental leave payable 5,387 4,327
Research and development tax credits payable 5,000 95,817
Taxes refundable 2,744,602 2,723,672
Total refundables and payables 3,323,245 3,737,599
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NOTE 5: UNCLAIMED MONIES
Under the Unclaimed Money Act 1971, entities (eg, financial institutions, insurance companies) hand over money not claimed after
six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.
NOTE 6: RESERVE SCHEMES
2011–12 2010–11
$000 $000
Adverse event income equalisation 63 108
Environmental restoration 54,927 51,650
Income equalisation 223,185 175,007
Total reserve schemes 278,175 226,765
The adverse event income equalisation scheme operates in addition to the income equalisation scheme. Interest at a rate of 6.5%
is paid on deposits. Deposits can be withdrawn immediately, but are transferred to the main income equalisation account if not
withdrawn within 12 months of the deposit.
The environmental restoration account allows businesses to set aside money to cover restoration costs for monitoring, avoiding,
remedying or mitigating the detrimental environmental effects which may occur in later years. Interest at a rate of 3% is paid on the
deposit while it is held in the scheme. Payment is made when the environmental restoration costs are incurred.
The income equalisation scheme allows taxpayers in the farming, fishing and forestry industries to make payments during the year
by way of income equalisation deposits. Interest is paid at a rate of 3%, provided that no withdrawals are made within 12 months of
the date of the deposit.
NOTE 7: CONTINGENCIES
Contingent liabilities
Legal proceedings and disputes – assessed
Contingent liabilities arise if a case is still not resolved at the end of the disputes process, Inland Revenue will issue an amended
assessment to the taxpayer and recognise revenue. The taxpayer is then able to file proceedings with the Taxation Review Authority
or the High Court disputing the assessment. These are recorded in the Schedule of Contingent Liabilities as legal proceedings and
disputes – assessed. The contingent liability is the maximum liability Inland Revenue has in respect of these cases.
Unclaimed monies
Unclaimed monies are repaid to the entitled owner on proof of identification. Based on trends from prior years, the estimated likely
amount of unclaimed monies that will be paid out in the next 12 months is recorded as a liability in the Schedule of Liabilities and
the remainder is recorded as a contingent liability in the Schedule of Contingent Liabilities.
Contingent assets
Disputes – non-assessed
Contingent assets arise as part of the tax dispute process, for example, when Inland Revenue has advised a taxpayer of a proposed
adjustment to their tax assessment through a notice of proposed adjustment. At this point there has been no amended assessment
issued and no revenue has been recognised so these adjustments are recorded in the Schedule of Contingent Assets as disputes –
non-assessed. The taxpayer has the right to dispute this adjustment and a disputes resolution process is entered into. Inland Revenue
quantifies a contingent asset based on the likely cash collectable for the disputes process based on experience and similar prior
cases, net of losses carried forward.
Contingent assets can also arise where the taxpayer has not filed an assessment but Inland Revenue believes they are liable for
tax. In this situation Inland Revenue will issue an assessment. Where the taxpayer chooses to dispute the Inland Revenue initiated
assessment, the assessment is not recognised as revenue and a contingent asset is recorded in the Schedule of Contingent Assets. The
value of the asset is based on the likely collectable portion of the default assessment, net of losses carried forward.
134 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

This financial year there has been a change of methodology to provide a more prudent view of contingent assets for both types of
disputes listed above. Last year contingent assets were quantified based on the likely assessment for the disputes process not the
likely cash collectable.
NOTE 8: ACCIDENT COMPENSATION COLLECTION
2011–12 2010–11
$000 $000
Earner premium – employees – provisional 1,688,720 1,701,367
Total accident compensation collection 1,688,720 1,701,367
Inland Revenue collects these levies on behalf of the Accident Compensation Corporation and passes the monies directly to them.
The levies do not appear on the Crown schedules.
NOTE 9: EVENTS AFTER balaNCE daTE
No events have occurred between the balance date and date of signing these financial schedules that materially affect the financial
schedules.
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part 8
Financial Schedules – Crown as administered by Inland Revenue
135

AUDIT REPORT
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Audit RepoRT
137

independENT audITor’s REPORT
To the readers of Inland Revenue’s financial statements, non-financial performance information and schedules of
non-departmental activities for the year ended 30 June 2012
The Auditor-General is the auditor of Inland Revenue (the Department). The Auditor-General has appointed me, Ajay Sharma, using the
staff and resources of Audit New Zealand, to carry out the audit of the financial statements, non-financial performance information and
the schedules of non-departmental activities of the Department on her behalf.
We have audited:
""
the financial statements of the Department on pages 82 to 114, that comprise the statement of financial position, statement
of commitments, statement of contingent liabilities and contingent assets as at 30 June 2012, the statement of comprehensive
income, statement of changes in taxpayers’ funds, statement of departmental expenses and capital expenditure against
appropriations, statement of unappropriated expenditure and capital expenditure, statement of cash flows and statement of
accounting policies for the year ended on that date and the notes to the financial statements that include other explanatory
information;
""
the non-financial performance information of the Department that comprises the statement of service performance on
pages 53 to 80 and the report about outcomes on pages 29 and 40 to 41;
""
the schedules of non-departmental activities of the Department on pages 116 to 135 that comprise the schedule of assets,
schedule of liabilities and schedule of contingent liabilities and contingent assets as at 30 June 2012, the schedule of expenditure,
statement of appropriations, statement of unappropriated expenditure, schedule of revenue, schedule of trust money, schedule
of movements between departments and the statement of accounting policies, for the year ended on that date and the notes to
the schedules that include other explanatory information.
Opinion
In our opinion:
""
the financial statements of the Department on pages 82 to 114:
••
comply with generally accepted accounting practice in New Zealand; and
••
fairly reflect the Department’s:
−−
financial position as at 30 June 2012;
−−
financial performance and cash flows for the year ended on that date;
−−
expenses and capital expenditure incurred against each appropriation administered by the Department and each class of
outputs included in each output expense appropriation for the year ended 30 June 2012; and
−−
unappropriated expenses and capital expenditure for the year ended 30 June 2012.
""
the non-financial performance information of the Department on pages 29 and 40 to 41 and 53 to 80:
••
complies with generally accepted accounting practice in New Zealand; and
••
fairly reflects the Department’s service performance and outcomes for the year ended 30 June 2012, including for each class of
outputs:
−−
−−
its service performance compared with the forecasts in the statement of forecast service performance at the start of the
financial year; and
its actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the
start of the financial year.
138 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

""
the schedules of non-departmental activities of the Department on pages 116 to 135:
••
comply with generally accepted accounting practice in New Zealand; and
••
fairly reflect:
−−
−−
the assets, liabilities, contingencies, and trust monies as at 30 June 2012 managed by the Department on behalf of the Crown;
and
the revenues, expenditure, expenditure against appropriations, movements between Departments, unappropriated
expenditure and trust monies for the year ended on that date managed by the Department on behalf of the Crown.
Our audit was completed on 28 September 2012. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Chief Executive and our
responsibilities, and we explain our independence.
Basis of opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International
Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out
our audit to obtain reasonable assurance about whether the financial statements, non-financial performance information and the
schedules of non-departmental activities are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of
the financial statements, non-financial performance information and the schedules of non-departmental activities. If we had found
material misstatements that were not corrected, we would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements,
non-financial performance information and the schedules of non-departmental activities. The procedures selected depend on
our judgement, including our assessment of risks of material misstatement of the financial statements, non-financial performance
information and the schedules of non-departmental activities, whether due to fraud or error. In making those risk assessments,
we consider internal control relevant to the Department’s preparation of the financial statements, non-financial performance
information and the schedules of non-departmental activities that fairly reflect the matters to which they relate. We consider
internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing
an opinion on the effectiveness of the Department’s internal control.
An audit also involves evaluating:
""
the appropriateness of accounting policies used and whether they have been consistently applied;
""
the reasonableness of the significant accounting estimates and judgements made by the Chief Executive;
""
the appropriateness of the reported non-financial performance information within the Department’s framework for reporting
performance;
""
the adequacy of all disclosures in the financial statements, non-financial performance information and the schedules of
non-departmental activities; and
""
the overall presentation of the financial statements, non-financial performance information and the schedules of
non-departmental activities.
We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements, non-financial
performance information and the schedules of non-departmental activities. We have obtained all the information and explanations
we have required and we believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
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aUDIT RepoRT
139

Responsibilities of the Chief Executive
The Chief Executive is responsible for preparing:
""
financial statements and non-financial performance information that:
••
comply with generally accepted accounting practice in New Zealand;
••
fairly reflect the Department’s financial position, financial performance, cash flows, expenses and capital expenditure incurred
against each appropriation and its unappropriated expenses and capital expenditure; and
••
fairly reflect its service performance and outcomes; and
""
schedules of non-departmental activities, in accordance with the Treasury Instructions 2011 that:
••
comply with generally accepted accounting practice in New Zealand; and
••
fairly reflect those activities managed by the Department on behalf of the Crown.
The Chief Executive is also responsible for such internal control as is determined is necessary to enable the preparation of financial
statements, non-financial performance information and schedules of non-departmental activities that are free from material
misstatement, whether due to fraud or error.
The Chief Executive’s responsibilities arise from the Public Finance Act 1989.
Responsibilities of the Auditor
We are responsible for expressing an independent opinion on the financial statements, non-financial performance information and
the schedules of non-departmental activities and reporting that opinion to you based on our audit. Our responsibility arises from
section 15 of the Public Audit Act 2001 and the Public Finance Act 1989.
Independence
When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the
independence requirements of the New Zealand Institute of Chartered Accountants.
Other than the audit, we have no relationship with or interests in the Department.
Ajay Sharma
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand
140 New Zealand Inland Revenue Annual Report 2012 ird.govt.nz

Matters relating to the electronic presentation of the audited financial statements
This audit report relates to the financial statements, non-financial performance information and schedules of nondepartmental
activities of the Inland Revenue Department for the year ended 30 June 2012 included on Inland Revenue’s
web site. The Commissioner is responsible for the maintenance and integrity of Inland Revenue’s web site. We have not been
engaged to report on the integrity of Inland Revenue’s web site. We accept no responsibility for any changes that may have
occurred to the financial statements, non-financial performance information and schedules of non-departmental activities
since they were initially presented on the web site.
The audit report refers only to the financial statements, non-financial performance information and schedules of nondepartmental
activities named above. It does not provide an opinion on any other information which may have been
hyperlinked to/from the financial statements, non-financial performance information or schedules of non-departmental
activities. If readers of this report are concerned with the inherent risks arising from electronic data communication they
should refer to the published hard copy of the audited financial statements, non-financial performance information and
schedules of non-departmental activities and related audit report dated 28 September 2012 to confirm the information
included in the audited financial statements, non-financial performance information and schedules of non-departmental
activities presented on this web site.
Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in
other jurisdictions.