According to the Tax Working Group's paper(2018) on the collection of tax debt in New Zealand, the types of taxpayers who have large tax debts fall into three distinct groups - 1) Disorganised (Confused, messy, have poor understanding of their tax obligations or lack general business knowledge or concepts), 2) Can't pay (Don't have the financial resources to pay their taxes) and 3) Won't pay (Have the financial resources to pay their taxes but deliberately choose not to).
The Tax Work Group acknowledges that whilst it is easy to categorize a particular taxpayer's behavior as falling into one of the three groups, a taxpayer's non compliance may be the result of unconscious decisions that they may have made (Tax Work Group, 2018).
It is crucial for the tax authorities not to mix up disorganized or can't pay taxpayers with those who are tax evaders, that try to get out of paying their taxes through any means possible. Without having the ability to fully understand a taxpayer's behaviors, the tax department risks misidentifying indebted taxpayers and unfairly imposing penalties and sanctions on them.
The implications of being identified or labelled as a tax evader by the IRD can have very significant consequences when applying for tax relief under financial hardship grounds under 177 of the Tax Administration Act as the IRD are legally not permitted to grant relief in the instances of tax evasion.
As a financial therapist, I'm professionally trained to assess client's money beliefs, behaviors, money disorders and investigate how a client arrived at the past decisions that they made.
For example, I have observed some clients with tax arrears who have money avoidant beliefs. They display typical money avoidant behavior such as not opening bank statements and deliberately not logging onto the IRD's website as they are afraid of seeing the total balance of all the tax arrears that were owing.
I can recall one instance where a client was actually preparing the paper version of his GST Returns on time, but due to his money avoidant beliefs and was scared of seeing how much he owed the IRD, he failed to file those returns in a consistent and timely manner.
The above examples show that often failure to file income tax returns on time or failure to co-operate with the tax authorities can sometimes be rationally explained and doesn't necessarily mean that you are a person that will fail to meet your tax obligations in the future.
The IRD understandably take a dim view of a client who purchases a new car instead of either meeting their current tax obligations or not paying off their tax arrears. Often the purchase of a new car can be explained by reviewing a client's money beliefs. Trading down to an older car and being able to accept that buying the new car was a mistake, shows the IRD that you have changed your behavior and are serious about meeting your tax obligations in the future.
As part of my internal procedures to apply for financial hardship on behalf of clients, I conduct a through assessment of a client's money beliefs and behaviors. In addition to this, as well providing all the standard information that the IRD requires, I make sure that all my financial hardship applications are extremely well documented and backed up by several client interviews. This ensures that your application will be considered fairly, impartially, taken seriously by the IRD and more likely to reach a favorable outcome.
If you have tax arrears and are unable to pay your tax arrears as well as your tax obligations, please contact me to arrange an initial assessment for relief under Hardship grounds.