Are you leaving money on the table? Amanda Morrall looks at the ease of on-line tax refunds and how to do-it-yourself

By Amanda Morrall

Earlier this week the Commerce Commission issued a warning to tax agents, otherwise known as personal tax summary intermediaries (PTSIs), telling them to clean up their act.

The nature of their offence?

In a nutshell: misleading marketing practices and potential breaches of the Fair Trading Act.

Some tax agents operating in the ballooning space of instant tax returns are accused of deceiving clients by offering to see whether they owed a return for "free" then clipping their ticket by as much as 40% (when it's discovered money is owing), compelling them to use the service for subsequent tax years and promising turnaround times as short as three days.

Technically, these agents don't charge to see if a refund is owing. If there isn't one, you don't pay. If there is, you do but at that stage you've already committed to paying, probably without your knowledge of how much because you didn't read it in the fine print. Given agents' claims that 90% of all people who use their service receive a refund, PTSIs are making a meal out of people's laziness and ignorance.

The average return, advertised on websites, runs around NZ$500. Remember, that's just an average.

The spread, according to one tax agent who spoke to me a few years back is between NZ$5 and $5,000. Another operator even reported a refund of NZ$36,000. (See Amanda Morrall story here).

Payment for their service varies. Some charge a flat fee. In other cases, it's a sliding scale of commissions, from 10-40% with a maximum of NZ$400-NZ$500.

Either way you slice it, this is big business for these operators, most of whom have no qualifications in accounting or tax. You don't have to. The process is so easy, a monkey (with training) could do it.

But as most people can't be bothered, or find taxes too intimidating, they take the easy out, willingly parting with their money, so they are spared the "hard work.''

So how much money are people who could probably use every cent of their return surrendering to tax agents?

That number is hard to gauge.

The following were easier to come by:

For the most recent tax year, ending March 31st, 2012, Inland Revenue issued 614,000 personal tax summaries upon request. Of that a whopping 64% were linked to tax agents. Keep in mind that in the vast majority of cases, tax agents will only request a personal tax summary if they discover that money is owing. That's the whole point of using one. Why else would you use one only to find out you had to write a big fat cheque to Inland Revenue.

If it's true that the average return (which includes rebates people might have forgotten to apply for) is NZ$500, we're looking at close to $200 million in returns annually. Depending on their fee, structures agents are pocketing between 10-40% of that.

One agent notes on their website that they have obtained, for their clients, close to $200 million since going into business.

A good chunk of these operators have flung themselves onto this tax gravy train in the past five years.

It's easy to paint these guys as villains and accuse them of fleecing innocent taxpayers.

Heroes or villains?

Another view, the one they prefer to take, is that they are doing a good turn finding and delivering money to New Zealanders who, were it not for them, would be NZ$500 (more or less) poorer for it.

So who's to blame? The enterprising tax agent for seizing upon an opportunity to make others (and themselves) richer, or the taxpayers for being too lazy to do the work for themselves?

I think it's a bit of a stretch for tax agents to paint themselves as heroes in this story. That's particularly the case for those bury their terms and conditions so deep into their website as to deliberately mislead the money hungry desperado taxpayer.

At the same time, I don't have much sympathy for the boo-hooing taxpayer either, who allowed themselves to be seduced by the words free, money back, and we'll do all the work for you. Surely, people have to take responsibility for allowing themselves to get gauged simply by not taking the time to understand the nature of the contract their were entering into.

Unlike anyone working in the financial advisory sector now, tax agents do not have to look their clients square in the eye and explain to them in great detail and stuff papers into their hands explaining how they get paid, how much and by whom.

Because tax agents aren't giving you advice per se, they are outside of the scope of the Financial Markets Authority's new disclosure requirements. Instead, they fall under the auspices of the Commerce Commission, the authority that oversees the Credit Contracts and Consumers Finance Act.

One might argue that the Commerce Commission has taken a rather light handed approach to the regulation of this particular band of cowboys. These tax agents have been operation for some 12 years and it was only recently, following some complaints, that they issued a warning.

The bigger problem, I would argue has to do with consumers themselves, for not taking more responsibility for their actions, and for deferring to tax agents a task that both technology and the taxman have made easier than ever.

For the five minutes of effort required to jump on-line and plug the numbers into the calculator, Kiwis could save themselves money and learn a thing or to in the process.

Here's how to do it yourself:

1) Go to Inland Revenue's website here.

2) If you're not already registered, get registered to use their on-line services. (It can take 24 hours to confirm registration)

3) Hit the button that says "Are you due a refund?"

3) Work it out - this calculator will tell you whether you can expect a return - without compelling you to request a personal tax summary. If will also tell you if you owe money. This page isn't monitored so doing step one won't affect you either way. You'll need to know how much you earned in that tax year, which you can find out on earnings sections which tracks your wages and salary.

4) You're most likely to get a refund if you:

• worked while at school
• worked for part of the year
• received a lump sum payment (such as a bonus or redundancy)
• earned less than NZ$9,880
• had more than one employer during the year
• have expenses to claim
• were entitled to the independent earner tax credit but didn’t claim all of it during the tax year

But you can find out more here.

If you have found you're due a refund, then you formally request a Personal Tax Summary.