Time for a Tax Refund – or a Tax Bill?
Every year after 31 March, the Inland Revenue Department (IRD) reviews the income and tax information it holds to determine whether New Zealand taxpayers have paid the correct amount of tax during the year.
For some people, this results in a welcome tax refund appearing in their bank account. For others, it may mean receiving a tax bill that needs to be paid. Understanding why this happens can help you avoid surprises and better manage your finances.
Why Do Tax Refunds Happen?
Most employees in New Zealand pay tax through the PAYE (Pay As You Earn) system. Employers deduct tax from wages and salaries throughout the year based on the income they expect an employee to earn.
However, life doesn't always go according to plan.
Changes such as:
Starting or leaving a job
Taking unpaid leave
Working fewer hours
Receiving irregular income
Working part of the year
can all affect the amount of tax that should have been paid.
For example, imagine someone earning $70,000 per year takes six months of unpaid leave. During the time they worked, tax was deducted based on an annual salary of $70,000. However, because they only earned around $35,000 for the year, they may have paid more tax than required and could be entitled to a refund.
Because New Zealand uses a progressive tax system, lower income levels attract lower tax rates. This often results in overpaid tax being refunded.
Why Might You Receive a Tax Bill?
Not everyone receives a refund. Some taxpayers may discover they owe additional tax.
Common reasons include:
Using the wrong tax code
Having multiple jobs
Receiving untaxed income
Earning interest or investment income taxed at the wrong rate
Having an incorrect Prescribed Investor Rate (PIR) for KiwiSaver or managed funds
Significant overtime, bonuses, or commissions during the year
When the total tax deducted throughout the year is less than the amount that should have been paid, IRD will issue a tax bill.
When Are Assessments Issued?
Income tax assessments are generally issued between late May and the end of July.
Most assessments are now completed automatically using information already provided to IRD by employers, banks, KiwiSaver providers, and other organisations.
In many cases, taxpayers do not need to file a return or take any action unless requested by IRD.
How Are Refunds Paid?
If you are entitled to a refund, IRD will deposit the money directly into the bank account registered in your MyIR account.
To avoid delays, it is important to ensure:
Your MyIR account is active
Your contact details are current
Your bank account information is correct
What If You Owe Tax?
If you receive a tax bill, payment is generally due by 7 February 2027.
If paying in full is difficult, IRD may allow an instalment arrangement. It's important to contact IRD or your accountant early rather than ignoring the debt, as penalties and interest may apply.
Need Help Understanding Your Assessment?
Tax assessments can sometimes be confusing, particularly if you have multiple income sources, investments, rental properties, or self-employment income.
At Tax Professionals, we can review your assessment, explain the outcome, and help ensure everything has been calculated correctly.
If you've received a refund, a tax bill, or simply have questions about your tax position, contact our team today for expert advice and peace of mind.