Writing Off Tax Due

Writing off Tax Debt
Taxpayers who cannot pay their tax may apply to the Commissioner for financial relief. The financial relief may be in the form of an instalment arrangement and/or write-off of some or all of the outstanding tax.

In negotiations with a taxpayer, the Commissioner will endeavour to determine as soon as possible whether or not the taxpayer is eligible for financial relief and to what extent.

Where the Commissioner is unable to make a decision on granting relief immediately as further information is required from the taxpayer, the taxpayer must provide the information within 20 working days or such other time as negotiated between the taxpayer and Commissioner. Late payment penalties will not be charged during this period provided financial relief is granted. However, use-of-money interest will continue to be charged on a daily basis.

The Commissioner must maximise the recovery of outstanding tax from a taxpayer but not if recovery represents an inefficient use of the Commissioner's resources or would place a taxpayer, being a natural person, in serious hardship.

The Commissioner must write off amounts that cannot be recovered due to bankruptcy, liquidation or where a taxpayer's estate has been distributed. The Commissioner may also write off amounts that cannot be recovered.

An amount written off may be reinstated if:

  • the outstanding tax was written off on the grounds of serious hardship and the taxpayer for whom the debt was written off is adjudged bankrupt or placed in liquidation within a year of the amount being written off; or

  • the Commissioner receives, by operation of law, additional funds in respect of a taxpayer after the taxpayer becomes bankrupt, is liquidated or if additional funds due to the taxpayer's estate are discovered after the taxpayer's estate has been distributed; or

  • the outstanding tax was written off on the basis of false or misleading information provided by the taxpayer.

If an amount is written off and the taxpayer has tax losses, all or part of the net loss will be reduced by the amount of the write-off grossed up by 33%.

Outstanding tax can not be written off if the taxpayer was liable to a shortfall penalty for an abusive tax position or evasion or similar act in relation to the outstanding tax.

Duty of IRD Commissioner to Maximise Recovery
The Commissioner has a duty to maximise the recovery of the outstanding amount from a taxpayer. Inland Revenue is therefore obliged to compare the value of the likely recovery from accepting a proposal from a taxpayer with any other viable options for recovery. In some cases, it is clear which option will maximise recovery.

In other cases there may be options that could yield similar returns. Accordingly it is necessary to determine which option will maximise recovery.