The fact that New Zealander’s consistently overpay their income tax was a little known only half a decade ago. Until recently only a very small percentage of the population actually applied for their tax refunds because the process was difficult, lengthy and required a large amount of paperwork. Luckily these days, services like MyRefund.co.nz have made this process easier and opened the eyes of New Zealander’s to the benefit of applying for income tax refunds. Still though, a large amount of overpaid NZ income tax is not claimed.
Every year, every employed New Zealander pays income tax, usually through a system called PAYE (Pay As You Earn), meaning tax, and other things like KiwiSaver and student loan repayments, are deducted each pay cheque. This system often leads to overpayment of income tax. This is how we are able to claim tax refunds at the end of each year, by totaling the amount we earn and calculating the resulting tax we are liable for, any overpayment is rightfully refundable. Any overpaid income tax that isn’t reclaimed, is held by the government as if it was correctly taxed. This pool of overpaid income tax is a very very large amount of money.
So applying for your refund every year is definitely a smart choice. But even better is the fact that you can apply for your tax refund for the previous five financial years. Unfortunately, if you were employed and paying income tax six or more years ago, any overpaid income tax is not refundable and it remains deposited with IRD. This reiterates the point that having an intermediary such as MyRefund.co.nz to conduct regular tax refunds on your behalf for each financial year is a smart decision. The flip side of the coin is that you may have accumulated a lot more in overpaid income tax over the past five years than you think.
So where does it go? Unfortunately to the Government coffers, however it is not too late to apply for your refund for the previous five financial years.
This article was written by Tom Taylor for MyRefunds.co.nz.
