B23

Annual
Report
2015

ird.govt.nz
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ISSN 1176-6654 (Print)

ISSN 2230-4053 (Online)

ird.govt.nz

Presented to the House of Representatives pursuant to the Public Finance Act 1989 and the Tax Administration Act 1994.
Contents

About Inland Revenue 7

Delivering and improving our core business 11
Contributing to the Governments priorities 23
Business Transformation 31
Organisational health 35
Our performance 43
Measuring our performance 57
Departmental financial statements 93
Non-departmental financial schedules 125
Audit Report 145
Additional information 149

ANNUAL REPORT 2015 1

From the Commissioner
A year of making tax simpler
As Commissioner Im
enormously proud of how
much Inland Revenue has
achieved for the people of
New Zealand. This years
Annual Report reflects many
of the improvements youll
notice next time you look
for information online, file
a return or claim a refund.
Were making the business of
tax and entitlements simpler,
more open and more certain
for customers and businesses
across New Zealand.
2 ANNUAL REPORT 2015
Easier for customers
Our Business Transformation will
completely change how people interact
with the revenue system in future. And
as we prepare for transformation, were
making it easier every day for businesses
and individuals, through continuous
improvement and innovation.
More people are doing a lot more online.
During the year we improved our website
and myIR online services, and made it
easier to register and find information.
Since August customers have been able to
activate their new myIR account instantly
via text. Customers are embracing new
digital opportunities last year 67% of
returns and almost 83% of payments
were done online. Our mobile app that
lets small businesses do GST on the go,
developed through crowd-sourcing and
research, is hugely popular.
Going digital gives customers increased
certainty. But if they need to call us were
answering more calls and answering
them faster: 75% of our 3.24 million
calls received last year were answered
in less than two minutes. Voice ID, with
1.5 million customers registered, and
automatic call-back makes the process
even smoother.
These changes and more contribute to
Better Public Services, making it simpler
and more seamless for New Zealanders
to deal with Government. Were working
with many other agencies on a range
of projects from sharing information
that supports customers to joint service
delivery. Businesses are noticing the
difference: a recent survey reported a 23%
reduction in the effort of dealing with
Inland Revenue.
Getting it right
Our new Compliance Model helps us
understand customers better and tailor
our approaches to respond to different
customer behaviours and needs. We want
to help people get it right from the start,
make tax simpler and more certain, and
help more people avoid debt.
For the first time in five years, Inland
Revenues overdue debt total has reduced.
Weve done this by contacting businesses
and individuals upfront to prevent them
getting into debt, following up fast with
effective arrangements to manage any
debts, and recognising that some debt
costs more than its worth to collect.
The vast majority of student loan debt is
owed by borrowers now living overseas,
and much child support debt is owed by
liable parents living in Australia. Weve
used innovative campaigns to successfully
reach these customers and recover debt.
Our student loan campaign was a gold-
medal winner in communications awards.
We also reduced overdue tax returns
by 21.5% last year, finalising 1.45 million
overdue returns and reducing the number
outstanding to the lowest level in five years.
We also take further action to ensure
everyone pays the tax they should.
During the year we tackled the hidden
economy, property tax compliance and
aggressive tax planning, with an excellent
rate of return on each. We also had some
outstanding wins in the courts.
Reforming child support
A significant project during the year
was changing the child support system
to better reflect how families live since
child support was introduced in 1992.
After earlier public consultation, the first
changes took effect on 1 April 2015, with
the second stage to come in April 2016.
In preparation we contacted thousands of
parents who pay or receive child support
to make sure they understood the changes
and were well-prepared for their impacts.
We used social media and texts as well as
more traditional channels. 68,000 visitors
used our online calculator to work out
how changes could affect them.
Future Inland Revenue Business Transformation
Implementing our Business Transformation programme is one of our three strategic
priorities for 201418. Im excited to see preparation for changes that will create a
modern tax administration by 2023, now coming to fruition.
Its critical we have the right people helping us develop and implement transformation.
After an intensive selection process we appointed Accenture and Fast Enterprises, along
with several New Zealand-based supporting companies, to work alongside us. We also
completed high-level design for all four transformation stages taking place over the next
eight to 10 years and started detailed design of the first stage expected to start next year.
Were involving stakeholders across all areas, with four advisory panels providing a wide
range of advice and opinions. Quality assurance reviews from external organisations who
make sure were spending taxpayers funds wisely, have all been positive.
We asked New Zealanders for their thoughts on the tax system of the future through two
significant Government consultations during the year. These received great engagement
from the public and tax community, with more than 900 comments online and over 90
written submissions.

Conclusion
Its a privilege to be Commissioner of Inland Revenue. Alongside great customer service
delivered every day this organisation provides advice to Government on tax and social
policy; and contributes to solving international tax issues.
This year we helped make New Zealand an even better place to live and work in many
ways - including collecting $59.7 billion of tax revenue that helps fund services to benefit
all New Zealanders.
Im proud of our people who are committed to making a difference in peoples lives and
adding value every day. As we look forward to next years challenges I am confident
Inland Revenue has the people, skills and innovation to meet the future.

Naomi Ferguson
Commissioner of Inland Revenue

ANNUAL REPORT 2015 3

Highlights

WE COLLECTED WE TRANSFERRED

$59.7
BILLION OF TAX REVENUE FOR
$4.8
BILLION OF KIWISAVER
THE GOVERNMENT CONTRIBUTIONS TO PROVIDERS

WE PAID
KIWISAVER MEMBERSHIP

$3.4
REACHED

$ BILLION IN WORKING FOR

FAMILIES TAX CREDITS,
2.5
KIWISAVER, PAID PARENTAL LEAVE MILLION
PAYMENTS AND PAYROLL SUBSIDY

WE NOW HAVE BUSINESSES WHOSE MOST RECENT INTERACTION WITH

1.5 MILLION CUSTOMERS GOVERNMENT WAS WITH INLAND REVENUE REPORTED A
REGISTERED WITH VOICE ID

MOBILE APPLICATION LAUNCHED FOR

APPLE PRODUCTS SMALL TO MEDIUM
ENTERPRISES CAN NOW MANAGE THEIR
23 %
REDUCTION IN EFFORT OF DEALING WITH US,
GST ON THEIR SMARTPHONES IN THE LATEST BUSINESS REFERENCE GROUP SURVEY

OVERDUE DEBT CASES

THIS IS THE FIRST TIME IN
HAVE DECREASED BY

five years
16 (67,000)
% THAT WE HAVE BEEN ABLE TO
REDUCE THE TOTAL AMOUNT OF
OVERDUE DEBT

4 ANNUAL REPORT 2015

 INLAND REVENUE IS THE
FIRST AGENCY TO REACH EECA LOOKED AT OUR ENERGY USAGE AND
HOW WELL WE DEMONSTRATE CORPORATE

five stars COMMITMENT, TARGETS AND PERFORMANCE

INDICATORS, PLANS, AND ACCOUNTABILITY
TO ENERGY MANAGEMENT. OUR FIVE STAR
IN THE ENERGY EFFICIENCY RATING IS AN IMPROVEMENT FROM OUR FOUR
AND CONSERVATION STAR RATING IN NOVEMBER 2013.
AUTHORITY (EECA) ONE2FIVE
ENERGY MANAGEMENT RATING

CONTINUED INCREASE IN
CUSTOMERS USE OF DIGITAL
SERVICES. WE RECEIVED

$ 82.5 %
OF PAYMENTS ELECTRONICALLY
67.4 %
COMPARED TO 74.2% LAST YEAR OF RETURNS ELECTRONICALLY,
UP FROM 59.8% LAST YEAR

OUR BUSINESS TRANSFORMATION WE ACHIEVED

PROGRAMME ACHIEVED

91
ALL ITS MILESTONES AND
WAS UNDER BUDGET
%
CHILD SUPPORT REFORMS PHASE OF OUR SERVICE PERFORMANCE
ONE COMPLETED AND IMPLEMENTED TARGETS COMPARED TO 85%
SUCCESSFULLY LAST YEAR

SIGNIFICANTLY CONTRIBUTED TO THE GOVERNMENTS

RESULT 10 TARGET OF AN AVERAGE OF 70% OF NEW
ZEALANDERS MOST COMMON TRANSACTIONS WITH
GOVERNMENT WILL BE COMPLETED IN A DIGITAL
Tax
return 88 %
OF INDIVIDUALS FILING
ENVIRONMENT WITH THEIR TAX RETURNS
ELECTRONICALLY AND JUST OVER
81% PAYING INDIVIDUAL TAX
ELECTRONICALLY

ANNUAL REPORT 2015 5

6 ANNUAL REPORT 2015
 01
About
Inland Revenue

ANNUAL REPORT 2015 7

About us
Outcomes Why paying tax matters
Inland Revenue contributes to the In 201415, Inland Revenue collected $59.7 billion in tax revenue, which is around 80% of the
economic and social wellbeing of New money government uses to pay for services that all New Zealanders benefit from, including
Zealand by collecting and distributing healthcare, education and policing.
money. New Zealanders pay tax to and may In 201415 the Crown expected to spend the following:
get money from the Government. We are
accountable to the Minister of Revenue. Where taxes go Total Crown expenses $73,107 million*
Inland Revenues success is reflected in two
Forecast 2015 $million
outcomes:
Social security and welfare 23,954
Revenue is available to fund government
Health 15,065
programmes through people meeting
Education 12,827
payment obligations of their own accord.
Core government services 4,816
People receive payments they are entitled Finance costs 3,883
to, enabling them to participate in society. Law and order 3,486

Transport and communications 2,217

Strategic intentions
Economic and industrial services 2,215
Our strategic intentions set out in our Defence 1,984
Statement of Intent 201418 are to: Heritage, culture and recreation 770

Deliver and improve our core business Primary services 700

Contribute to the Governments priorities Other 543

Environmental protection 510

Implement our transformation change
GSF pension expenses 395
agenda.
Housing and community development 326
We are working on these three areas to
ensure that we deliver for our customers
* includes $291 million for forecasted new operating spending and ($875) million top down expense adjustment which are not included in graph
today and transform for tomorrow.

Our tax system Scope of operations We also manage or share the

In the tax year ended March 20141: administration of:
An effective tax and social policy system
comprises good policy settings plus good Individualsabout 1.08 million Working for Families Tax
administration. A well-functioning tax system individuals filed annual tax returns Creditswe distributed, with the
supports a more competitive and productive Ministry of Social Development,
economy and helps the Government achieve
Employersabout 196,000 $2.4 billion in entitlements to
its fiscal, economic and social objectives. employers filed almost 2.1 million support working families.
employer monthly schedules with
Most of New Zealands tax revenue is from
PAYE deductions for employees
Child supportwe collected
three main sources: $463 million from 174,000 liable
Companies392,000 company parents who pay child support
Personal income
tax returns were filed and distributed $265 million to
Company income
GST filers631,000 registered parents who are main carers of
GST. children. The balance is collected
customers filed 3.0 million GST
These three main tax types have broad returns. for the Government as an off-set
bases, allowing substantial amounts of tax for custodial families supported
to be collected at modest tax rates. through the benefit system.

8 ANNUAL REPORT 2015


Executive Leadership Team
From left to right:
Greg James, Deputy Commissioner Change
Giles Southwell, Chief Financial Officer
Mary Craig, Deputy Commissioner Corporate
Integrity & Assurance
KiwiSaverwe administer the
scheme by collecting contributions
and transferring them to scheme
providers for investment. At
30 June 2015 there were 2.5 million
people enrolled in KiwiSaver. We
distributed $4.8 billion to scheme
providers.
Student loanswe jointly
administer this programme with
the Ministries of Education and
Social Development (StudyLink).
We had 728,000 student loan
borrowers and collected $1.1 billion
in repayments.
Mike Cunnington, Deputy Commissioner
Information, Intelligence & Communications
Naomi Ferguson, Commissioner
Martin Smith, Chief Tax Counsel
Jeanie Truell, Chief People Officer
Paid parental leavewe make
payments, for the Ministry
of Business, Innovation and
Employment, to parents who
take leave from their job or
business to care for a baby. We
made $180 million in payments
to 27,500 parents.
01
Arlene White, Deputy Commissioner Service Delivery
Myles Ward, Chief Technology Officer
Struan Little, Deputy Commissioner Policy & Strategy
Our operating budget
Our operating expenditure for the
201415 year was $704.2 million, an
increase of $3.7 million over the prior
year. Expenditure for 201516 is
forecast to be $764.9 million, an increase
of $60.7 million. Most of the forecast
increase relates to expenditure on our
Business Transformation programme.
1
2015 figures not available
ANNUAL REPORT 2015 9
10 ANNUAL REPORT 2015
 02
Delivering and
improving our
core business

ANNUAL REPORT 2015 11

We aim to make it easy for our customers to manage their own tax and
social policy obligations and entitlements by providing information,
assistance and tools so they can do it themselves.

Digital services
We are enabling our customers to
do more online. It is part of our
strategy to save our customers and
Inland Revenue time and money.
Completing their tax and social
policy obligations online also helps
customers get it right the first
time and means we do not have
to contact customers to check the
information provided is accurate.
Over the past year the number of
people who have started to file
online and use our online tools
has increased. The number of
returns we received electronically
increased by 8.3 percentage points
since last year compared to a 4.4
percentage point increase the
previous year.
Customers are able to register for a myIR
account to manage their own tax and
social policy affairs. To make things easier
for our customers, we have updated myIR
and introduced more online documents
to provide access to statements, notices
and letters electronically. We made
eDocuments available to customers in
April 2015. This fits with the objectives of
the Governments Better Public Services
Result 9 and 10 goals covered on page 27.
Customers expect to be able to interact
with us using all their digital devices.
In January 2015, we launched our new
free mobile application myIR on Apple
products. This enables small to medium
enterprises to manage their GST through
their smartphones.
We recognise that our website is the first
place most people go when they want
Our work to make tax
to find out information so we work hard
to make sure it is the best it can be. We easier to understand on
also publish instructional videos on our our website was recognised
YouTube channel InlandRevenueNZ. We again. In December,
are continually improving our website
ird.govt.nz won the ESET
and YouTube information to make sure
customers are able to find the information NetGuide best Government
they need. One of the improvements website award for the eighth
we made was to add transcripts of our
time in nine years.
introductory videos written in Korean
and traditional and simplified Chinese
to reflect the changing needs of our
customers. These are in addition to
information in English, Mori and New
Zealand Sign Language already available.
Another example of improvements we
have made to our website is the employer
superannuation contribution tax (ESCT)
tool. Customers told us that ESCT was
hard to understand so we created an
educational tool in July 2014 to help
employers. The tool explained what ESCT
was and how to calculate, file and pay ESCT.
This has been used over 163,000 times.

12 ANNUAL REPORT 2015

 02

Phone calls
COVERAGE 201415 ACTUAL OUR TARGET
Minimum percentage of attempted
calls that we answer
96.5% 75%
TIME
At the end of June 2015,
Minimum percentage of telephone
calls answered within two minutes
75% 75% 1.5 million people were
We aim to make sure our customers can get the answers to all their questions online.
registered for Voice ID.
However, if customers cannot find the answer they need online then most will call us. Inland Revenue has one of
When people do call, we are answering more phone calls and answering them faster. the worlds highest rates
We answered 3.24 million calls this year, which was 96.5% of calls received. Overall the of enrolment for voice
number of calls we answered was similar to last year but our contact centres received 4%
recognition services.
(141,000) fewer calls this year than last year.
Reducing the time it takes for us to answer customers telephone calls improves their
experience and satisfaction. This is why we aim to answer calls as quickly as possible. We
answered 75% of our customers calls within two minutes.
We managed our calls more effectively by directing calls to staff with the best skills to help
and by offering our customers call-back options including the opportunity to book a time
for us to call them back when they are free. We have also reduced the number of phone
calls that are related to follow-up contact by improving how quickly we get back to people.
We introduced Voice ID in November 2011 as a way to recognise people and remove the
need for us to ask questions to confirm that we are talking to the right people. This saves
the customer time and enables us to answer calls faster. People register with Voice ID
once then use the system each time they call.

Tax agents
Some of our customers choose not to manage their own taxes, but instead use tax
agents. Tax agents are a key customer group for us. A tax agent is a person who prepares
the returns of income required to be filed for 10 or more taxpayers.
We have been working with tax agents to continue to make things easier.
An example of the changes we made to help tax agents was creating new correspondence
guidelines for any requests they send to us. These explain what information needs to be
provided so the request can be considered or the return processed as quickly as possible.
We also updated the Tips for Faster Processing page on the tax agent section of our
website to improve accuracy and reduce common errors when they are filing returns.
Tax agents also told us that linking Inland Revenue client information with their systems
was an issue. In March 2015 we made changes to myIR where tax agents link and delink
clients and they can now do this easily for new customers or if a customer chooses to no
longer use a tax agent.
Tax agents overall satisfaction with us showed statistically significant improvement from 89%
satisfied and 69% very satisfied in 201314 to 92% satisfied and 78% very satisfied this year.

ANNUAL REPORT 2015 13

Returns
GST
return
Returns are the way in which customers give us their tax information for the year. We aim
to be more proactive by letting customers know their returns are due before issues arise.
This proactive approach is working.
The number of outstanding returns was down 21.5% at the end of June 2015, to reach the
lowest number in the last five years. This reflects an ongoing reduction and we had about
Predictive modelling helps us change
234,000 fewer returns outstanding at 30 June 2015 than at 1 July 2014.
customer behaviour before issues arise
We are encouraging as many customers as possible to use our online channels to file
their returns.
Our work on the probability
YEAR % GST RETURNS RECEIVED % OF GST CUSTOMERS FILING
of GST returns being filed
ELECTRONICALLY ELECTRONICALLY shows we can reliably
30 June 2013 47.6% 44.9% predict customers who are
30 June 2014 54.9% 50.6% highly unlikely to file GST
30 June 2015 64.0% 62.5%
returns on time. We have
changed our processes
based on our findings.
Electronic returns by tax type
201213 201314 201415 This has already resulted in
a reduction of more than
INCOME TAX 84.1% 86.9% 88.8%
98,000 outstanding GST
GST 47.6% 54.9% 64.0% returns during the past year.
EMPLOYER MONTHLY SCHEDULES 41.3% 49.6% 60.0% In the future, we will be able
to take a more proactive
Making payments approach for these
customers and contact
Our proactive approach of letting people know their obligations before their payments
are due is also supported by Budget 2012 and 2014 funded projects which improved our them before any potential
predictive modelling capability. These projects looked at how we can identify patterns of GST filing issues arise.
compliance and engage with customers before issues arise.
When customers need to make payments, we are making it easier for them to pay

$
electronically. This also makes it easier for us to process payments faster.
To help our customers know all the ways they can pay electronically, we developed a
45-second video on the Make a payment page of our website. We have also made the
payment page responsive and easy to use on mobile devices. Around 20% of customers
visit our payment page using a mobile device.
We removed the option for cheque payments at Westpac. Now that Westpac only receives cash We had 82.5% of payments
or EFTPOS payments, we have seen a large reduction in exceptions. Exceptions are payments
that cannot be processed or that are missing information like IRD numbers. In December 2014,
made electronically
we had 21 payments which could not be processed. These exceptions were worth $10,000. compared to 74.2% in
This compares with 5,400 exceptions worth $56 million in December 2013. During January and 201314 and 70% in 201213.
February 2015 we had one exception each month and by March we had no exceptions.
For customers who want to pay over the counter at Westpac, we introduced barcodes on
payment slips in June 2015. The barcode aims to reduce time and errors for these transactions.

14 ANNUAL REPORT 2015


Social policy programmes
We have an important role
in administering social policy
programmes, often in conjunction
with other government agencies.
During the year we made changes
to our child support, paid parental
leave, and KiwiSaver systems to
implement Government policy
changes.
Child support changes
Inland Revenue collects and distributes
child support payments for about 200,000
children whose parents do not live together.
The Government recognised that things
have changed for families since child
support was first introduced in 1992.
After significant public consultation,
extensive changes were made to the
scheme to better reflect family life today.
These changes come into effect in two
stages on 1 April 2015 and 1 April 2016.
The first stage went live on 1 April 2015
and changed the way child support was
calculated. The calculation moved from
focusing on the liable parents income to
the cost of ongoing care of the child by:
taking into account the cost of raising
children
taking into account the income of
both parents
recognising lower levels of shared and
regular care provided for each child.
To ensure the liable and receiving parents
knew how the changes would affect them,
we contacted them via either mail, phone,
text messaging or email to ensure we
had the correct information about their
situation and to help them understand
the changes.
As part of the changes we developed two
new calculators and made them available
on our website to help parents work out
how the changes would affect them.
Since going live in September 2014, the
02
calculators have had 68,000 visits.
We used social media as a new way One of our outcomes is
to improve engagement with some of
to ensure people receive
our child support customers and also
contacted parents through our normal payments they are entitled
communication channels. We undertook to, enabling them to
our first question and answer session participate in society.
on Facebook on the privately-run Child
Support NZ Facebook page. During the
session we had 139 participants in a
one-hour discussion, received over 200
questions and had over 680 comments
made. We also had over 10,000 views of
the Facebook page during the session.
An additional change we made is that
parents who received child support
In the 201415 financial
payments from more than one liable parent
can now see who made the payment. year we collected $463
million from 174,000 liable
Changes to paid parental leave parents and distributed
We make paid parental leave payments for $265 million to receiving
the Ministry of Business, Innovation and
caregivers. This is an
Employment (MBIE), to parents who take
leave from their job or business to care for increase of 3% in payment
a baby. We are responsible for ensuring collection.
people receive their correct entitlements.
On 1 April 2015 paid parental leave was
extended from 14 to 16 weeks. From
1 April 2016 this will be extended to
18 weeks. Also from 1 April 2015, the
parental tax credit increased from $150 to
$220 a week and the payment period was
extended from eight weeks to 10 weeks.
KiwiSaver
Inland Revenue administers members
KiwiSaver contributions through the
PAYE system. We do this by collecting
contributions and transferring them to
scheme providers for investment.
Through Budget 2015, changes were made
to KiwiSaver. The KiwiSaver Budget Measures
Act enacted on 27 May 2015 removed the
KiwiSaver $1,000 kick-start payment to help
contain the cost of the scheme to taxpayers.
Removing the kick-start payment for
ANNUAL REPORT 2015 15
future enrolments will save over $500 million over the next four years.
In March, we got excellent feedback from an Australian research company SuperRatings In April 2015, KiwiSaver
for the role we play in administering KiwiSaver. Their assessment also recognised our role membership hit a significant
is critical in maintaining the efficiency of the system and the overall cost-effectiveness of
milestone of 2.5 million people.
KiwiSaver schemes in comparison to other countries retirement systems.

Improving compliance
I LIT Y
AB
AP
A key aspect of our core business is helping to maximise voluntary C

MO
TI VATI O N
compliance. We assist customers who are willing to meet their
compliance obligations but are unaware or uncertain about how to
OP

CUSTOMER
do so. Influencing voluntary compliance, targeting inadvertent non-
PO

RT
compliance by providing information, assistance and tools, and detecting UNI
TY
and deterring deliberate non-compliance are part of our core activities.

Understanding and influencing customer behaviour

We aim to make it easy for people to understand their obligations and entitlements. In At the core of our new
our Statement of Intent 201418 we said we would redesign our compliance model so it compliance model are the
reflects a more comprehensive range of the factors influencing customer behaviour. three factors that form
We launched our new compliance model in March 2015. The new model places greater
customer behaviour
emphasis on understanding our customers, their lifecycles and perspectives. We want
to give our customers certainty with the least number of interactions. We also want our capability, motivation and
customers to be able to get it right first time. We have worked with customers, tax agents, opportunity.
private providers and other government departments to design solutions that fit tax and
Capability is how well customers can
social policy obligations around customers needs, and we will continue to do this. The
meet their obligations and access their
impacts of changes on customers will also be assessed to ensure we understand how they
entitlements. It includes their knowledge
influence and affect compliance and the customer experience.
of rules that apply to them, their access to
tools and assistance, and their ability to
Dealing with non-compliance
understand.
The majority of our customers file and pay on time, but New Zealanders need to have
Motivation is about the factors that create
confidence that we take action when people or businesses do not pay. This encourages
the willingness to comply and then actually
compliance and maintains confidence in our tax system. We use a range of tools to identify
follow through and do it. Motivation includes
areas of non-compliance and evaluate the most appropriate response, including investigations
both social and personal norms.
of the tax affairs of individuals and businesses. We have focused our efforts on specific areas
of non-compliance such as aggressive tax planning, property and the hidden economy and Opportunity is about how easy it is for a
received further funding in Budget 2015 to expand our investigations activity in these areas. customer to comply or not to comply with
their obligations or access their entitlements.

16 ANNUAL REPORT 2015

 02

If our investigation detects a discrepancy, a difference between the tax position filed by a
taxpayer and the position determined by our investigations, we issue a new assessment and
New Zealand has a voluntary
may charge penalties and interest. This year we identified discrepancies of $1.23 billion. The
overall return on investment for our investigation activity was $7.52:$1 (target $7.00:$1). compliance approach to
tax. This is an environment
dependent on an open,
Aggressive tax planning honest and transparent tax
A small number of people try to avoid paying the tax they should, reduce the amount system where there are high
they should be paying or increase their entitlement to social benefits. They use
inappropriate or unlawful tax structures and this is called aggressive tax planning. We
levels of mutual trust and
match information from different sources to identify potential aggressive tax planning understanding between
structures and schemes. customers and the revenue
Our work to counter aggressive tax planning contributed $336.9 million toward the total agency.
discrepancies result. Of this, $191.1 million came from examining complex finance and trust
losses. This produced a return on investment of $34.10:$1 (target $11.60:$1). We resolved the
last optional convertible notes cases after the settlement with Alesco New Zealand in 2014.
This contributed $64.3 million to this years discrepancies. This year we have worked on cases

OUR NEW COMPLIANCE MODEL > A thinking tool to help us understand customers better so we can
work pro-actively and tailor approaches to make compliance easier.

EDUCATE

> Customer centred: Customers are at

the centre of our thinking surrounded by
DE context that affects their behaviour.
Build compliance
SI G
N

right from the start

> Behaviour wheel: we consider
E
RC
FO

the three factors that form customer

EN

I LIT Y behaviour so we can tailor our

AB approaches to facilitate compliance.
AP
C

MO

Understand Make it easy

and involve the to comply > Principles wheel: five key principles
TI VATI O N

customer and and difficult guide how we work with customers to

LEGISLATE

stakeholders not to build compliance. We apply a mix of

these in different ways, depending on our
role and the customers we work with.
OP

CUSTOMER
PO
ICE

RT
V

UNI
SER

TY > Activity wheel: whatever our job in

OUR MODEL FOR IR, we have a role in making sure people
pay the taxes and get the entitlements
facilitating Influence
norms
Provide
certainty
they should. We use different activities
to facilitate compliance depending on

compliance
CO our customers.
LA L
BO
E R AT
LYS E
ANA

The movable wheels show we use a range of approaches that change

depending on our customers. The more we understand customer
needs and behaviours, the better we can tailor our actions so people
pay the taxes and get the entitlements they should.

ANNUAL REPORT 2015 17

involving the use of mandatory convertible notes, which led to discrepancies of $91.8 million.
Since we received multi-year funding to work on aggressive tax planning in Budget 2012,
we have assessed revenue of $811.1 million. We will use Budget 2015 funding to continue
addressing emerging risks such as high-income individuals, in particular high-income new
immigrants.

Non-compliance in the property sector We list notes of decisions

We have continued to focus on identifying property speculation, particularly in Auckland made by the Taxation Review
and Christchurch. This focus includes examining residential property sales and new
Authority, the High Court,
developments to ensure that speculators and developers are paying the correct amount
of tax. We have found discrepancies during the year of $67.1 million. The return on
Court of Appeal, Privy Council
investment was $9.97:$1 (target $6.80:$1). and the Supreme Court on our
To help clarify the tax position we delivered presentations to different industry groups website at www.ird.govt.nz/
on this topic. We aim to educate people about how to deal with GST on a property technical-tax/case-notes.
and property investment. We will use funding from Budget 2015 to expand customer
education and increase our focus on this sector.

Hidden economy
People operate in the hidden economy by intentionally not declaring or accurately
reporting transactions. We focused on higher-risk sectors such as hospitality and
construction. We identified discrepancies of $146 million in the hidden economy. Of
this, $45 million (target $44 million) came from Budget 2010-funded work, a return on
investment of $5.21:$1 (target $5.00:$1). As a last resort we prosecute to recover funds
from taxpayers operating in the hidden economy.
In May and June 2015, we ran an advertising campaign to remind tradespeople to
declare all of their income. The campaign ran in four suburbs in Auckland and included
billboards and posters at construction sites, and advertisements online, on radio, and in
trade publications. The reaction was fast, with tax agents reporting a large number of
calls from people looking to add cash jobs to the information they had submitted to us.

A post-campaign survey with tradies

showed strong unprompted awareness
(42% aware of the campaign) and 65%
awareness after prompting. Of these
tradies, 33% discussed the topic with others
and the main messages recalled were,
Declare it all (32%) and Inland Revenue
will catch those doing cash jobs (25%).
We also saw good public interest after the
media picked up on our activities.

18 ANNUAL REPORT 2015

 02

Clarifying tax law in cases where there are different

interpretations
When interpretation of the law is not clear we provide certainty by providing binding
rulings on specific transactions, public rulings and statements and disputes reviews.
However in some cases we may need to clarify tax law by taking cases to court. The
court will decide on the correct interpretation and create a precedent.
In June 2015, our appeal to the Court of Appeal against Trustpower was successful.
Trustpower had claimed tax deductions on the costs of getting resource consents for
new power generation projects, arguing that these costs were revenue expenses.
We believed these were capital costs and therefore not deductible. In 2013 the High
Court agreed with Trustpower and we appealed this judgement. The Court of Appeal
found that Trustpowers spending on resource consents was capital expenditure and
that Trustpower was not entitled to the deductions it had claimed.
Trustpower has been granted leave to appeal. Clarifying this question will help us and
our customers have certainty over how these expenses should be dealt with.

Litigation against non-compliance

Over a decade of litigation came closer to conclusion in April 2015 when the High Court
struck out the remaining 77 Trinity tax challenges. This case, a significant tax avoidance
scheme, has been subject to a large number of court proceedings since the Supreme
Court found in Inland Revenues favour in the 2008 Ben Nevis case.

Prosecutions
We completed 67 prosecutions for tax evasion or knowledge offences. This compares with
74 last year. The decrease was related to the timing of cases before the courts. At 30 June
2015, 79 such cases were pending. There were 89 cases pending at the same time last year.

Tax law is complicated. We We provide public rulings,

need to interpret and apply
the law correctly and give our
customers certainty on areas
of tax law.
So we have teams of legal experts spread
across Inland Revenue whose research
and consultation provide us and our
customers with reliable technical advice.
interpretation statements and
interpretation guidelines, which clarify
difficult areas of tax law, give our
customers certainty and help them
comply. We also research and analyse
technical tax issues that come from
private or product ruling applications.
www.ird.govt.nz/technical-tax

ANNUAL REPORT 2015 19

Managing debt
We want people to pay on time to prevent them getting into debt. Our
debt strategy sets out our long-term goals for debt, which are:
minimise what becomes debt
maximise what is collected
deal appropriately with what cannot be collected.
At the end of 201415 our total debt2 was almost $6.1 billion, a decrease of This is the first time in five
2.5% ($154 million) from the previous year. years that we have been able
Total tax debt was almost $5.2 billion, a decrease of 5.8% ($318 million) since to reduce the total amount
the same time last year and has returned to the same level it was in 2011. of overdue debt. The total
number of overdue debt
Size of overdue debt excluding child support (billion) as at 30 June cases has also decreased by
2010 2011 2012 2013 2014 2015 16% (67,000).
Tax debt $4.826 $5.110 $5.404 $5.342 $5.471 $5.153

Student loan debt $0.325 $0.412 $0.512 $0.636 $0.769 $0.933

Total debt $5.151 $5.522 $5.916 $5.978 $6.240 $6.086

Penalties and interest $2.150 $2.359 $2.711 $2.863 $2.999 $2.937

included

Minimising what becomes debt

We contact customers by text, email and letters to remind them that they need to pay
before the key payment dates. We do this to help customers file and pay on time. This
stops them from going into debt and being charged penalties and interest that can
rapidly get out of control. We have taken action quickly when customers go into debt
and have used specific government funding received to target newer debt.

Maximise what is collected

We collected $4.7 billion cash from debt cases over the year. This is compared to
$4.1 billion the previous year, an increase of 14.3%.
We quickly followed up those who did not pay on time. This cleared debts sooner, leading
to 81.7% of new debt cases being closed within six months of opening.
Our work on high-value and older cases is also generating significant cash payments. We
specifically focused on cases over five years old, large dollar-value cases that were over
$1 million and audit-assessed debt. In the 201415 year we collected $536 million from
these cases, which was a 37.1% increase on the cash collected from similar cases last year.
At the end of 201415, the total value of penalties and interest charged on the overdue
debt was $2.9 billion, a reduction of 2.1% compared to last year.

2
All debt figures up to the child support section on page 21,
exclude child support debt

20 ANNUAL REPORT 2015

 02

Deal appropriately with what cannot be collected

New Zealanders expect us to take action against those that do not pay their fair share of
tax. In the most severe cases we will take legal action against people who refuse to pay
their debt. It is rare, but we can ask for people to be arrested if they refuse to pay.
Where necessary we have made decisions over the year to write off debt that would cost
more to collect than the cost of the debt.

Child support debt

Size of overdue child support debt (billion) as at 30 June

2010 2011 2012 2013 2014 2015
Debt value $1.990 $2.335 $2.452 $2.781 $3.047 $3.276

Penalties included $1.430 $1.743 $1.818 $2.109 $2.372 $2.605

Child support debt is $3.3 billion, 79% ($2.6 billion) of which is penalties.
Of the total child support debt, around $827 million is owed by liable parents living in
Australia, and is mostly in the form of penalties. In accordance with our agreement with
the Australian Department of Human Services they collected $50.2 million from these
parents on our behalf. A further $778 million is owed by those living in other parts of the
world. The remaining $1,671 million debt is owed by liable parents living in New Zealand.
For child support, over the last year there were 56 cases where the lack of action by the liable
parent justified Inland Revenue to seek an arrest warrant. We have only been required to execute
one arrest warrant. All other cases were able to be resolved by simply having the possibility of a
warrant being executed. The total debt relating to the 56 cases amounted to $11.7 million.
Budget 2014 provided us with additional funding to help improve child support compliance.
We are beginning to see positive outcomes from our activities in this area, including more
debt cases being closed within 12 months of opening and a reduction in the total number of
debtors at the end of the year. Early work has included an education campaign to new child
support customers on their obligations, particularly taking into account the child support
reform changes, ensuring they understand their obligations to help them get it right from the
start. This initiative aims to progressively increase the amount of debt repaid over a five-year
period with early work resulting in an extra $1.5 million recovered from liable parents.

ANNUAL REPORT 2015 21

Student loan debt
In June, our innovative
Size of student loan debt (billion) as at 30 June
approach to encourage
2010 2011 2012 2013 2014 2015
overseas-based borrowers
$0.325 $0.412 $0.512 $0.636 $0.769 $0.933
to get in touch with us and
We jointly administer student loans with the Ministry of Education and Ministry of Social to pay their student loans
Development (MSD), through StudyLink. was recognised. We won
As at 30 June 2015, we had 108,300 borrowers with an overdue repayment, a reduction of
five gold medals at the
1.3% compared to 30 June 2014. Of these, 75% were overseas-based borrowers. The total
overdue amount was $933 million, of which 90.5% was owed by overseas-based borrowers. Communications Agencies
Overseas-based borrowers continued to be our focus for the year since they make up such a Association New Zealand
large percentage of student loan debt. Beacon Awards.
In November 2010 we began a specific programme of work targeting overseas-based Gold: Best Use of Insight
borrowers who were not meeting their obligations. Cash collected in 201415 was $78.6
million, an increase of 47% on the previous year. Since this programme began, we have Gold: Best Communication Strategy
collected an extra $200 million from overseas-based borrowers.
This year we introduced a direct debit option in Australia to continue providing overseas- Gold: Most Effective
based borrowers easy payment channels to help encourage them to pay their debt. We
received $39 million of payments through these fee-free payment channels. Gold: Best Use of Digital
Our approach to reminding people about payment dates is also used for student loans.
Gold: Social Marketing/Public
In March we sent 53,000 email reminders to overseas-based student loan borrowers to
Service.
remind them of their payment obligation on 31 March. We had 7,000 responses to the
email and we sent reminder emails to people we had not heard from or who did not pay For the campaign which we called
their loan obligation. We had around 5,300 phone calls from overseas-based student loan Finding the unfindable we made a
borrowers in March almost twice as many as March last year. change to our assumptions on how
to find overseas-based borrowers. We
previously targeted borrowers based
on the locations of overseas-based
borrowers that we knew about. The new
approach:
advertised to a fairly broad profile
through Facebook and LinkedIn
continually refined the profile to
find more similar people as people
responded to those adverts
used that profile to target media and
advertising beyond Facebook and
LinkedIn.

22 ANNUAL REPORT 2015

 03
Contributing to
the Governments
priorities

ANNUAL REPORT 2015 23

We have a responsibility These are to:
responsibly manage the Governments
as a government agency
finances
to contribute to the build a more competitive and
Governments priorities. productive economy
deliver Better Public Services within
tight fiscal constraints
rebuild Canterbury.
We participate in a range of all-of-
government activities, collaborate with
other agencies to reduce costs, improve
efficiency and effectiveness.
Along with the Governments priorities,
we also continued to work on the
Governments tax policy work programme
which was updated and released by the
Minister of Revenue on 13 March 2015. This
programme focused on three main areas:
Business Transformation and Better
Public Services
International tax reform and
contributing to international efforts
to counter base erosion and profit
shifting (BEPS)
Continuing improvement and
enhancements to tax and social
policy settings to keep the tax system
well maintained.

Responsibly manage the

Governments finances
Inland Revenue collected $59.7 billion tax revenue and transferred $4.8
billion of KiwiSaver contributions to providers. Total payments for the
year ended 30 June 2015 for social policy entitlements were $3.4 billion.
Social policy entitlements include Working for Families Tax Credits,
KiwiSaver, Paid Parental Leave Payments and Payroll Subsidy. We also
managed a departmental budget of $727 million.
Full finance details are covered in parts eight and nine.

24 ANNUAL REPORT 2015

 03

Build a more competitive

and productive economy
Inland Revenue contributed to building a more productive economy
through legislation changes. These changes are designed to ensure New
Zealand is an attractive place to do business. We also want to strengthen
tax rules to ensure overseas companies pay their fair share of tax in New
Zealand. The Governments tax policy work programme focuses on
improving tax and social policy settings and participating in the global
response to the problem of tax base erosion and profit shifting.

Our work to enhance tax and Legislation

social policy settings
An important part of our approach to
the development and review of tax policy
is public consultation. This provides
transparency of our policy-making process
and allows us to listen and respond to New
Zealanders, tax professionals and associations.
During the year we asked for public
feedback on:
an officials issues paper, Related parties
debt remission, released on 24 February
2015. This asked for feedback on
proposed changes to make the tax rules
on this more certain and fairer.
a discussion document, Simplifying
the tax collection for employee
share schemes, released in April
2015. Public feedback helped
shape proposals introduced in the
Taxation (Transformation: First Phase
Simplification and Other Measures)
Bill in June 2015, which will allow
employers to choose to withhold tax
on an employees behalf as part of their
PAYE return.
detailed design proposals for the new
bright-line test announced in Budget
2015 released on 29 June 2015. The
proposal clarifies whether or not gains
on the sale of residential property
bought and sold within two years
are taxable. Feedback helped shape
legislation planned for introduction in
September 2015.
To improve the economic environment
for businesses and New Zealanders we
provided policy analysis and options to
the Government to change legislation. We
focused on three main bills during the year.
The Taxation (Annual Rates for 201516,
Research and Development, and Remedial
Matters) Bill introduced on 26 February
2015 contains proposals to reflect the
Governments Business Growth Agenda
emphasising the importance of innovation
to help grow New Zealands economy. The
bill removes some distortions relating to
Research and Development to encourage
businesses to invest in these activities. It also
clarified the GST rules for bodies corporate.
The KiwiSaver HomeStart Bill enacted
on 31 March 2015 implemented part
of the Governments support package
for first home buyers, allowing eligible
KiwiSaver members to access more of
their KiwiSaver funds to purchase their
first home. It also clarified and corrected
the tax rules for payments made under
the Veterans Support Act 2014.
New rules to strengthen the property
tax rules were introduced in the Taxation
(Land Information and Offshore Persons
Information) Bill on 22 June 2015. The
proposed rules will require domestic and
overseas buyers and sellers of property to
provide their IRD number at the time of
the property transfer and the equivalent
tax identification number for people
resident in another country.

ANNUAL REPORT 2015 25

Overseas residents will have to provide
a New Zealand bank account number
to obtain an IRD number for properties
bought on or after 1 October 2015. The IRD
number requirement will not apply to New
Zealand individuals buying or selling their
main home, unless they are selling their
third main home in a two-year period.
International tax reforms and
base erosion and profit shifting
As outlined in our Statement of Intent
201418 we are participating in the
Organisation for Economic Co-operation
and Development (OECD) led response
to the global problem of base erosion
and profit shifting, where multinational
organisations take advantage of the
interaction between the tax rules of
different countries to pay little or no tax. We
continue to work on projects to strengthen
domestic rules on international tax.
We continued to work with the OECD
and the G20 forum of countries on
implementing an Automatic Exchange of
Financial Account Information, a global
automatic exchange of information to
counter tax evasion.
Over the year we worked on the taxation
of cross-border purchasing of services and
intangibles, low-value goods and digital
downloads. This work aligns with the
OECDs draft guidelines to develop rules
to tax consumption fairly.
On 1 January 2015 the Convention on
Mutual Administrative Assistance in Tax
Matters came into effect for New Zealand.
This lets us seek assistance from other tax
authorities to discover evasion and pursue
tax debt overseas.
26 ANNUAL REPORT 2015
An issues paper, NRWT: Related party and
branch lending, which explores options to
clarify the non-resident withholding rules
to help ensure that non-resident investors
pay an appropriate amount of tax, was
released in May 2015.
Our tax treaty negotiations with other
We are making good progress
jurisdictions continued, with China
completed in July 2014, Korea in April
in working with significant
2015 and Norway in June 2015. enterprises and multinational
A new tax treaty between New Zealand
companies operating in New
and Canada came into force in June 2015, Zealand and across different
replacing the 1980 treaty with a more countries to identify and address
modern agreement. potential risk before non-
compliance occurs. Our work
Foreign Account Tax with these taxpayers can result
Compliance Act in advance pricing agreements
(APAs) which represent a
As outlined in our Statement of Intent
201418, we need to implement legislative more co-operative approach
change to help New Zealands financial to addressing transfer pricing
institutions to meet Foreign Account Tax compliance. We completed 15
Compliance Act (FATCA) obligations. This
APAs this year. This is the best
legislation requires New Zealand financial
mechanism to achieve certainty
institutions to give United States authorities
details of accounts held by American
for multinationals in their
citizens, tax residents and others. international associated-party
In July 2014, New Zealand was granted
dealings as they involve complex
issues such as restructuring
more favourable terms from the United
States Government as part of the FATCA arrangements and intellectual
intergovernmental agreement signed property transfers.
between New Zealand and the United
States. Implementing Inland Revenues
obligations set out in the agreement is on
track. We started collecting information
from New Zealand financial institutions
from April 2015. We will start forwarding
the information to the United States
Governments Internal Revenue Service in
201516.

Deliver Better Public Services
within tight fiscal constraints
We play an important role in
improving services for New
Zealanders and continue to play a
key role in:
the Better Public Services
programme
the delivery of the
Governments ICT Strategy
all-of-government services
other cross-agency initiatives.
Our Business Transformation programme,
outlined in part four, contributes to the
Governments goal of making it easier for
customers to interact with government
and delivering a significant reduction in
the effort of dealing with government.
We are working closely with other
government agencies to deliver the
innovative and effective public services
that government and our customers
expect. We are working to link more
of our customer services with those of
other government agencies to provide
a seamless service. More cross-agency
information sharing will be balanced
against the need to protect customer
privacy and the integrity of the tax system.
In line with Governments ICT Strategy,
we are also using all-of-government
services where they are available
and where they fit with our Business
Transformation programme.
Working with the Ministry of Business,
Innovation and Employment (MBIE) and
other participating agencies, we have
helped to develop the Result 9 roadmap
and worked on key initiatives such as the
New Zealand Business Number (NZBN). We
have also delivered products and services
that support Result 9s intent of improving
interaction with government for businesses
03
including eGST, more digital delivery, a myIR
application, online business videos and
simplified Tools for business web pages.
We have continued to focus on the
digitisation of key processes for individuals
and businesses to make it easier to
interact with government. We contribute
to the Result 10 target of an average of
The Better Public Services
result areas we contribute
70% of New Zealanders most common
transactions with government will be to are:
completed in a digital environment with
over 88% of individuals filing their tax Result 7: Reduce total crime rate
returns electronically and just over 81% Result 9: New Zealand
paying individual tax electronically.
businesses have a one-stop
The Department of Internal Affairs online shop for all government
(DIA) digitised the process for applying
advice and support they need
for an IRD number as part of the birth
to run and grow their business
registration process and this will also
contribute to this target. Result 10: New Zealanders can
We are working with the Ministry of Social complete their transactions
Development (MSD) to understand if with government easily in a
it is possible and practical to share one digital environment.
voice biometric service for customers
interacting with multiple agencies. Initial
results saw 84% of customers saying they
thought sharing one voice identification
service across several government agencies
would be useful, while 51% of customers
surveyed gave consent to their voiceprint
and information being shared with MSD.
We have now completed our first year of
running a shared financial management
information system with DIA. As part of
this service we have successfully provided
accounts receivable, accounts payable and
bank reconciliations for both organisations.
We have refined the system during the year
and are working with DIA on enhancing the
system and processes in the future.
We continue to work with the Property
Management Centre of Expertise (PMCoE)
and to join with other agencies to lease
accommodation, where it makes sense to 3
Hosted by MSD, PMCoE leads and assists agencies in
do so.3 meeting the goals set by Government for the efficient and
effective management of the property owned or leased by 61
government agencies.
ANNUAL REPORT 2015 27
Information sharing
The Government has increasingly
recognised that information is an asset
which, under certain circumstances,
should be shared across government to
support collective outcomes for New
Zealand. We continue to work with
other government agencies to enable
more effective information sharing
between government agencies and with
third parties by helping to simplify the
management and control of agency data.
New Zealanders expect us to responsibly
manage their details and only share
information between agencies when it is
appropriate.
We have Approved Information Sharing
Agreements (AISA) in place with DIA and
New Zealand Police. Reports of sharing that
we have done under these agreements can
be found on pages 154 to 156. Full details
of the agreements are on our website
www.ird.govt.nz/aboutir/agreements.
We contribute to Result 7 through an
AISA with New Zealand Police. This allows
Inland Revenue to share certain personal
information with New Zealand Police for
the purpose of prevention, detection,
investigation or providing evidence of
serious crime. We also participate in the
Whole-of-Government Gangs Action
Plan, a multi-agency approach to reducing
the harm caused by gangs, involving
intelligence gathering and a range of
prevention and enforcement activities.
Over 201415, we have continued to enable
more effective information sharing between
government agencies. This has included:
working on the development of
possible future information sharing
initiatives with MSD and the Accident
Compensation Corporation (ACC)
working with MBIE and Worksafe to
share information for the enforcement
of employment standards as a result of
changes to workplace legislation
28 ANNUAL REPORT 2015
participating in cross-agency forums
such as the privacy reform group,
data futures forums, Government
Chief Information Officer information
management groups, and Government
Chief Privacy Officer leadership forums
and working groups.
Businesses are already
Our sharing arrangements are supported
by our new Information Management
noticing the differences
Strategy. The strategy enables effective we are making. The latest
administration of information and helps results of the business
us to build and manage our intellectual
reference group survey
property. This will improve information
looking at effort of dealing
management capability through collective
ownership of information management with government and
and simplified guidelines supported by fit how government agencies
for purpose IT capability.
compare with the private
Government Information and sector show overall a 16%
Communication Technology reduction in effort with
Strategy dealing with government.
Inland Revenues Information and For businesses whose most
Communication Technology (ICT) strategy recent interaction with
and roadmaps reflect the Government ICT
Strategys focus on using information and
government was with
technology to deliver better services to New Inland Revenue, the survey
Zealanders. By 2017, the aim is to enable showed there was a 23%
individuals and businesses to connect
reduction in effort. The key
with government services through digital
channels, joined-up services and technology reasons businesses listed for
that will function across agencies. the improvement were:
We already use a number of all-of- ease of filing returns led by the
government services. One example is
implementation of online GST
Storage as a Service provided through
filing and increased uptake of
Datacom New Zealand. This approach
means that we no longer have to physically
other online services
manage storage ourselves. By using the ease of contacting Inland
all-of-government data storage service we Revenue, with businesses
have access to more capacity, flexibility and
finding it easy to get through
improved performance at less cost.
to services and dealing with
helpful Inland Revenue staff.
 03

Contributing to other is likely to need on a recurring basis. This

panel is open and allows suppliers to
all-of-government services
register their interest at any time.
We are involved in other all-of-government
Inland Revenue is committed to using
activities. We will continue to work with
collaborative procurement opportunities
other agencies to identify where we could
such as all-of-government, collaborative
adopt new and improved processes and
and syndicated procurement contracts.
services used elsewhere in the public sector.
We have signed up to a number of these
in the past 12 months and are leading the
Procurement
syndicated waste management contract.
We are participating in the Governments
new streamlined procurement rules, which All-of-government banking
have changed the way government does services
business with suppliers by making agencies
The state sectors banking contract with
procurement practices more consistent and
Westpac has been in place for more than
business-friendly. The new rules promote a
20 years. During this time the banking
value for money approach to procurement,
requirements of government have
which means that rather than just getting
changed considerably. We are working
the lowest price, we consider total cost of
with Treasury and MBIE who are leading
ownership and other benefits.
an all-of-government solution to meet
We have a long-term strategy to buy not the Governments current and future
build for our Business Transformation banking needs. This solution will provide
programme. To make it easier for small access to economies of scale, better value
businesses to engage with Inland Revenue, for money, process efficiencies and better
we developed the Business Transformation interaction for financial payments between
Approved Panel in October 2014, which government, business and taxpayers.
covers a number of the professional services
our Business Transformation programme

ANNUAL REPORT 2015 29

Rebuild Canterbury
Providing joined-up
government services in
Christchurch
We continued to work with the Canterbury
Earthquake Recovery Authority (CERA)
and other agencies in various forums to
support the overall reconstruction effort.
This included planning for the Public Sector
Precinct and exploring opportunities to
co-locate 1,600 public servants from 17
agencies in four new CBD locations from
late 2015. We continue to operate and
learn from co-location in the New Zealand
Government site in Durham Street and
work with other agencies to investigate
opportunities for cross-government
collaboration.
Supporting our people in
Canterbury
We provided additional support
and wellbeing initiatives for our own
Christchurch workforce and other
government agencies supporting the
Government sector in Christchurch.
This included chairing the Public Sector
Organisational Resilience Team and
contributing to the Greater Christchurch
Psychosocial Recovery Committee and
work programme.
30 ANNUAL REPORT 2015
Improving compliance in
Canterbury
We have focused on mitigating and
addressing the compliance risks from
the $40 billion rebuild. This included
working alongside funding distributors,
including all major insurance companies Understanding the impact of adverse
events and the characteristics of the
and government, to gain assurance in
rebuild workforce
the integrity of their systems and identify
any areas of risk. We have continued our
compliance focus on identified high-risk Inland Revenue has
sectors, including construction, hospitality sponsored research projects
and property. We have also provided to understand the impact
support to the wider community with
educational activities to help customers
of the earthquakes on
get it right from the start. SMEs in Canterbury and
Inland Revenue research has confirmed the characteristics of
on-time GST filing and payments have the Christchurch rebuild
improved in Canterbury since the low
workforce. The research
point in the 2011 tax year when the
earthquakes occurred. has provided insight into
While the proportion of Canterbury small SME compliance, debt
and medium enterprises (SME) in debt and employment and
spiked at the time of the earthquakes, it has the compliance issues
improved since then, with Canterbury SMEs
making up a smaller proportion of SMEs in
associated with the rebuild
debt nationally than they did in 2011. workforce. The effect of
the rebuild on SME GST
in different industries
and sectors has also been
evaluated. These insights
are now informing our
initiatives in Canterbury.
 04
Business
Transformation

ANNUAL REPORT 2015 31

Business Transformation is a multi-year, multi-stage change programme
that will help us become the modern world-class revenue organisation
that is set out in our vision IR for the future. Over the year we got closer to
realising this vision.
Business Transformation
We are currently managing a range
of tax and social policy products
on an ageing system and business
model. Over the years our role has
expanded from solely collecting tax
in a paper world, to today where
we manage the collection and
payments of tax and a range of other
services like student loans, child
support and KiwiSaver. Adding
these social policy products and
services to 30 year old technology
has resulted in complexity.
Our tax administration needs to catch up
and be fit for 21st century needs.
Technology is rapidly advancing, our
customers lives are busier than ever and
businesses want to spend less time on
compliance. New Zealand is becoming
more diverse and customers want and
expect us to interact with them in a
digital world.
Modernising our systems and processes
will also enable the Government to
implement policy more quickly.
The Business Transformation programme
consistently met its milestones and spent
less than its budget throughout the year.
How we are changing
Our Business Transformation programme
is being delivered in four customer-
focused stages over eight to 10 years.
32 ANNUAL REPORT 2015
High-level design of the four stages has
been completed and the detailed design
of stage one has begun. We anticipate
that the detailed business case will
be completed and submitted to the
Government for approval by March 2016.
Once approved, implementation of stage
one will begin. We have delivered some
visible, early improvements to our digital
services, including improving myIR and
making improvements to our website.
This year we focused on designing the
foundations for our future revenue system.
The design phase began in January 2015,
and covers high-level design for stages one
to four of the programme, and detailed
design for Stage 1: Enabling secure digital
services. The design and digital services
business case outlining the approach to
design and the funding, was approved by
Cabinet on 17 November 2014.
We have a regular programme of
independent quality assurance reviews to
continually check that what we are doing is
the best way to do it. Over the year we had
a Deloitte review and the Gateway Review
in September 2014, KPMG Independent
Quality Assurance and Technical Quality
Assurance completed in December 2014
and a review from the Office of the Auditor
General in April 2015. All were positive and
support the way we are transforming and
the quality of our processes. Results of the
reviews are available on www.ird.govt.nz/
transformation.
Cabinet approval and
legislative changes
Changes proposed in the Taxation
(Transformation: First Phase Simplification
and Other Measures) Bill introduced on
30 June 2015 pave the way for
modernising and simplifying the tax
administration system by removing some
current legislative obstacles.
They include:
proposals to allow earlier tax refunds
on personal tax summaries that meet
the automatic refund threshold
reforming the way we are able to
communicate with our customers by
providing modern rules to support
electronic communication in the same
way as paper communications
measures to allow us to share certain
information with other agencies when
it makes customers lives easier.
Choosing design and core
software partners
We spent most of the year completing
very careful procurement processes to
select partners to help us design the
next stage of Business Transformation
and a software provider to supply the
technological core of our future system.
We chose Accenture and two local
providers to help us with design. External
quality assurance checks found the

The programme has been set up to succeed, and is suitably prepared to begin the design phase,
while being aware of the considerable challenge of sustaining the good progress thus far.
KPMG Independent Quality Assurance and Technical Quality Assurance review, December 2014
procurement process that we used was
sound and fair.
Accenture joined Inland Revenue in January
2015 and has been helping us with the
high-level design of the four stages of the
Business Transformation programme. We
have developed blueprints outlining our
future system.
In June 2015 we announced Fast Enterprises
(FAST) as our preferred Commercial Off-
the-Shelf (COTS) software vendor. COTS
software will form the technological core of
our future system. FAST started working with
us on the detailed design in August 2015.
To help us prepare for the changes, we
have engaged a range of local providers
including Optimation, ThinkPlace,
Assurity Consulting and Tenzing along with
Accenture and FAST.
Stakeholder engagement
A large part of what we are doing is
engaging with stakeholders and seeking
their input on designing New Zealands
future tax system.
Discussions continued during the year
with GST and payroll software developers
on options for how they can better
interact with our core systems and reduce
compliance costs for businesses. We also
met and presented to a wide range of
groups including:
financial services and accounting
industry bodies
software developers
industry groups including Federated
Farmers and Business New Zealand
social service groups such as Age
Concern and Citizens Advice Bureau.
We have set up three key reference groups
to help us.
The Taxpayers Simplification Panel was
created to give New Zealanders a voice in
simplifying, modernising and transforming
the way we pay tax.
04
The Transformation Reference Group
provides us insights and perspectives
from businesses, individuals and the
tax community to inform our Business
Transformation programme. Members have
extensive experience across a broad range of
sectors and represent diverse communities.
Our ICT Reference Group provides an
independent voice and sounding board on
our Business Transformation programme.
It is an opportunity for ICT professionals
to contribute individual perspectives and
experience on the impact of our Business
Transformation programme on business
and the community.
Public consultation
Improving the customer experience
and making it easier and simpler for our
customers will require significant policy-
related work over the life of the Business
Transformation programme.
We ran two significant public
consultations asking New Zealanders
for their feedback on our Business
Transformation and explored options
designed to modernise and simplify the
tax system. The Minister of Revenue
launched both on 31 March 2015.
Making Tax Simpler A Government Green
paper on Tax Administration set out the
policy direction for modernising and
simplifying the tax administration. This
consultation ran until 29 May 2015.
Making Tax Simpler A Government
discussion document on Better Digital
Services asked for feedback on approaches
to encourage customers to move to better
digital services and any barriers that
currently prevent them from doing so.
This consultation closed on 5 May 2015.
More than 900 online comments and
over 90 written submissions were received
on the proposals. This was a significantly
higher number of responses than we
expected. Detailed feedback on these
consultations will be published on our
website when it is collated.
ANNUAL REPORT 2015 33
 STAGE 1
Cabinet confirmed a
programme roadmap Enabling secure digital services to
to deliver Business enable the majority of customers to
Transformation in a self-manage and reduce businesses
number of steps, enabling compliance burden in fulfilling their
PAYE obligations.
the Government to
make investment choices
throughout the life of the
programme: STAGE 2
Streamline income and business
tax processes this will leverage
the foundations delivered in the
previous stage and further reduce
businesses compliance burden to
fulfil their tax obligations.
34 ANNUAL REPORT 2015
STAGE 3
Streamline social policy delivery
this will improve the delivery
of the social policies that Inland
Revenue administers.
STAGE 4
Complete delivery of the future
revenue system this will include
transitioning any remaining
tax and social policies to a new
platform and decommissioning
technical platforms that are no
longer required.
 05
Organisational
health

ANNUAL REPORT 2015 35

It is important that we effectively manage our people, our assets and the
risks to our business so that we can achieve our strategic intentions.
Organisational health
Governance
To ensure our governance system
continues to meet the needs of our
transforming organisation, we introduced
changes to our governance system in
May 2015. The governance system will
ensure robust and timely governance of
our strategy, investment and performance
activities, focusing on transformation, but
also ensuring we are meeting the needs
of today. Membership across the system
is a mix of our Inland Revenue Executive
Leadership Team, senior leaders and
external members where appropriate.
Preparing our people for
change
Changing and streamlining the way we
deliver our services, mainly through
greater use of digital and online services,
will have an impact on our people. As
we move towards greater application of
technology and streamlined processes,
we will make changes to our workforce.
To prepare for this, we are designing
frameworks and systems to help reshape
our organisational capability.
We have updated our workforce strategy
to help us identify what we need to do
to deliver our strategic intentions. This
has supported work on our organisations
culture and our leadership strategy.
Change leadership and
capability
Effective change leadership is essential to lead
our people through Business Transformation.
We need leaders to be more agile, adaptable
and open to new ways of working.
36 ANNUAL REPORT 2015
We have revised our leadership framework Health and Safety
and are currently redesigning our leadership
A range of activities have started to
programmes to reflect this.
ensure Inland Revenue is compliant and
Our people leadership strategy includes: has strategies in place that willeffectively
embedding this leadership framework transition the organisation to the new
renewing our development Health and Safety legislation, which comes
programmes for leaders into effect 4 April 2016.
We are currently working to bring
encouraging leadership collaboration
our health and safety-related policies,
further developing our leadership skill set.
processes and systems into line with the
This work aligns with the State Services requirements of the new legislation. Our
leadership strategy and Leadership Success activities include exploring a health and
Profile (LSP). Our leadership framework safety governance reporting structure
identifies those things from the LSP that will provide our governance group
which are important for us to focus on with regular information on health and
at this time and describes some of the safety risks and mitigation and ensuring
fundamental shifts we are looking for in people including managers and health and
our leaders as we progress through our safety committees receive education and
transformation journey. increased visibility of the legislation.
In line with the introduction of talent
management across the state sector,
Inland Revenue has implemented a talent
management approach for senior leaders,
to be extended to other leadership levels
in the future.
Culture
Inland Revenue wants productive
and engaged employees, and a work
environment that features strong
leadership, innovation, clear accountability
and sound risk management.
In June 2015, we completed a baseline
culture survey of a sample of 600
employees. This survey was designed to
give us some benchmark measures around
our culture and will help us understand the
shifts we need to make in order to get us to
our desired future culture.
 05

OUR PEOPLE PROFILE AS AT JUNE 2014 OUR PEOPLE PROFILE AS AT JUNE 2015

HEADCOUNT 5788 FTE 5640.89 HEADCOUNT 5820 FTE 5679.37

FULL TIME 91% FULL TIME 91%
AVERAGE AGE AVERAGE AGE
PART TIME 9% PART TIME 9%
42.9 years 43.0 years
PERMANENT 98% PERMANENT 98%
FIXED TERM 2% FIXED TERM 2%

FEMALE MALE FEMALE MALE

STAFF OVERALL 64% STAFF OVERALL 36% STAFF OVERALL 64% STAFF OVERALL 36%
PEOPLE LEADERS 54% PEOPLE LEADERS 46% PEOPLE LEADERS 55% PEOPLE LEADERS 45%
MANAGERS 46% MANAGERS 54% MANAGERS 46% MANAGERS 54%

! !

NEW HIRES 743 UNPLANNED TURNOVER* NEW HIRES 737 UNPLANNED TURNOVER*
EXITS 663 ANNUALISED 8.6% EXITS 675 ANNUALISED 10%

TOTAL TURNOVER* AVERAGE LENGTH TOTAL TURNOVER* AVERAGE LENGTH

ANNUALISED 10% OF SERVICE* 11.1 years ANNUALISED 10.6% OF SERVICE* 11.3years

*Permanent staff only

ANNUAL REPORT 2015 37

A new multi-union collective
agreement
Three unions represent our employees:
Public Service Association (PSA)
Taxpro
National Union of Public Employees
(NUPE).
All union agreements ran out this year
PSA and Taxpro in February 2015 and
NUPE in May 2015. A new multi-union
collective agreement was ratified by
PSA and Taxpro members in June 2015,
effective from July 2015. We have been
bargaining with NUPE and reached an
agreement in July 2015.
Non-union members who are in positions
covered by the collective agreements
were offered a change to their terms and
conditions.
SSC Integrity and Conduct
Survey
The most recent State Services Commission
(SSC) Integrity and Conduct Survey
confirmed that we are performing
extremely well, and in some important areas
exceptionally well, compared with other
survey participants, particularly around
integrity, leadership, our processes and the
working environment.
The Commissioner established a working
group with representatives from Inland
Revenue, the PSA and Taxpro to look at
areas from the survey which required
some focus:
bullying in the workplace
change management
visible leadership
clarity around promotions and
appointments.
The primary focus of recommendations
made by the working group related
to the way Inland Revenue manages
bullying in the workplace. The majority
of changes will occur as a result of work
38 ANNUAL REPORT 2015
currently underway to update our Human
Resources policies and guidance.
Diversity at Inland Revenue
Our diversity and inclusion policy reflects
our commitment to attracting and
retaining a diverse range of people who
bring different perspectives, experiences Celebrating diversity
and skills. The insight gained in
understanding the facets of diversity gives An environmental scan
us a better appreciation of the challenges
last year showed that
that some of our customers have when
interacting with us. The diversity of the workforce at the
thought and culture also make Inland Penrose Contact Centre
Revenue a vibrant place to work. is representative of the
New Zealands population is changing, Auckland population.
with increasing migration and an ageing
population. As we understand these
It found 29% of people
population changes, we will respond by identified as New Zealand
developing the capabilities, skills and European, 28% Indian,
organisational culture required to meet
24% Pacific Islander, 8%
customer needs.
Mori and others were
Our staff diversity networks, including
women, Mori and Pacific networks, European, Chinese, Korean
continue to support their members and and from the Philippines.
wider community interests through Representatives of the
regular meetings, mentoring and training
opportunities. They promote cultural
different cultures meet
events across Inland Revenue such as Mori regularly to come up with
Language Week and various Pacific language ideas for events to create
weeks. The positive benefit of diversity
a fun environment and
in practice also spreads to our customers
even in simple things like learning to embrace the diversity of
pronounce customers names correctly. the teams.
Tiriti o Waitangi /
Responsiveness to Mori
Inland Revenues customer charter sets
out our commitment to work in ways
consistent with the spirit of the Treaty
of Waitangi and that we acknowledge
peoples individual, specific and cultural
needs. During the year, we formalised
a new relationship agreement between
the Public Service Associations Inland
Revenues Mori Rnanga and our
Responsiveness to Mori team. This
agreement established a new working

group called Te Manu Taupua, which has
a focus on areas of common interest and
concern for our Mori staff.
Security incidents
We are committed to keeping our people
safe. We monitor and record security
incidents and continually assess our
workplaces to ensure that we minimise
risks and concerns so that our staff feel
safe. We review any process after any
incident and will change a process if a
threat profile is changed.
For example, in early April we received
a security threat. The threat was via a
phone call and involved our Tauranga
and Wellington offices. We informed staff
of the threat and we worked quickly to
ensure security was provided to mitigate
the risk and provide a safer environment
for our staff.
Inland Revenue reviewed the
recommendations that came out of the
independent review of MSDs physical
safety environment following the tragic
shooting of three of their staff members
in Ashburton in September 2014.
We raise security awareness using a
number of communication mechanisms:
proactive poster campaigns
throughout the year supported by
self-help tools readily available on the
intranet
mandatory on-line learning modules
event triggered communication using
our intranet.
Business Continuity Plan
We have continued to review, refine and
exercise our Business Continuity Plans
and Crisis Management arrangements
to ensure that critical processes can
05
continue to function during and after
business disruptions. The benefit of this
preparation was demonstrated in an
effective organisational response to a fire at
our Auckland contact centre. Full telephone
services were restored within 48 hours.
Privacy
Risk management
Risk management is an important part of
We are committed to
Inland Revenues governance and internal
control environment. ensuring our customers
We ensure Inland Revenues approach to privacy is protected. Any
risk management reflects good practice and personal information
supports risk-based decision-making across customers do provide to
all levels of the organisation.
us will be kept for as long
We are continuing to improve our practices
to provide greater clarity to our decision-
as necessary to achieve the
making processes. purpose we collected it
We have a mature Enterprise Risk for. If personal information
Management Framework that is used to becomes part of Inland
identify and manage risk as we:
Revenue records, we will
deliver our core business
retain the information in
implement projects and programmes
accordance with Inland
consider risks to achievement of our
strategic objectives.
Revenue policy on retention
We use the concept of risk champions
of Inland Revenue records.
embedded within business groups to further Full details of privacy
improve our risk management maturity.
breaches are outlined on
We continue to use a Three Lines of
Assurance model to enhance clarity page 156.
regarding risks and controls and help
improve the effectiveness of the internal
control environment. Our Internal Audit
plan and use of third party assurance
providers ensures that there is an
appropriate level of independent assurance.
Our Risk and Assurance Committee meets
formally on a quarterly basis. All members
are independent.
ANNUAL REPORT 2015 39
ENTERPRISE RISK
We fail to balance all-of-
government strategies
effectively with the delivery of
our core business leading to
sub-optimal outcomes
We are unable to source
sufficient government funding
to deliver our Business
Transformation programme
Natural hazards such as
earthquakes disrupt delivery of
critical services
We dont have enough
experienced and qualified
people to deliver the Business
Transformation programme and
other programmes
The expanding availability of
our information in digital form
to others reduces our ability to
control that information
Individuals and organisations
represent themselves as Inland
Revenue, affecting the integrity
of the tax system
Outdated technology and
unsupported software result
in systems failures that affect
delivery of critical services
40 ANNUAL REPORT 2015
OUR MITIGATIONS INCLUDE THE FOLLOWING ACTIONS:
We will align our long-term planning with the Governments Better Public Services goals.
We will participate in all-of-government steering groups to understand and anticipate
impending public sector changes.
Our four-year and 10-year plans will make a compelling case for the investment we
need to implement changes.
We will present rigorous, well-considered business cases for government funding that
set out the costs and benefits of proposed spending.
Our Investment Board will provide strong governance oversight of our Business
Transformation programme investments.
We will identify and assess potential business impacts and regularly review our
response plans, which include business impact assessments, business continuity plans,
disaster recovery plans and business continuity emergency management procedures.
We will develop and implement strategies to promote workforce capability,
employment relations, leadership and workplace culture.
We will ensure our security policies, procedures and standards are strong and enforced.
We will develop and monitor information-sharing protocols.
We will align our protocols with government security and privacy standards.
We will continue to review staff training and awareness.
We will continue to assess our security processes and performance.
We will keep our security incident database up to date.
We will monitor social media and internet sites for signs of security breaches.
We will respond rapidly to reports of misrepresentation.
We will develop communications strategies to alert the public to scams.
We will continue to invest in stabilising our IT systems.
We will invest in the upgrade of some key systems and applications.
We will increasingly buy technology services, rather than buy technology for in-house
operation.

ENTERPRISE RISK
Ineffective or incomplete
delivery of the Business
Transformation programme
reduces our ability to meet
government revenue forecasts
Ineffective or incomplete
delivery of the Business
Transformation programme
reduces our ability to
implement government policy
Confidence among customers
and stakeholders in our ability
to protect their data as a result
of information-sharing with
government agencies results in
a drop in voluntary compliance
A downturn in the worlds
economy affects New Zealands
ability to fund and deliver
government priorities
The changing customer profile
affects voluntary compliance
We lose the trust and
confidence of stakeholders
by not recognising or
understanding how their
expectations change
Complex international
transactions affect our ability to
collect revenue
05
OUR MITIGATIONS INCLUDE THE FOLLOWING ACTIONS:
We will continue to work towards reaching our target operating model.
Our governance boards will monitor progress of the Business Transformation
programme.
Our management will coordinate and report on progress of the Business
Transformation programme.
We will continue to work towards reaching our target operating model.
Our governance boards will monitor progress of the Business Transformation
programme.
Our management will coordinate and report on progress of the Business
Transformation programme.
We will ensure our security policies, procedures and standards are strong.
We will develop and monitor information-sharing protocols.
We will align our protocols with government security and privacy standards.
We will continue to review staff training and awareness.
We will align our security processes with other agencies and continuously monitor
performance.
We will continuously identify and monitor changes in overseas economic trends
through research and forecasting.
We will monitor and report on the effect of changes to the customer base.
We will use research and planning to develop tailored responses to customer base
changes.
We will continue to work closely with the Ministers offices.
The Executive Leadership Team will engage closely with key stakeholders.
We will monitor and respond to changes in the integrity of the tax system.
We will monitor and respond to emerging trends in policy and strategy.
We will take part in forums with our key stakeholders.
We are members of the OECD and work with overseas tax administrations to identify
changes to practices.
We are joint advisors with the Treasury in developing policy and strategies to work on
complex international practices.
ANNUAL REPORT 2015 41
42 ANNUAL REPORT 2015
 06
Our performance

ANNUAL REPORT 2015 43

Our outcomes
Inland Revenue contributes to the economic and
social wellbeing of New Zealand by collecting and
distributing money. New Zealanders pay tax to
and may get money from the Government. We are
accountable to the Minister of Revenue.
Inland Revenues success is reflected in two outcomes:
Revenue is available to fund government programmes through
people meeting payment obligations of their own accord.
People receive payments they are entitled to, enabling them to
participate in society.
In 201415 we collected $60.6 billion of revenue to fund
government programmes.
We collected $59.7 billion of this from tax. Direct (or income)
taxation, for example individuals income tax or corporate income
tax, accounts for 73.3% of tax revenue. GST accounts for 26.1%.
For full details refer to pages 126 to 127.

$3.5b
from 201314

$17.5m
from 201314

IND INTEREST

$29.4b
UNWIND
TAX REVENUE STUDENT LOANS
$604.2m
$59.7b OTHER REVENUE
$887.5m
CHILD SUPPORT
$197.0m
GST
$15.6b OTHER
$86.3m
OTHER CORP
$3.9b $10.9b

We also manage or share administration of several social policy entitlements and payments. The key programmes we administer are:

$4.8b KiwiSaver payments transferred to $1.1b student loan payments collected

scheme providers
$463m child support payments collected
$265m child support entitlements distributed*
$2.4b Working for Families Tax Credits
entitlements distributed $180m paid parental leave entitlements distributed

*The balance is collected for the Government as an off-set for custodial families supported through
44 ANNUAL REPORT 2015 the benefit system.
 06

While we have achieved 91% of our output measure targets for
201415, we have not been able to collect all revenue owed. Our
debt book is made up of payments which are overdue, and the
penalties and interest we charge against this debt. At the end of
201415 the size of our debt book, excluding debt from student
loans and child support, was $5.2 billion. This is a good result,
representing a 5.8% decrease from 201314.
Child support debt reached $3.3 billion by the end of 201415, a 7.5%
increase from the previous year. Penalties make up 79.4% of this total.
Student loan debt has also increased, totalling $933 million by the
end of 201415. This is a 21.3% increase since the previous year.
Overseas-based borrowers owe 90.5% of this debt.

Size of our debt book excluding child support and student loan debt as at 30 June

6
5
DEBT $BILLION

4
3
2
1
0 Total debt value including penalties and interest

2010 2011 2012 2013 2014 2015 Penalties and interest

Size of overdue child support debt as at 30 June

3.5
3.0
DEBT $BILLION

2.5
2.0
1.5
1.0
0.5
0.0 Total debt value including penalties
2010 2011 2012 2013 2014 2015 Penalties

Size of overdue student loan debt as at 30 June

1.0
DEBT $BILLION

0.8
0.6
0.4
0.2 Total debt value including interest

0.0 Overseas-based borrowers

2010 2011 2012 2013 2014 2015 Interest

ANNUAL REPORT 2015 45

Our appropriations
To achieve our outcomes, Government funds us to deliver our services
under the following appropriations:
Policy Advice
Services to Inform the Public About Entitlements and Meeting Obligations
Services to Process Obligations and Entitlements
Management of Debt and Outstanding Returns
Taxpayer Audit
Services to Other Agencies.

To deliver the services for the six appropriations effectively we need to invest in the
renewal, upgrade and replacement of assets. To support the delivery of our services, we
have an additional appropriation for capital expenditure.
See pages 89 to 92 for a full breakdown of:
departmental expenses and capital expenditure attributed to these appropriations
non-departmental appropriated expenditure
non-appropriated expenditure.
We measure and manage our performance against 53 targets within these six
appropriations. The dashboard scores indicate the number of targets we have achieved in
each output class. This reflects the relative impact of each activity on the business. A full
breakdown of our appropriation performance is outlined in part seven.

FUNDING APPROPRIATIONS OUTPUT MEASURES

Government provides us with Appropriations provide a We measure whether or not we

funding to deliver our services Minister with the authority from are achieving what we set out to
within the scope of each Parliament to spend public money achieve in each appropriation
appropriation. or incur expenses or liabilities on through our output measures
behalf of the Crown. and targets.

46 ANNUAL REPORT 2015

 06

Performance Targets Achieved 91201415

%

1 Policy Advice
Achieved 1 target out of 3 33%

2 Services to Inform the Public About

Entitlements and Meeting Obligations
Achieved 15 targets out of 16
94%

3 Services to Process Obligations

and Entitlements
Achieved 14 targets out of 15
93%

4 Management of Debt and

Outstanding Returns
Achieved 9 targets out of 9
100%

5 Taxpayer Audit
Achieved 8 targets out of 8 100%

6 Services to Other Agencies

Achieved 1 target out of 2 50 %

ANNUAL REPORT 2015 47

Providing value for money
Government expects us to provide the best value for money from public
funds. We have to ensure our services are delivered in a cost-effective
and efficient way. We carefully consider the relationship between our
resources, outputs and impacts to ensure we stay focused on delivering
value for money. Three elements contribute to this:
Effectivenessoperating in a way that achieves our outcomes
Our FIRST database which
Efficiencyproducing more for the same or less holds all tax and social policy
Economygetting and using our resources as economically as possible. customer information is
We have made a number of changes to our processes to ensure we three terabytes in size. It is the
deliver our services in the best way possible within the limits of our single largest Unisys database
funding, which may not always be visible to our customers. of its type in the world.
Effectively managing peak season
Our peak season, when we have very high contact volumes, runs between April and August.
Most of the people who contact us want information about how certain tax and social policy
rules work and apply to them. These high volumes can translate into very long wait times.
To make things easier for our customers, we improved our internal planning processes,
increased use of our online channels and continued to improve our communication with
our customers and our working relationship with tax agents.
We opened the Personal Tax Summary (PTS) annual run to tax intermediaries 28 hours
earlier than last year, allowing us to confirm earlier, the 264,000 returns they filed. Getting
these out sooner relieved pressure on our systems and allowed better service for individual
customers logging into myIR to confirm their PTS. The core PTS annual run was completed
ahead of time and we achieved our target for calls answered within two minutes for the
year. This also resulted in fewer customer calls to manage.

Operational efficiency
Our operational teams have achieved considerable savings in the form of greater
efficiencies in servicing our customers. This has created additional capacity, which has been
reinvested to help us improve performance and deliver additional change effectively, such
as the first phase of the changes to child support.
We use a number of tools to automate basic repetitive tasks that do not need any decision-
making or real input from our people. This enables our people to focus more on tasks that
require real decision-making or customer engagement, with the overall outcome being that
we can provide an improved and faster service to customers.
We continued to improve processes to ensure we deliver the value for money the
public and Government expects. The efficiencies driven by our operations management
programme in customer-facing areas enabled us to do just over 450,000 hours more work
this year. We estimate that this extra capacity is equivalent to a cost of $12.2 million. Since
the programme started in March 2011, it has produced capacity savings equivalent to $32.5
million, $4.7 million above the target. To achieve further efficiency gains we are taking an
enterprise-wide continuous improvement approach.
We have been developing our continuous improvement capability and while this is focused
on improving our performance to the customer, it is also helping to prepare our people

48 ANNUAL REPORT 2015

 06

for the transformation of our business. We will extend our continuous improvement
programme across the organisation to a number of our support services in 201516. 2
Economy saving on postage and printing costs
This year we spent $16 million on print and postage. By giving customers access to their
details online, we aim to reduce these costs.
Because more of our customers are filing online we stopped providing prepaid envelopes In May we were ranked
for Employer Monthly Schedules (EMS) in November 2014. In 201213 the cost to send
envelopes was about $840,000. In 201415 the cost was around $200,000 and for the
as number two in
201516 year, it is expected that the annual cost will be reduced to $40,000. CIO Magazines top
100 companies and
Maintaining our computer systems and infrastructure government agencies
While we prepare to make a large investment in a new core system through our Business across New Zealand an
Transformation programme we are also investing in our existing systems where it is
sensible to do so. We still need to meet government and customer expectations for
acknowledgement of
better, smarter and more cost-effective systems and support the stability of our ICT the complex technology
environment while we transform. planning and support we
Our ICT Strategy and Roadmaps guide our activities to deliver safe and secure digital provide to collect and
services to our customers. The strategy will drive the future rationalisation, consolidation
distribute revenue and
and simplification of our ICT environment and is closely linked to our Business
Transformation objectives and the Governments overall ICT Strategy. social policy payments for
Our mainframe platform houses the core FIRST business systems, all our customers data, New Zealand.
including their return, payment, entitlement and transaction activity. In 2012 Cabinet
approved a business case for us to replace the existing platform which was approaching
end of life.
There was considerable risk attached to this move. We spent nearly a year planning and System back-ups that used
testing to get this right, which included moving the planned cut-over date from May 2014 to to take six hours are now
November 2014 in order to ensure that our peak business periods were not affected. completed in three hours.
In November 2014 we successfully transitioned to a new mainframe platform service.
With the new mainframe in place, run by Unisys New Zealand, we can accelerate our
digital growth and support our goal to make it easier and faster for customers to do
business with us.
We have since seen significant performance improvements for both our external
customers submitting their tax returns and accessing our online services and our internal
staff members accessing the system. For example system back-ups that used to take six
hours can now be completed in three hours and the time to complete the annual PTS
run reduced from 27 hours to seven hours and was able to be completed over a weekend.
This meant that intermediaries were able to process refunds much more quickly and
customers received their refund days earlier than previous years.
We continued to update and upgrade our existing systems and infrastructure to ensure
they support a high level of stability and reliability for our customers. Examples include:
upgrading the underlying ICT environment for our electronic document storage and
retrieval system
moving our legacy printing platform to XPression
upgrading the software components and replacing the underlying hardware in our
contact centres and our telephone environment.

ANNUAL REPORT 2015 49

Keeping information safe is a top priority. We are continuing to invest significantly in
information security initiatives so our security policies, procedures and standards are EECA five star rating
continually refreshed and enforced. We have implemented technology to assist us to
proactively monitor how we are using cloud-based services, as well as additional tools to
monitor and detect cyber-security threats.
We are the first agency to
reach five stars in the Energy
Maintaining our property leasehold portfolio Efficiency and Conservation
We actively manage our property portfolio to optimise the use of office space and move Authority (EECA) One2Five
where we can find accommodation for comparable or better rates. We co-locate with energy management rating.
other government agencies where it makes sense to do so.
EECA looked at our energy usage
We continue to work with the Property Management Centre of Expertise (PMCoE). Hosted by
MSD, PMCoE leads and assists agencies in meeting the goals set by Government for the efficient and how well we demonstrate
and effective management of the property owned or leased by 61 government agencies. corporate commitment, targets
For the 201415 financial year we reduced our office space usage to 14.1m per person. and performance indicators,
This compares to 15.5m per person last year. The PMCoE target is to achieve between plans, and accountability to
12m and 16m per person.
energy management.
Our five star rating is an
improvement from our four
star rating in November 2013.

How did our customers

rate our performance?
What our customers think is important to us. We aim to make our services
as easy as possible for customers to pay tax and receive their correct
entitlements. We closely monitor customer satisfaction and perception
scores to ensure we are doing a good job. High customer satisfaction
contributes to improved voluntary compliance in the long term.

201415 201415
201314 201314

ONLINE
95
satisfied
%
95% VOICE &
85
satisfied
%
85%
CORRESPONDENCE

201314 201415 201314 201415

INDIVIDUALS 94% 94% INDIVIDUALS 81% 81%

BUSINESS 96% 96% BUSINESS 88% 88%

50 ANNUAL REPORT 2015

 06

Overall customer satisfaction scores have
remained stable in 201415, with the
same results for online and voice and
correspondence services as measured in
201314. Tax agents showed a statistically
significant change in overall satisfaction for
voice and correspondence services, with
92% satisfied (up 3.4% from 201314) and
78% very satisfied (up 13.0% from 201314),
which can be attributed to an improvement
in satisfaction with accessibility and
perceived ease of access to our services.
However, due to the weighting of results
based on the sample size of customer groups
surveyed, this does not result in an increase
in Business and Overall satisfaction scores.
Tax revenue is used by government to
pay for services we all use. In 201415,
97% of our customers recognised that
paying tax contributes to New Zealand
society. Between 200910 and 201415,
the proportion of customers who resent
paying tax dropped from 46% to 41%.
For our customers to trust us and believe in
the integrity of the tax system it is important
they believe we do a good job in collecting
taxes and paying entitlements. From 201011
to 201213, the proportion of customers
who were confident that Inland Revenue did
a good job was stable at 92%. In recent years
this has increased, reaching 94% in 201415.
There were also increases in the proportions
of customers who agreed that they accessed
Inland Revenue easily, from 81% in 201213
to 87% in 201415.
Looking at 4-5 out of 5 ratings, or
customers who were very satisfied,
there were improvements in customers
perceptions for all indicators in 201415
compared to 201314. Increases of at least
3 percentage points in the proportions of
customers who rated 4-5 out of 5 were seen
for the following indicators:
Confidence that Inland Revenue does a
good job
Inland Revenue can easily be accessed
Information is treated confidentially
Inland Revenue treats people fairly
Inland Revenue makes it easy to get
it right.

Proportions of all customers who agreed (3-5 of 5) that they resent

paying tax: 200910 to 201415

47%
46%
45%
44%
43%
42%
41%
40%
200910 201011 201112 201213 201314 201415 Resent paying tax

Proportions of all customers who agreed (3-5 of 5) that Inland Revenue can easily
be accessed, and that paying tax contributes to NZ society: 200910 to 201415
100%
95%
90%
85%
80%
75%
Paying tax contributes to NZ
70% Confidence IR does a good job
200910 201011 201112 201213 201314 201415 Easily access IR

ANNUAL REPORT 2015 51

How we compare to
other tax authorities
The OECD compares tax authorities around the world on various measures
every three years. The latest OECD survey published, Tax Administration
2015: Comparative Information on OECD and Other Advanced and Emerging
Economies, compares results from 2013 provided by tax authorities.
We were among a group of 13 revenue bodies reporting IT costs over 15% of total
expenditure. In 2013 our IT expenditure was 18.3% of our total expenditure. The OECD
observed that this group generally performed favourably on performance-related
measures such as e-filing and payment, administrative costs as a percentage of GDP and
average staffing numbers.
Our year-end debt to total revenue collected ratio of 9.2% was the same as the OECD
median and slightly below Australia and Canada. Our cost of collection (85 cents to
collect $100) also compared favourably with other countries, though it is difficult to
compare different countries on this measure as they have different tax rates and there is
no single method for calculating this result.

Our impacts
We want our activities and interventions to improve customer
compliance behaviour. We use 14 impact indicators and four contextual
indicators, grouped under five Impact Statements, to measure our
progress. We have set targets to be achieved by 201718, which take into
account our strategic intentions (including transformation goals), our
operating environment (including government priorities), the economy,
our resources and customer expectations.

52 ANNUAL REPORT 2015

 06

More customers are

able to self-manage

More customers
The behaviour of
register and report
non-compliant
Our accurate information
customers improves
when required
impacts

More customers More customers

pay and file claim their correct
information on time entitlements

More customers are able to
self-manage
This year we reached our 2018 target of
80% or more of customers find it easy
to comply. We are only 2% away from
achieving our 2018 target of 85% or more
of customers are aware of their obligations
and entitlements.
More customers register and
report accurate information
when required
The results show improvements in the
accuracy of submitted returns, driven by
lower error rates for individual income tax
returns submitted electronically.
More customers claim their
correct entitlements
Social policy-related compliance levels
remained stable. This year we achieved
our 2018 target of 75% or more of child
support assessments are collected.

More customers pay and file
information on time
On-time filing and paying compliance
and customer satisfaction and perception
levels remained high.
The behaviour of non- of total debt, and high levels of uncollectable
debt unable to be dealt with are limited by
compliant customers improves
appropriations for write-off. The end of this
We continue to improve our results, collecting
year sees a smaller debt book with less cases on
debt quicker and identifying older debt, which
hand which shows the debt book moving in
cannot be collected, as uncollectable. The high
the right direction.
level of penalties and interest as a proportion

Achieving our impact indicator targets will contribute to us achieving our long-term outcomes.
To view the full set of impact indicator results and targets, please see pages 84 to 88.

ANNUAL REPORT 2015 53

Our Outcomes Framework
What we have described earlier is depicted in our Outcomes Framework.
It shows how we organise and use our resources to deliver services
to New Zealanders, provide value for money from public funds, and
contribute to the social and economic wellbeing of New Zealand by
collecting and distributing money.
Our Outcomes Framework

Responsibly manage the Governments finances

Build a more competitive and productive economy
Government
Deliver better public services within tight financial constraints (result areas 9 & 10 improving interaction with
Priorities
government, and Result 7 reducing crime)
Rebuild Canterbury
Value for
Money

Our Outcomes
Revenue is available to fund government programmes People receive payments they are entitled to, enabling
The goals we are
through people meeting them to
aiming
payment obligations of their own accord participate in society
to achieve

We improve Compliance We address non-

compliance by improves if: compliance so:
ensuring:

Effectiveness
Our Impacts More customers
More customers The behaviour of
The difference we More customers register and report More customers pay
claim their correct non-compliant
want self-manage accurate information and file on time
entitlements customers improves
to make when required

Services to inform the Services to process

Management of debt and
public about entitlement obligations and Taxpayer audit
Our Outputs outstanding returns
and meeting obligations entitlements
The activities we do
Policy Advice
Efficiency

Our Inputs
The way we use our People Systems Processes Assets
resources Economy

We retain, We proactively
We move
develop and influence We improve the
customers to We use our
attract high- voluntary efficiency and
cost-effective information to
Our Priorities calibre people compliance and effectiveness of
channels while make timely Our systems
The key areas we with the skills address the government
creating an decisions and meet current and
will direct our effort required in the causes of through working
environment to build an future needs
and resources to future enabling compliance risk with other
make it easy for intelligence-led
a culture of and threats agencies and
customers to organisation
service and through a range private providers
self-manage
excellence of interventions

54 ANNUAL REPORT 2015

 06

Our Direction
We are reviewing our Outcomes Framework in 201516 to ensure it remains fit for
purpose and allows us to tell the clear performance story of how we will continue to
deliver today while achieving our strategic objectives. Our updated framework will
be included in our next Statement of Intent.

The mission, vision and values of IR for the future continue to guide us:

What we are here for What we want to be Whats important to

us in how we work
We contribute to the economic and A world-class revenue organisation Trust and integrity
social wellbeing of New Zealand by recognised for service and excellence Valuing people
collecting and distributing money Innovating to make a difference
Working together

IR for the future also required us to change to overcome our challenges and meet our transformation goals.
As our change has become more tangible, we have sharpened our objectives, clarified how well achieve them and what well do
differently. That sharper focus is summarised in Our Change Story - why and how IR is changing.

Strategic objectives How well do this What well do

1. Grow voluntary compliance by  Link our systems across the Replace our computer system
making it easier for people to get government and Become truly digital
it right private sector
Upskill our people and change
2. Reduce customer compliance costs Fit revenue processes into the ways we work
3. Make Government policy changes customers broader lives
faster and more cost-effectively  Make more intelligent use of
information

Designing our future Customer Experience

Tailoring
Intelligence Led
services &
channels
Embedding a
Providing greater customer-centric Embracing richer
self- approach data sources
management

Taking a Enabling greater Extracting

service-centric Extending the
outreach digital border actionable
approach insights
Future State
Organisation
Being highly- Embedding right-
automated and time insights
event-driven

Adopting agile, Driving Providing

responsive Enterprise seamless
design Excellence data flows

Supporting Our Enhancing

Enabling a wider Continuously
People
Core Tax & service delivery to Achieve
Enterprise Tools learning from
Future State and Systems feedback
ecosystem
Social Policy Policy and
Enhancing risk
Delivering One Legislation Improving
based tolerance
Way of information
to technology
Working security
failure
Organisation
Streamlining delivery Rationalising and
Enterprise Support Design and operations across
an ecosystem of
consolidating
applications
Services trusted partners
Policy and Providing an agile
and adaptive set
Technology
Legislation of capabilities

ANNUAL REPORT 2015 55

56 ANNUAL REPORT 2015
 07
Measuring our
performance

ANNUAL REPORT 2015 57

Statement of Responsibility
In terms of the Public Finance Act 1989 I am responsible, as Chief
Executive of Inland Revenue, for the preparation of the departments
financial statements and end of year performance information, and for
the judgements made in them. I am also responsible for the preparation
of the departments forecast financial statements including the
appropriateness of the underlying assumptions and all other required
disclosures.

I have the responsibility for establishing a system of internal control designed to provide
reasonable assurance as to the integrity and reliability of financial reporting and the
accuracy of our end of year performance information.
In my opinion, these financial statements fairly reflect the financial position and
operations of the department for the year ended 30 June 2015 and the forecast financial
statements reflect the financial position and operations of the department for the year
ending 30 June 2016 based on Government decisions and information as at 28 April 2015.

Naomi Ferguson
Chief Executive and Commissioner of Inland Revenue
29 September 2015

Countersigned by:

Giles Southwell
Chief Financial Officer
29 September 2015

58 ANNUAL REPORT 2015


Performance summary
We achieved 48 of our 53 (91%)
1 2
output performance targets
this year, an increase of 7.1% on
33
201314 performance. Here is
a summary of our performance % %
by output class. For full details
on our performance against each
measure refer to pages 62 to 82. 1 of 3
201314 33% 1 of 3
201213 100% 1 of 1
POLICY ADVICE
What is intended to be achieved
This appropriation is intended to provide
policy advice to support decision-making
by Ministers on tax and social policy
matters, to protect and maintain the
integrity of the tax system while ensuring
that our tax system is as simple as possible
and is internationally competitive.
Commentary on our output
performance during 201415
Of the three performance measures in
this output class, results for one of them
improved from last year.
During 201415 we continued to support
the Governments priorities through
delivering the Governments tax policy work
programme. One of the three performance
measures for this output class was achieved.
Aspirational targets were set for the two
performance measures not achieved.
More appropriate targets, benchmarked
against other agencies, were set for these in
201516.
07
94
15 of 16
201314 88% 14 of 16
201213 67% 12 of 18
SERVICES TO INFORM THE PUBLIC
ABOUT ENTITLEMENTS AND
MEETING OBLIGATIONS
What is intended to be achieved
The purpose of this appropriation is to promote
confidence in the tax system, and associated
social policy programmes, by providing services
that help taxpayers and other customers meet
their payment obligations and receive payments
they are entitled to. This appropriation also
provides services to help Ministers fulfil their
responsibilities to Parliament and the New
Zealand public.
Commentary on our output
performance during 201415
Of the 16 performance measures in this output
class, results for 13 of them were either the
same or improved from last year.
We have had strong performance this year,
achieving our target of 75.0% of our customers
calls being answered within two minutes,
9.0% more than in 201314. This result was
supported by the fact we answered 96.5% of all
calls, up from 89.5% last year. We have also seen
a 7.8% reduction in total 0800 call volumes as
we successfully promote and encourage uptake
of our online self-service options such as myIR.
Customer satisfaction remains high, with
85.0% of our customers satisfied with the
quality of our services.
ANNUAL REPORT 2015 59
 3 4
93 14 of 15
%
201314 93% 14 of 15
201213 85% 17 of 20
SERVICES TO PROCESS
OBLIGATIONS AND ENTITLEMENTS
What is intended to be achieved
This appropriation is intended to
contribute to the availability of revenue
to fund government programmes by
ensuring taxpayer and other customer
payments, credit claims, refunds and
entitlements are processed in a timely,
efficient and effective way.
Commentary on our output
performance during 201415
Of the 14 performance measures in this
output class comparable to last year, results
for 10 of them were either the same or
improved from last year.
We maintained strong performance across
our core high transactional activities:
returns and payment processing and issuing
refunds and entitlements to customers.
60 ANNUAL REPORT 2015
Peak season planning also enabled us to
maintain strong service levels across all our
transactional channels over the peak season
to end of June 2015. These include priority
areas that help our customers the most,
such as employer monthly schedules (EMS),
income tax and GST refunds, returns and
regular social policy payments.
During the year we also successfully
implemented legislative changes to the
Child Support Programme, maintaining our
high standard of service with over 82% of
applications issued within two weeks.
100 9 of 9
%
201314 73% 8 of 11
201213 55% 6 of 11
MANAGEMENT OF DEBT AND
OUTSTANDING RETURNS
What is intended to be achieved
This appropriation is intended to increase funding
available for government programmes through
the collection of revenue owed.
Commentary on our output
performance during 201415
Of the eight performance measures in this
output class comparable to the previous year,
results for seven of them were either the same or
improved from last year.
We continued a dedicated focus on overdue
returns between July and December 2014
following the primary 7 July filing date for
income tax returns. This focus helped us achieve
the performance target, to finalise returns
within six months, for the second time since its
introduction and demonstrates the success of
our early intervention approach.
We have reduced the child support debt owed
to custodial parents and contained the growth in
assessment debt for liable parents. We continued
our work with liable parents who live in New
Zealand using outbound calling campaigns,
similar to that successfully applied to tax debt
collection by making contact with liable parents
as early as possible. This has increased our level of
coverage and as a result we have closed a much
higher percentage of cases within 12 months of
opening than ever before.

5 6
100 8 of 8
%
201314 100% 8 of 8
201213 100% 8 of 8
TAXPAYER AUDIT
What is intended to be achieved
This appropriation is intended to ensure
that the revenue base for funding
government programmes is protected
through auditing activities to prevent
non-compliance, and undertaking legal
action where appropriate.
Commentary on our output
performance during 201415
Of the eight performance measures in this
output class, results for five of them were
either the same or improved from last year.
We continued to focus our investigations on
areas that present the highest risk. This year,
our return on investment was 7.4% higher
than target, resulting in a total of over
$1.2 billion in discrepancies being assessed.
This year, in our aggressive tax planning area
we identified $336.9 million in discrepancies.
We continued to resolve the remaining
optional and mandatory convertible note
cases that have contributed $156.1 million
of discrepancies. Significant aggressive
tax planning cases provided a further
$180 million.
Our focus on property compliance has
identified $67.1 million in discrepancies.
We have continued to focus on
education and on identifying developer
speculation, particularly in the Auckland
and Christchurch regions to ensure that
speculators and developers are paying the
correct amount of tax.
In the hidden economy area we continued
targeting people who intentionally do not
declare or accurately report transactions.
We have identified $146.0 million in
discrepancies.
Overall satisfaction with how we deal with
customers during an audit has improved
from last year and remains at a high level.
Of customers surveyed, seven out of 10 had
a positive view about their audit activity
experience.
We continue to work on improving
timeliness to complete audits and have
reduced the average completion time in
most categories since last year.
07
50 1 of 2
%
New output class added 201415
SERVICES TO OTHER AGENCIES
What is intended to be achieved
This appropriation is intended to provide
support services to other government
agencies, such as the provision of a hosted
financial management information system
and shared financial transactional services.
Commentary on our output
performance during 201415
These measures are new in 201415.
We provide financial support services to
the Department of Internal Affairs and the
New Zealand Productivity Commission.
These shared service arrangements have
been successful, with both agencies rating
us highly.
In reviewing this years performance we
have agreed with both agencies a more
appropriate target of 70% for 201516.
ANNUAL REPORT 2015 61
Reporting our performance
FOR THE YEAR ENDED 30 JUNE 2015
The following parts provide detailed
reporting on our performance
against our targets. Where a
performance measure is expressed
in terms of a range of characteristics
that the output should meet, the
result is reported as achieved or
not achieved (eg, see Departmental
Output Expense 5).
Key
More customers are able to
self-manage
More customers register and
report accurate information when
required
More customers claim their
correct entitlements
More customers pay and file
information on time
The behaviour of non-compliant
customers improves
62 ANNUAL REPORT 2015
Comparative performance data
Where appropriate, we have included comparative performance information against the
activity forecasts and performance measures for the previous year (201314 actual). We
have not included comparative performance information for new performance measures,
or where there has been a change in the performance measure or measurement
methodology that make the results not comparable. These are indicated by n/a.
Activity forecasts
Where appropriate, we have included forecasts of expected customer demand for our
services that provide context for our results. Significant variation from the forecast figures
can influence the achievement of the targets set for our performance measures.
Review of 201415 output performance measures and targets
As in previous years, we reviewed our output measures before the start of the new
financial year. The purpose of this review was to:
create or update measures to reflect changes in our business
remove items that were not true measures of our performance.
Of the 53 measures from 201314, we removed two and added two. There are 49
measures comparable with last year. Our performance improved for 29 of these measures
(59%), remained the same for seven measures (14%) and deteriorated for 13 measures
(27%). For seven (54%) of the 13 measures where performance deteriorated, the change
in performance between years was less than 5%.
We have provided comments for:
key activity forecasts where actual demand was outside the expected range
performance measures that were not achieved
performance measures with a positive variance greater than 10%.
Some performance measures are calculated using a sample of the customer population.
We have marked these performance measures with a hash mark (#).
All target and forecast figures in pages 63 to 82 are not subject to audit.
Performance context
Each appropriation contributes to achieving Inland Revenues long-term outcomes:
Revenue is available to fund government programmes through people meeting
payment obligations of their own accord
People receive payments they are entitled to, enabling them to participate in society.
We have included information to give context to the performance achieved. For each
output expense we have included a summary of the impacts we believe it contributes
to. Further information about our Outcomes Framework can be found in part six. This
forms part of the overall performance picture and should be read in conjunction with
the activity forecasts and narrative in the other parts of this report. Our non-financial
performance targets for the coming year are also included, and provide context to this
years results. Full details of our 201516 performance measures and targets can be found
in Performance measures and targets 201516 on our website.
 07

1 Departmental Output Expense 1: Policy Advice

Description
This appropriation is limited to the provision of advice (including second opinion advice
and contributions to policy advice led by other agencies) to support decision-making by
Ministers on government policy matters.

Contributes to Impact Statements:

Providing policy advice services protects and maintains the integrity of the tax system while
ensuring that our tax system is as simple as possible and is internationally competitive.

Financial performance
OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015
201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown 8,166 8,051 9,151 9,151 8,000
Other 6 2 2 10 2
Total revenue 8,172 8,053 9,153 9,161 8,002
Expenses
Annual appropriations 8,118 8,053 9,153 8,128 8,002
Total expenses 8,118 8,053 9,153 8,128 8,002
Net surplus/(deficit) 54 1,033

Output 1.1 Policy advice in relation to tax and social policy

Description
This output involves:
advising on all aspects of tax policy and social policy measures that interact with the
tax system
developing tax and social policy in line with the Generic Tax Policy Process
drafting tax legislation for introduction in the House of Representatives and assisting
its passage through the House of Representatives
negotiating and maintaining New Zealands network of double tax agreements with
other countries
forecasting future tax and non-tax Crown revenue receipts and disbursements for the
government
analysing revenue implications of changes in tax and social policy.

ANNUAL REPORT 2015 63

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of policy advice papers that meet quality standards Actual Target 90% Target
Although we did not achieve our target this year, the result has improved from 73%
in 201314 to 83%. The target for 201516 is set at 75% to align our target with
73.0% 83.0% 75%
other agencies which provide policy advice. Areas identified for improvement will be
implemented next year, including more consistent analysis of the impacts of proposals,
and greater attention to risk and risk management.

201314 201415 201516

Minimum percentage of ministerial satisfaction for policy advice Actual Target 95% Target
Performance is assessed by a survey completed by the Minister of Revenue. On
review the appropriate target for this measure has been deemed to be 80%, which is
87.0% 78.3% 80%
consistent with other agencies that provide policy advice.

201314 201415 201516

Maximum average cost per hour of producing policy advice outputs Actual Target $150 Target
The result for 201415 of $132.88 was less than the target set of $150. The target
was based on our best estimate of the cost per hour of providing policy advice. Our
$112.62 $132.88 $115
forecast for the year end was revised to a cost per hour of $115, in line with the results
from previous years. However, when the measure was calculated this year less time
was attributed to direct policy work, resulting in the maximum cost per hour being
above our forecast. This measure is still relatively new, and further work is required on
how to more accurately forecast the result.

2 Departmental Output Expense 2: Services to Inform

the Public About Entitlements and Meeting Obligations

Description
The scope of this appropriation is limited to:
providing information and assistance to customers on the application of the law
responding to customer enquiries about tax and social support programmes
adjudication on behalf of the Commissioner on proposed taxpayer assessments
providing binding rulings and other statements on the interpretation and application
of the law administered by Inland Revenue
provision of services to Ministers to enable them to discharge their portfolio (other
than policy decision-making responsibilities).

Contributes to Impact Statements:

Providing customers with relevant information and advice, certainty in relation to the application
of the law, and a choice in how they engage with us ensures that customers are aware of and
understand their obligations and entitlements. This means more customers can self-manage.

64 ANNUAL REPORT 2015

 07

Financial performance

OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown 265,591 249,846 251,694 251,694 249,297
Other 1,245 1,461 1,461 1,151 1,461
Total revenue 266,836 251,307 253,155 252,845 250,758
Expenses
Annual appropriations 248,037 251,307 253,155 245,816 250,758
Total expenses 248,037 251,307 253,155 245,816 250,758
Net surplus/(deficit) 18,799 7,029

Core service costs

AVERAGE COST PER CUSTOMER-INITIATED CONTACT

Cost per contact 201314 201415 201415

$31.10 Telephone
Actual*
$29.88
Actual*
$30.41
Target*
$36.00
Target*: $40.00
201314 $33.00
Counter $64.89 $22.65 $65.00

Correspondence $37.80 $35.81 $45.00

* These figures are unaudited.

Output 2.1 Information services

Description
This output involves responding to customer enquiries on tax and social support
programmes (including child support and KiwiSaver) through electronic channels,
correspondence, telephone, personal appointments, actively providing advice through
a range of communication approaches delivered in the community and through our
complaints management service.

ANNUAL REPORT 2015 65

Activity forecasts

ACTIVITY FORECASTS

201213 201314 201415 201415 201516

Actual Actual Unaudited Actual Unaudited
forecast forecast
Number of customer 6.41m 5.53m 5.706.30m 5.69m 5.305.80m
service contacts
Number of self-help 17.95m 21.23m^ 19.20 23.20m 22.424.8m
service contacts 21.20m

^Restated

Commentary on demand outside forecast range

Number of customer service contacts
Customer service contacts include calls to our contact centre, over-the-counter
interactions and appointments and correspondence, whether by post or electronic.
We are focused on improving our processing of returns, payments and entitlements,
making it easier for customers to self-manage and reducing unnecessary contacts.
Overall, the number of contacts increased by 3% compared to last year. However, this was
slightly less than forecast.
Number of self-help service contacts
Self-help includes usage of our online account services called myIR and our Interactive
Voice Recognition (IVR) service.
All types of self-help service contacts have increased this year, which reflects our efforts
to encourage customers to use self-service channels. We have seen increasing uptake of
myIR as a result of active promotion, with around 298,000 new myIR registrations during
the year and almost 2.7 million more logons compared to 201314. More services are
now available through our IVR system, with 1.5 million customers currently registered
with Voice ID, a key enabler of IVR service uptake.
During the year we identified an issue with the tool that was used to calculate the
number of 201314 self-help service contacts. As a result, we have determined the most
appropriate data source for reporting 201415 volume and have restated the 201314
result to reflect the same approach.

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of customers who are satisfied with the quality of phone Actual Target 85% Target
and correspondence contacts #
85.0% 85.0% 85%

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201314 201415 201516

Minimum percentage of customers who are satisfied with the quality of online Actual Target 90% Target
services #
94.5% 94.9% 90%

201314 201415 201516

Minimum percentage of customers confident that Inland Revenue takes Actual Target 70% Target
appropriate action to ensure people receive their social support entitlements #
72.5% 70.9% 70%

201314 201415 201516

Minimum percentage of attempted calls that we answer Actual Target 75% Target
This year we answered 3.24 million calls a similar number to last year. Overall,
total volumes decreased by 141,000 calls (4%) as our customers continue to shift
89.5% 96.5% 75%
to self-service channels (such as myIR) and as we focus on improving the speed
of service across our other contact channels (such as the minimum percentage of
correspondence answered within two weeks). Success with this performance measure
is a lead indicator of our ability to answer calls within two minutes and has flow-on
effects for overall customer experience and satisfaction.

201314 201415 201516

Minimum percentage of telephone calls answered within two minutes Actual Target 75% Target
We answered a similar number of calls to last year. We managed our calls more effectively
by improving our call management system to direct calls to staff with the best skill-set, and
68.8% 75.0% 75%
by offering options such as a call-back at a time of our customers choosing.

201314 201415 201516

Minimum percentage of correspondence answered within two weeks Actual Target 75% Target

76.0% 80.1% 75%

201314 201415 201516

Maximum average cost of a customer-initiated contact Actual Target $40 Target
Although total contacts increased on last year, our continuous improvement initiatives
and decrease in customer call times have reduced the average cost per contact across
$32.96 $31.10 $35
the phone, correspondence and over-the-counter channels.

ANNUAL REPORT 2015 67

Output 2.2 Adjudication and rulings

Description
This output involves:

Adjudication
providing a technical review of existing taxation disputes referred to the Adjudication Unit
issuing an adjudication report (or other formal communication of conclusions) to the
parties concerned
directing the issuing, where required, of an assessment consistent with the conclusions
of the technical review.

Taxpayer Rulings
considering applications for and providing binding private and product rulings, and
financial arrangement determinations.

Public Rulings
preparing and issuing binding public rulings
developing and publishing non-binding statements on the Commissioners view of the
law administered by Inland Revenue eg, interpretation statements and interpretation
guidelines
considering applications for and providing taxpayer-specific depreciation
determinations
preparing and publishing depreciation and other determinations eg, livestock
valuations
considering and responding to technical correspondence.

Commentary on significant positive variances

This year we maintained a strong performance across all areas, reflecting our continuing
focus on delivery and our ability to better forecast and meet customer demand resulting
in more effective scheduling of our work programme. During the period we further
developed the capability to balance work across business units, with a number of
business areas contributing directly to the high quantity of public items finalised during
the period. Our continuous improvement initiatives have contributed to this and the
other positive variances achieved over 201415.

Performance measures
All targets are unaudited.

201314 201415 201516

Percentage of all rulings reports, adjudication reports, public items and technical Actual Target 100% Target
correspondence or advice that meet the applicable purpose, logic, alternatives,
consultation and practicality standards 100% 100% 100%

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201314 201415 201516

Minimum number of published or finalised public items that give the Actual Target 25 Target
Commissioners interpretation of the law
27 40 25

201314 201415 201516

Minimum percentage of adjudication cases completed within three months of receipt Actual Target 90% Target

98.2% 97.2% 90%

201314 201415 201516

Minimum percentage of taxpayer ruling applications that have a draft ruling Actual Target 90% Target
completed within three months of receipt
100% 100% 90%

201314 201415 201516

Minimum percentage of non-qualifying ruling applications that have a draft Actual Target 90% Target
ruling completed within six months of receipt
100% 100% 90%

201314 201415 201516

Minimum percentage of public items (including relevant public consultation), Actual Target 90% Target
completed within 18 months of allocation
92.0% 94.3% 90%

201314 201415 201516

Minimum percentage of submissions by the applicant on any draft ruling Actual Target 90% Target
responded to within one month of receipt
97.9% 100% 90%

Output 2.3 Government and Executive Services

Description
This output involves all activities associated with ministerial services, including
responding to ministerial correspondence and parliamentary questions. It includes all tax,
child support, student loan, KiwiSaver and family assistance ministerial correspondence
and supply of information.

ANNUAL REPORT 2015 69

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of ministerial correspondence responded to within 10 days Actual Target 95% Target
We received and dealt with more Official Information Act (OIA) requests and
ministerial reports than expected. Although these OIAs and ministerial reports are
92.7% 87.0% 95%
not included in the measure, we gave these a higher priority than other ministerial
correspondence in a number of cases.

201314 201415 201516

Percentage of parliamentary questions responded to within required timeframes Actual Target 100% Target

100% 100% 100%

3 Departmental Output Expense 3: Services to Process

Obligations and Entitlements

Description
The scope of this appropriation covers:
registering taxpayers
making tax assessments
assessing child support liabilities including providing a readily accessible inexpensive
process for reviewing assessments
receiving and making payments to customers
processing applications and payments for social support programmes
collection of ACC Earners levies
supplying information to other government agencies
accounting and reporting the collection of Crown revenue.

Contributes to Impact Statements:

Accurate, timely, complete and efficient processing of notices, statements and social policy
entitlements increases customers confidence in the tax system. When customers have
confidence in the tax system they are more likely to self-manage their compliance obligations.

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Financial performance

OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown 137,696 119,575 112,510 112,510 104,737
Other 20,590 20,997 20,997 20,652 20,997
Total revenue 158,286 140,572 133,507 133,162 125,734
Expenses
Annual appropriations 144,965 140,572 133,507 127,612 125,734
Total expenses 144,965 140,572 133,507 127,612 125,734
Net surplus/(deficit) 13,321 5,550

Core service costs

AVERAGE COST PER RETURN PROCESSED

Cost per return processed 201314 201415 201415

$3.48 Income tax

Actual*
$4.92
Actual*
$4.32
Target*
$6.50
Target*: $5.00
201314 $3.95
GST $1.34 $1.03 $2.00

Employer monthly $5.14 $4.56 $7.75

schedules

* These figures are unaudited.

Output 3.1 Registrations, applications and processing

Description
This output involves processing all registrations, applications and assessments for the tax
and social policy programmes we administer.

ANNUAL REPORT 2015 71

Activity forecasts

ACTIVITY FORECASTS

201314 201415 201415 201516

Actual Unaudited Actual Unaudited
forecast forecast
Number of tax and social policy 689,290 690,000 686,962 650,000
registrations (excluding child support) 765,000 715,000
received
Number of child support applications 53,055^ 44,000 51,706 50,000
received 49,000 56,000
Number of applications for 3,838^ 4,3004,700 4,246 4,4004,900
administrative review of child support
assessments received
Number of returns received 9.14m 8.108.90m 9,492,265 9.2m10.2m
Percentage of returns filed 59.8% 60% 67.4% 68%
electronically
Percentage of income tax returns filed 86.9% 86% 88.8% 90%
electronically
Percentage of GST returns filed 54.9% 55% 64.0% 65%
electronically
Number of payments received 8.71m 8.409.30m 8,903,610 8.5m9.5m
Percentage of payments received 74.2% 75% 82.5% 85%
electronically

^ Restated

Commentary on demand outside forecast range

Number of child support applications received
We have restated the number of child support applications received during 201314 after
we corrected an error with our measurement tool that was excluding some application
types from the result. Our result is above the forecast range due to the previous years
under-reporting of actual volumes. The forecast range for 201516 has been adjusted to
take into account the revised calculation.
Number of applications for administrative review of child support assessments received
We have also restated the 201314 volume based on an improvement to the way we
count applications received. We now count applications on the day received, not the day
processed. This resulted in a minor increase.
Filing and paying online
As a result of the success of our strategy to make our digital offering more compelling,
we continue to see significant increases in the proportion of customers who use digital
channels such as myIR to file their returns online and make payments electronically. The
number of customers using these services exceeded our expectations.

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Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of income tax returns finalised within four weeks Actual Target 90% Target

94.6% 95.5% 90%

201314 201415 201516

Minimum percentage of GST returns finalised within three weeks Actual Target 95% Target

99.6% 99.2% 95%

201314 201415 201516

Minimum percentage of employer monthly schedule employee deductions Actual Target 95% Target
finalised within four weeks
99.7% 99.8% 95%

201314 201415 201516

Minimum percentage of social policy and tax registrations processed within five Actual Target 85% Target
working days
During the year, an IT issue led to approximately 77,500 KiwiSaver registrations being
89.6% 80.5% 85%
held and not released for processing. This issue has been investigated and resolved
primarily through ensuring issues are escalated appropriately. Excluding this one-off
issue, we achieved a processing result of 88.3% for the year.

201314 201415 201516

Minimum percentage of payments banked on the day of receipt Actual Target 99% Target

99.3% 99.4% 99%

201314 201415 201516

Minimum percentage of payments correctly processed to customers accounts Actual Target 99.5% Target

99.8% 100% 99.5%

ANNUAL REPORT 2015 73

 201314 201415 201516
Maximum average cost of processing income tax returns, GST returns and Actual Target $5 Target
employer monthly schedules
Although the total number of returns has increased this year, the cost of processing
$3.95 $3.48 $5
each return continues to decline as more of our customers file their returns online. In
201415, 67.4% of all returns were filed electronically, compared to 59.8% last year.

Output 3.2 Statements, notices, refunds and payments

Description
This output involves:
issuing statements, notices, rebates and refunds
receiving and banking payments.
It covers all the tax and social policy programmes that we administer.

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of notices and statements produced without error # Actual Target 98.5% Target

99.4% 99.4% 98.5%

201314 201415 201516

Minimum percentage of Income Tax refunds issued within six weeks Actual Target 85% Target

90.2% 91.5% 85%

201314 201415 201516

Minimum percentage of GST refunds issued within four weeks Actual Target 95% Target

97.8% 97.2% 95%

201314 201415 201516

Minimum percentage of tax credit claim payments made within three weeks Actual Target 90% Target

96.1% 96.9% 90%

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201314 201415 201516

Minimum percentage of Working for Families Tax Credit (WfFTC) payments Actual Target 95% Target
made on the first regular payment date following an application
98.9% 99.4% 95%

201314 201415 201516

Minimum percentage of paid parental leave payments issued to customers on Actual Target 97% Target
the first regular pay day following the agreed date of entitlement
98.4% 98.2% 97%

Output 3.3 Child support

Description
This output involves dealing with child support assessments and providing an
administrative process for reviewing child support assessments that is both inexpensive
and readily accessible to custodians and liable parents.

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of child support assessments issued within two weeks Actual Target 80% Target
The changes in child support legislation that took effect on 1 April 2015 required
changes to the systems and processes which form the basis for calculating timeliness.
80.7% 82.0% 80%
Performance to 31 March 2015 was 81.6%, and performance in the final quarter from
1 April to 30 June 2015, using the updated systems and processes, was 83.3%. Please
note that an adjusted measurement approach has been used from 1 April 2015 due to
a refreshed data-set being available.

201314 201415 201516

Minimum percentage of child support administrative review decisions issued within Actual Target 85% Target
10 weeks
N/A 90.7% 85%

ANNUAL REPORT 2015 75

 4 Departmental Output Expense 4: Management of Debt
and Outstanding Returns

Description
The scope of this appropriation covers taking action where returns are outstanding and
where payments are overdue, including providing people with assistance on the actions
they need to take to meet their obligations. This includes collection on behalf of other
agencies and external parties.

Contributes to Impact Statements:

We apply a tailored approach to our interventions based on our Prevent, Assist, Recover
and Enforce model (PARE). This model is designed to take into account past compliance
behaviour together with current circumstances. By attempting to prevent people and
businesses from missing filing and payment dates in the first instance, we are able to be more
effective at following up quickly on those who do not file and pay on time.

Financial performance

OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown 134,788 140,297 148,501 148,501 143,207
Other 1,859 2,962 2,962 2,171 2,962
Total revenue 136,647 143,259 151,463 150,672 146,169
Expenses
Annual appropriations 132,610 143,259 151,463 148,033 146,169
Total expenses 132,610 143,259 151,463 148,033 146,169
Net surplus/(deficit) 4,037 2,639

Additional funding received from Government for initiatives

Budget-funded 201314 201415 201415

Initiative Unaudited Unaudited Unaudited
ROI actual ROI actual ROI target
Early debt $13.79 $18.91 $8.20
Ageing debt $11.45 $11.19 $5.50
Unfiled returns $19.64 $16.40 $4.00

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Additional funding for child support aims to progressively increase the amount of debt
repaid over a five year period. The total cash target for this period is $174 million. Work
to date has resulted in an extra $1.5 million recovered from liable parents.

Core service costs

COST OF COLLECTING AN OVERDUE RETURN

201314 201415 201415

Actual* Actual* Target*
Collecting an overdue return $5.60 $9.00 $15.00

* These figures are unaudited.

Output 4.1 Outstanding returns

Description
This output involves all activities associated with collecting outstanding returns,
including taking appropriate follow-up action against taxpayers who do not file a return.

Performance measures
All targets are unaudited.

201314 201415 201516

Maximum percentage growth in outstanding returns Actual Target 0% Target
Our collections approach is targeting returns based on risk and assessment value,
regardless of age. There has also been an increased investment in the collection of
(7.1%) (21.5%) (2%)
outstanding returns through Budget 2014.

201314 201415 201516

Minimum percentage of outstanding returns finalised within six months Actual Target 65% Target

67.4% 69.9% 65%

201314 201415 201516

Minimum percentage of outstanding employer monthly schedules finalised Actual Target 85% Target
within three months
92.0% 92.2% 90%

201314 201415 201516

Maximum average cost of finalising an outstanding return Actual Target $15.00 Target
The average cost of finalising outstanding returns increased in 201415 due to the
provision of Budget 2014 funding, which enabled us to invest more resource in
$5.60 $9.00 $12.00
targeting the more difficult cases which take longer to resolve. 201415 is the second
year where there was a significant positive variance. We have reviewed the target
accordingly, and are increasing it from $15 to $12 for 201516.

ANNUAL REPORT 2015 77

Output 4.2 Overdue debt

Description
This output covers all activities associated with collecting overdue debt (excluding child
support debt). It involves taking both a preventative focus and appropriate follow-up
action when customers do not pay on time, including providing them with assistance on
how they can get back on track with their payment obligations.

Performance measures
All targets are unaudited.

201314 201415 201516

Maximum percentage of collectable debt value over two years old Actual Target 60% Target
The reduction in aged collectable debt has been achieved by stopping new collectable debt
progressively ageing through our early intervention strategy, and resolving more of our aged
52.2% 48.7% 60%
collectable debt as well as addressing older debt which is not collectable. This demonstrates
good progress with our debt strategy to have a newer, more collectable debt book.

201314 201415 201516

Minimum percentage of debt cases resolved within six months Actual Target 80% Target

N/A 81.7% 80%

201314 201415 201516

Minimum percentage of debt value resolved for those who did not have a debt at the Actual Target 65% Target
start of the year
Our focus on intervening early with new debt has seen an improvement in the result
73.3% 78.5% 65%
from last year. This measure is also influenced by the degree to which large enterprise
customers get an extended period of time to make end of year income tax payments.

201314 201415 201516

Minimum cash collected for every debt dollar spent Actual Target $40.00 Target
This measure is influenced to some degree by large enterprises using extension-of-time
payment provisions, as well as more cash collected from budget-funded initiatives.
$45.95 $48.77 $40.00

Output 4.3 Child support debt management

Description
This output involves all activities associated with the recovery of overdue child support
payments. It includes taking appropriate enforcement action against parents who are less
inclined to pay for the support of their children.

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Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of NZ paying parent child support debt cases resolved Actual Target 75% Target
within 12 months
75.5% 79.5% 75%

5 Departmental Output Expense 5: Taxpayer Audit

Description
This output is limited to:
identifying risks to revenue and designing and undertaking audit activities accordingly
managing litigation of disputed tax cases.

Contributes to Impact Statements:

We use intelligence analysis to target our compliance activities to customers who
are non-compliant or at risk of non-compliance. This creates an environment where
customers expect us to detect non-compliance and are deterred from providing
inaccurate information. It also protects the revenue base and provides certainty to
customers in relation to the application of the law.
We also use our compliance activities to educate customers who are unaware of their
obligations and help them get it right. We only use enforcement action where necessary.
This ensures that the behaviour of non-compliant customers improves. Consequently, more
customers pay and file information on time in the future.

Financial performance

OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown 171,597 165,866 176,794 176,794 175,903
Other 434 265 265 326 265
Total revenue 172,031 166,131 177,059 177,120 176,168
Expenses
Annual appropriations 165,269 166,131 177,059 172,017 176,168
Total expenses 165,269 166,131 177,059 172,017 176,168
Net surplus/(deficit) 6,762 5,103

ANNUAL REPORT 2015 79

Additional funding received from Government for initiatives

Budget-funded initiative 201314 201415 201415

Unaudited Unaudited Unaudited
ROI actual ROI actual ROI target
Hidden Economy $5.51 $5.21 $5.00
Aggressive Tax Planning $62.43 $34.10 $11.60
Fraud $3.74 $3.09 $3.10

Output 5.1 Taxpayer audit

Description
This output involves the auditing of taxpayers including individuals, small to medium businesses and larger businesses. It
includes audits of duties and non-residents.

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of cases completed that are correct, complete, clear and Actual Target 90% Target
appropriately referenced #
95.1% 96.6% 90%

201314 201415 201516

Minimum percentage of audited customers who are satisfied with their Actual Target 65% Target
experience #
This year, we surveyed audited customers once per quarter rather than in previous
74.4% 76.2% 70%
years when we have measured customer satisfaction by annual survey. Overall, the
level of customer satisfaction has improved from last year and remains at a high level.
We have increased the target for 201516.

201314 201415 201516

Minimum percentage of customers confident that Inland Revenue takes Actual Target 75% Target
appropriate action against those who do not comply #
77.1% 75.0% 75%

201314 201415 201516

Minimum percentage of audits that result in a material discrepancy Actual Target 75% Target

79.2% 80.3% 75%

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201314 201415 201516

On average we will complete audits within agreed timeframes: Actual Target Achieved Target
4 months for general audits Achieved Achieved Achieved
12 months for risk-based audits
16 months for evasion and fraud audits
28 months for aggressive tax planning audits

201314 201415 201516

Minimum percentage of disputed cases completed within 15 months Actual Target 75% Target

79.1% 75.9% 75%

201314 201415 201516

Minimum discrepancy identified for every output dollar spent Actual Target $7.00 Target

$8.00 $7.52 $7.00

Output 5.2 Litigation management

Description
This output involves the management of litigation of disputed tax cases, including the
requirement to state the case through to resolution by the courts.

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of litigation judgements found in favour of the Actual Target 66% Target
Commissioner
This achievement reflects a total of 74 judgements for the year, 62 of which were found
83.3% 83.8% 66%
fully in the Commissioners favour (ie, in relation to all issues). A case will generally
concern multiple issues and this measure requires a win on all issues in a single
judgement. We are confident our interpretation of the law is correct before we take
any case to court and the number of judgements in our favour reflects this. With the
small number of cases, any slight variation in judgements found in the Commissioners
favour can alter the percentage achieved significantly.

ANNUAL REPORT 2015 81

 6 Departmental Output Expense 6: Services to Other
Agencies

Description
This output is limited to the provision of services by Inland Revenue to other agencies,
where those services are not within the scope of another departmental output expense
appropriation in Vote Revenue.

Contributes to Impact Statements: N/A

Financial performance

OUTPUT STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget
$000 $000 $000 $000 $000
Revenue
Crown
Other 555 3,060 3,060 2,396 3,060
Total revenue 555 3,060 3,060 2,396 3,060
Expenses
Annual appropriations 555 3,060 3,060 2,394 3,060
Total expenses 555 3,060 3,060 2,394 3,060
Net surplus/(deficit) 2

Performance measures
All targets are unaudited.

201314 201415 201516

Minimum percentage of satisfaction of the Department of Internal Affairs for Actual Target 95% Target
services provided
This was the first year a measure and target has been set for this appropriation. The
N/A 80.0% 70%
target of 95% was set prior to the completion of a measurement methodology. The
result of 80% satisfaction from the Department of Internal Affairs reflects a high level
of satisfaction with the services provided based on the measurement methodology.
The target for the 201516 financial year has been set at 70%.

201314 201415 201516

Minimum percentage of satisfaction of the New Zealand Productivity Actual Target 95% Target
Commission for services provided
N/A 98.0% 70%

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Departmental Capital Expenditure and Capital Injections

Description
The scope of this appropriation is limited to the purchase or development of assets by
and for the use of the Inland Revenue Department, as authorised by section 24(1) of the
Public Finance Act 1989.

Contributes to Impact Statements:

This appropriation is intended to invest in the renewal, upgrade and redesign of assets
that support the delivery of the Departments services. This includes enhancements to
support child support scheme reform and the commencement of the transformation
programme including detailed design of strategic initiatives and progressing core
foundational and tactical requirements.

Financial performance
For details of departmental capital expenditure incurred against appropriations please
refer to the Statement of Budgeted and Actual Expenses and Capital Expenditure
Incurred Against Appropriations, in the Departmental capital expenditure lines
Property, plant and equipment, Intangible assets and Total departmental capital
expenditure on page 89.
For details of departmental capital injections please refer to page 90.

Commentary on performance information

Expenditure supports the delivery of our output performance measures in accordance
with our capital asset management priorities.
Deliver infrastructure that will support transformation
Our investment profile changed due to the timing of our investment in business
transformation foundational technology.
Maintain and improve business infrastructure
The assumptions we made around the investment required to maintain and improve our
business infrastructure and the technology needed for us to transform changed during
the year. Our investment profile changed due to the timing of our investment in business
transformation foundational technology.

Performance measures
All targets are unaudited.

201415 Target 40% 20% 40%

Implement government policy initiatives
201415 Actual 41% 1% 58%
Deliver infrastructure that will support transformation

Maintain and improve business infrastructure

201516 Target 10% 60% 30%

ANNUAL REPORT 2015 83

Our impact indicators
Full details of our impact indicators are listed below.

More customers are able to self-manage

Factors that influenced target setting: this impact is key to enabling improved customer compliance and cost-effectiveness in a fiscally
constrained environment. We only include results for the contextual indicator under this impact customer compliance costs are
minimised when the data is less than two years old. The survey that this indicator uses was last undertaken in 2009 and results were
included in the 2011 Annual Report.

83
By June 2018
% of customers who are aware of their % Increase to
obligations and entitlements increases
YE June 2015
83% YE June 2014
85%
or more

82
By June 2018
% of customers who find it easy to % Increase to
comply increases
YE June 2015
80% YE June 2014
80%
or more

More customers register and report accurate information when required

Factors that influenced target setting: this impact is key to improving customer self-management, reducing unneccessary contacts and
improving end-to-end planning.

88
By June 2018
% of returns filed without errors increases % Increase to

July 2014 March 2015

87% July 2013 March 2014
88%
or more

84 ANNUAL REPORT 2015

 07

89
By June 2018
% of applications submitted without % Increase to
errors increases
YE June 2015
90% YE June 2014
90%
or more

99
By June 2018
% of correct student loan deductions % Maintain at
for New Zealand-based borrowers is
maintained July 2014 March 2015
99% July 2013
98%
or more
March 2014

95.6
Correlation
Employer registrations follow an % N/A
appropriate trend (contextual)
We report on this indicator to provide additional contextual YE June 2015
Correlation 98%
information. Employers correlation is between the number YE June 2014
of employers who register for PAYE and the percentage of the
labour force that is employed (from the Statistics New Zealand
Household Labour Force Survey).

98
Correlation
GST assessed to consumer spending % N/A
follows an appropriate trend (contextual)
We report on this indicator to provide additional contextual YE March 2015
Correlation 98%
information. This measure highlights a link between consumers YE March 2014
spending and the amount of GST assessed, showing the
completeness of information provided by GST customers.
No target has been set because this is an indicator that is beyond
our influence.

ANNUAL REPORT 2015 85

More customers claim their correct entitlements

Factors that influenced target setting: the expected impact of the upcoming changes to Working for Families Tax Credits eligibility rules
has been taken into account when assessing our ability to improve accuracy.

67
Tax year 2017
% of accurate Working for Families Tax % Increase to
Credits payments increases
Payments are considered accurate if customers total yearly Tax year 2014
67% Tax year 2013
70%
or more
payments are within 20% of their entitlement. The accuracy of
payments is primarily a reflection of the quality of information
provided to us by our customers.

77
By June 2018
% of child support assessments collected % Increase to
increases
YE June 2015
75% YE June 2014
75%
or more

35
Correlation
Working for Families registrations follow %
an appropriate trend N/A
(contextual)
We report on this indicator to provide more context. Working YE July 2015
Correlation
for Families Tax Credits correlation is between the number of 32% YE June 2014
customers who receive payments from Inland Revenue and
the number of households with dependent children (from the
Statistics New Zealand Household Labour Force Survey).

Donation rebates claimed follow an

appropriate trend
We report on this indicator to provide more context to gauge if
58 Tax year 2014
%

59% Tax year 2013

N/A
(contextual)

customers are claiming donation rebates. It looks at the relationship

between donation rebates claimed from Inland Revenue and
donation levels recorded at the Charities Service.

86 ANNUAL REPORT 2015

 07
More customers pay and file information on time

Factors that influenced target setting: this impact is a key compliance driver and consequently stretch targets are appropriate.

83
Tax year 2017
% of returns filed on time is maintained % Maintain at

Tax year 2014

83% Tax year 2013
83%
or more

86
Tax year 2017
% of payments made by customers on % Maintain at
time is maintained
Tax year 2014
86% Tax year 2013
86%
or more

67
By June 2018
% of child support assessments paid on % Increase to
time increases
YE June 2015
65% YE June 2014
68%
or more

The behaviour of non-compliant customers improves

Factors that influenced target setting: the economic environment is a significant factor in debt performance. Maintaining or making
small improvements will be challenging.

77
By June 2018
The compliance behaviour of customers % Increase to
who received an audit intervention
improves YE June 2015
86% YE June 2014
85%
or more

ANNUAL REPORT 2015 87

 57
By June 2018
% of collectable debt to total debt increases % Increase to

YE June 2015
62% YE June 2014
65%
or more

15
By June 2018
% of collectable debt recovered increases % Increase to

YE June 2015
13% YE June 2014
13%
or more

5.8
By June 2018
% of collectable debt to revenue assessed % Decrease to
decreases
YE June 2015
6.8% YE June 2014
6.0%
or less

88 ANNUAL REPORT 2015

 07

Appropriation Statements
The following statements report information about the expenses and capital expenditure incurred
against each appropriation administered by Inland Revenue for the year ended 30 June 2015.
STATEMENT OF BUDGETED AND ACTUAL EXPENSES AND CAPITAL EXPENDITURE INCURRED AGAINST APPROPRIATIONS
FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516

Expenditure1 Unaudited Unaudited Expenditure1 Unaudited
budget revised forecast
budget2
$000 $000 $000 $000 $000
Vote: Revenue
Output expenses
Policy advice 8,118 8,053 9,153 8,128 8,002
Services to inform the public about entitlements and 248,037 251,307 253,155 245,816 250,758
meeting obligations
Services to process obligations and entitlements 144,965 140,572 133,507 127,612 125,734
Management of debt and outstanding returns 132,610 143,259 151,463 148,033 146,169
Taxpayer audit 165,269 166,131 177,059 172,017 176,168
Total departmental output expenses 1
698,999 709,322 724,337 701,606 706,831

Services to other agencies RDA3 555 3,060 3,060 2,394 3,060

Total output expenses 699,554 712,382 727,397 704,000 709,891

Other expenses
Transformation 55,000
Administration and use of another departments 973 244 244
appropriations
Total other expenses 973 244 244 55,000

Total expenditure 700,527 712,382 727,641 704,244 764,891

Departmental capital expenditure

Property, plant and equipment 15,564 20,000 4,000 3,678 10,000
Intangible assets 29,127 42,336 29,000 28,710 95,000
Total departmental capital expenditure 44,691 62,336 33,000 32,388 105,000

1
Excludes remeasurement of ($1,999,000), (201314: $641,000).
2
The Revised Budget figures for 201415 are those included in The Supplementary Estimates of Appropriations and Supporting
Information for the year ending 30 June 2015.
3
Revenue-dependent appropriation (RDA). The amount of a RDA is limited to the amount of revenue earned.

The budget, revised budget and forecast figures have been prepared in accordance with NZ GAAP, using accounting policies that are
consistent with those adopted in preparing the departmental financial statements in part eight.

ANNUAL REPORT 2015 89

Explanations of significant variances against budget are detailed in Note 25 of the departmental financial statements in part eight.

All of the 201415 performance information for each appropriation administered by Inland Revenue has been reported within part seven,
Measuring our performance.

STATEMENT OF EXPENSES AND CAPITAL EXPENDITURE INCURRED WITHOUT, OR IN EXCESS OF, APPROPRIATION OR
OTHER AUTHORITY
FOR THE YEAR ENDED 30 JUNE 2015

In the 201415 financial year there were no instances of:

expenses and capital expenditure incurred in excess of appropriation (201314: $nil)
expenses and capital expenditure incurred without appropriation or other authority,
or outside the scope or period of appropriation (201314: $nil).

STATEMENT OF DEPARTMENTAL CAPITAL INJECTIONS

FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415

Actual capital Actual capital Unaudited
injections injections revised
budget
$000 $000 $000
Vote: Revenue
Capital injections 5,329 3,572 3,572

Inland Revenue has not received any capital injections during the year without, or in excess of, authority (201314: $nil).

90 ANNUAL REPORT 2015

 07
STATEMENT OF NON-DEPARTMENTAL APPROPRIATIONS
FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516

Actual Unaudited Unaudited Actual Unaudited
budget revised forecast
budget7
$000 $000 $000 $000 $000
Vote: Revenue 1

Benefits and other unrequited expenses

Child support payments PLA 241,595 267,000 263,000 265,078 276,000
Child tax credit PLA 1,835 1,300 1,300 1,298 1,100
Family tax credit PLA 1,965,263 1,934,000 1,857,000 1,854,048 1,837,000
In-work tax credit PLA 533,266 494,000 512,000 511,186 529,000
KiwiSaver: Fee subsidy (11) (8)
KiwiSaver: Interest 7,294 13,000 13,000 8,413 15,000
KiwiSaver: Kick-start payment 227,772 171,000 231,000 218,364
KiwiSaver: Tax credit 569,163 643,000 643,000 629,297 705,000
Minimum family tax credit PLA 14,275 13,000 16,000 15,975 16,000
Paid parental leave payments 164,5042 176,000 189,000 180,286 233,000
Parental tax credit PLA 17,640 19,000 21,000 20,967 31,000
Payroll subsidy PLA 3,129 4,000 4,100 3,945 5,100
Research and development tax credit (3,952)
Total benefits and other unrequited expenses 3,741,773 3,735,300 3,750,400 3,708,849 3,648,200

Borrowing expenses
Adverse event interest PLA 12 10 20 (1) 10
Environmental restoration account interest PLA 1,636 2,000 2,000 1,634 2,000
Income equalisation interest PLA 7,260 7,000 15,000 3,543 15,000
Total borrowing expenses 8,908 9,010 17,020 5,176 17,010

Other expenses
Bad debt write-offs 930,158
Impairment of debt 3
94,902 6

Impairment of debt and debt write-offs4 1,162,098 1,180,356 860,829 1,179,224
Impairment of debt relating to child support 6
Impairment of debt relating to student loans 5
41,000 100,000 282,000 152,000 100,000
Initial fair value write-down relating to student loans 629,539 668,000 622,844 601,665 646,000
Total other expenses 1,695,599 1,930,098 2,085,200 1,614,494 1,925,224

Total appropriations 5,446,280 5,674,408 5,852,620 5,328,519 5,590,434

1
PLA refers to appropriations established under a permanent legislative authority.
2
Historically Inland Revenue had made paid parental leave payments on the basis they had PLA. During 201314 it was identified they
did not have PLA. Refer to the Statement of Unappropriated Expenditure for details.
3
Impairment of debt relates to general tax, Working for Families Tax Credits and KiwiSaver debt.

ANNUAL REPORT 2015 91

4
Impairment of debt and debt write-offs is a new appropriation combining both bad debt write-offs and impairment of debt, effective
from 1 July 2014.
5
Excludes remeasurement of $117 million (201314 ($29) million). Macroeconomic changes are classified as a remeasurement, as
defined in the Public Finance Act 1989. The Schedule of Non-departmental Expenditure includes remeasurement adjustments in
the impairment figure. However, the Statement of Non-departmental Appropriations excludes remeasurement adjustments. The
remeasurement relates to changes in the macroeconomic assumptions used for the valuation of the receivable.
6
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 of the non-departmental
financial schedules in part nine for details.
7
The revised budget figures for 201415 are those included in The Supplementary Estimates of Appropriations and Supporting
Information for the year ending 30 June 2015.
All of the non-departmental appropriations administered by the Department are exempt from the requirements to report end-of-year
performance information, under section 15D of the Public Finance Act 1989.
The budget, revised budget and forecast figures have been prepared in accordance with NZ GAAP, using accounting policies that are
consistent with those adopted in preparing the non-departmental financial schedules in part nine.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

STATEMENT OF NON-DEPARTMENTAL UNAPPROPRIATED EXPENDITURE

In the 201415 financial year:

There were no instances of expenditure incurred outside of appropriation (201314: $nil).
There were no instances of expenditure incurred in excess of appropriation (201314: $67.689 million).

92 ANNUAL REPORT 2015

 08
Departmental
financial statements

ANNUAL REPORT 2015 93

STATEMENT OF COMPREHENSIVE
REVENUE AND EXPENSE

FOR THE YEAR ENDED 30 JUNE 2015

Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Revenue
Revenue Crown 717,838 683,635 685,442 698,650 736,144
Other revenue 1 25,698 28,747 27,199 26,950 28,747
Total revenue 743,536 712,382 712,641 725,600 764,891

Expenses
Personnel 2 431,986 457,750 467,030 463,668 503,944
Operating 3 194,845 177,191 179,820 176,867 183,745
Depreciation and impairment 4 13,440 16,848 12,708 12,497 12,362
Amortisation and impairment 5 37,925 38,528 31,052 31,032 42,638
Capital charge 6 21,616 22,031 22,031 22,031 22,166
Finance costs 7 74 34 148 36
Total expenses 699,886 712,382 712,641 706,243 764,891

Net surplus/(deficit) and total comprehensive 43,650 19,357

revenue and expense
The accompanying accounting policies and notes form part of these financial statements.
Explanations of significant variances against budget are detailed in Note 25.

94 ANNUAL REPORT 2015

 08
STATEMENT OF CHANGES IN TAXPAYERS FUNDS

FOR THE YEAR ENDED 30 JUNE 2015

Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Balance at start of year 270,343 275,393 275,393 275,392 277,093
Total comprehensive revenue and expense 43,650 19,357
Repayment of surplus to the Crown 8 (43,651) (19,357)
Capital injection 5,329 2,336 3,572 3,572 2,480
Capital withdrawal (279) (1,872) (1,872) (34)
Balance at end of year 275,392 277,729 277,093 277,092 279,539

The accompanying accounting policies and notes form part of these financial statements.

ANNUAL REPORT 2015 95

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2015
Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Taxpayers' funds
Taxpayers' funds 275,392 277,729 277,093 277,092 279,539
Total taxpayers' funds 275,392 277,729 277,093 277,092 279,539

Represented by:
Current assets
Cash and cash equivalents 30,643 12,000 12,000 20,679 12,000
Debtor Crown 238,430 195,502 227,558 245,557 160,342
Debtors and prepayments 9 16,811 15,422 12,407 15,471 11,922
Inventories held for distribution 10 879 1,000 851 873 800
Total current assets 286,763 223,924 252,816 282,580 185,064

Non-current assets
Prepayments 9 834 66 795 328 42
Property, plant and equipment 4 55,450 59,176 46,330 45,689 43,968
Intangible assets 5 107,853 113,487 105,449 105,186 157,811
Total non-current assets 164,137 172,729 152,574 151,203 201,821

Total assets 450,900 396,653 405,390 433,783 386,885

Current liabilities
Creditors and other payables 11 44,303 33,200 37,418 37,090 33,200
Surplus payable to the Crown 8 43,651 19,357
Employee entitlements 12 47,931 43,815 50,889 58,345 36,500
Provision for other liabilities 13 53 53 90 174
Derivative financial instruments 14 1
Finance leases 15 386 274 420 707 172
Other financial liabilities 16 183 205 271 275 176
Total current liabilities 136,508 77,494 89,051 115,864 70,222

Non-current liabilities
Employee entitlements 12 36,626 39,948 37,091 38,807 35,700
Provision for other liabilities 13 912 851 1,007 397 912
Finance leases 15 593 12 172 487
Other financial liabilities 16 869 619 976 1,136 512
Total non-current liabilities 39,000 41,430 39,246 40,827 37,124

Total liabilities 175,508 118,924 128,297 156,691 107,346

Net assets 275,392 277,729 277,093 277,092 279,539

The accompanying accounting policies and notes form part of these financial statements.
Explanations of significant variances against budget are detailed in Note 25.

96 ANNUAL REPORT 2015

 08
STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2015

Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Cash flows operating activities
Receipts from Crown 678,163 692,404 696,314 691,523 803,360
Receipts from government departments 1,310 7,572 3,807 3,769 4,630
Receipts from third parties 21,977 21,397 25,659 24,158 24,492
Payments to employees (432,522) (458,735) (463,607) (451,073) (519,724)
Payments to suppliers (184,028) (180,903) (181,441) (180,275) (185,070)
Payments for capital charge (21,616) (22,031) (22,031) (22,031) (22,166)
Goods and services tax (net) 2,252 (1,779) (2,773) (2,215) (2,550)
Net cash flow from operating activities 17 65,536 57,925 55,928 63,856 102,972

Cash flows investing activities

Receipts from sale of property, plant and equipment 114 303
Purchase of property, plant and equipment (15,564) (20,000) (3,587) (3,678) (10,000)
Purchase of intangible assets (29,102) (40,008) (28,647) (28,710) (94,998)
Net cash flow from investing activities (44,552) (60,008) (32,234) (32,085) (104,998)

Cash flows financing activities

Capital injection 5,329 2,336 3,572 3,572 2,480
Repayment of surplus (41,080) (43,650) (43,650)
Capital withdrawal (279) (1,872) (1,872) (34)
Payments of finance leases 58 (253) (387) 215 (420)
Net cash flow from financing activities (35,972) 2,083 (42,337) (41,735) 2,026

Net (decrease)/increase in cash and cash (14,988) (18,643) (9,964)

equivalents
Opening cash and cash equivalents 45,631 12,000 30,643 30,643 12,000
Closing cash and cash equivalents 30,643 12,000 12,000 20,679 12,000

The accompanying accounting policies and notes form part of these financial statements.
The goods and services tax (GST) (net) component of operating activities reflects the net GST paid to and received from Inland Revenue. The GST
components have been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.

ANNUAL REPORT 2015 97

STATEMENT OF COMMITMENTS

AS AT 30 JUNE 2015
Notes 201314 201415
Actual Actual
$000 $000
Capital commitments
IT equipment 372 589
Leasehold improvements 558 150
Intangible assets 2,841 2,284
Total capital commitments 3,771 3,023

Operating commitment leases as lessee

The future aggregate minimum lease payments to be paid
under non-cancellable accommodation leases:
Not later than one year 32,642 33,805
Later than one year and not later than five years 115,685 114,330
Later than five years 77,667 63,082
Total non-cancellable operating commitments 225,994 211,217

Total commitments 18 229,765 214,240

The accompanying accounting policies and notes form part of these financial statements.

98 ANNUAL REPORT 2015

 08
STATEMENT OF CONTINGENT LIABILITIES
AND CONTINGENT ASSETS

AS AT 30 JUNE 2015
Notes 201314 201415
Actual Actual
$000 $000
Contingent liabilities
Legal proceedings and disputes taxpayer 843 1,706
Personal grievances 30 30
Total contingent liabilities 19 873 1,736

Contingent assets
Legal proceedings and disputes taxpayer 2,867 2,647
Total contingent assets 19 2,867 2,647

The accompanying accounting policies and notes form part of these financial statements.

ANNUAL REPORT 2015 99

STATEMENT OF ACCOUNTING POLICIES
These financial statements are for the year ended 30
June 2015 and include forecast financial statements
for the year ending 30 June 2016. The statements have
been combined to provide a single view of budget,
actual and forecast information.
References to the financial statements incorporate the financial
statements and the forecast financial statements, unless
otherwise stated.
REPORTING ENTITY
Inland Revenue is a government department as defined
by section 2 of the Public Finance Act (PFA) 1989 and
is domiciled and operates in New Zealand. The relevant
legislation governing Inland Revenues operations is the PFA
1989. It is a wholly owned entity of the Crown whose primary
objective is to provide services to the public rather than
making a financial return. Accordingly, Inland Revenue has
designated itself as a Public Benefit Entity (PBE) for financial
reporting purposes.
REPORTING PERIOD
The reporting period for these financial statements is for the
year ended 30 June 2015. The forecast financial statements are
for the year ending 30 June 2016.
The financial statements were authorised for issue by the Chief
Executive of Inland Revenue on 29 September 2015.
STATEMENT OF COMPLIANCE
The financial statements have been prepared in accordance
with the requirements of the PFA 1989, which includes the
requirement to comply with New Zealand generally accepted
accounting practice (NZ GAAP), and Treasury Instructions.
In May 2013, the External Reporting Board issued a new suite
of PBE accounting standards for application by public sector
entities for reporting periods beginning on or after 1 July
2014. Inland Revenue has applied the new suite of Tier 1 PBE
accounting standards in preparing the 30 June 2015 financial
statements.
These financial statements are the first financial statements
presented in accordance with the new Tier 1 PBE accounting
standards. There are no material adjustments arising on
transition to the new Tier 1 PBE accounting standards.
BASIS OF PREPARATION
The financial statements have been prepared on a going
concern basis, and the accounting policies set out below have
been applied consistently to all periods presented in these
financial statements.
100 ANNUAL REPORT 2015
These financial statements have been prepared on a historical
cost basis, unless otherwise stated. The accrual basis of
accounting has been used, unless otherwise stated.
These financial statements are presented in New Zealand dollars,
and all values are rounded to the nearest thousand dollars ($000).
The functional currency of Inland Revenue is New Zealand dollars.
STANDARDS ISSUED AND NOT EARLY
ADOPTED
There are no new relevant standards and interpretations issued
this year and Inland Revenue has not early adopted any new
standards and interpretations.
ESTIMATIONS AND JUDGEMENTS
In preparing these financial statements, judgements, estimates
and assumptions have been made concerning the future.
These estimates and their associated assumptions may differ
from the subsequent actual results. Estimates and assumptions
are continually evaluated and are based on experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Revisions
to accounting estimates are recognised in the period the
estimate is revised in if the revision affects only that period, or
in the period of the revision and future periods if the revision
affects both current and future periods.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities within the next financial year are related to
retiring and long-service leave liabilities.
An analysis is provided in Note12 of the exposure in relation
to estimates and uncertainties surrounding retiring and long-
service leave liabilities.
Finance leases
Determining whether a lease agreement is a finance lease
or an operating lease requires judgement as to whether the
agreement transfers substantially all the risks and rewards
of ownership to Inland Revenue. Judgement is required on
various aspects that include, but are not limited to, the fair
value of the leased asset, the economic life of the leased asset,
whether or not to include renewal options in the lease term,
and determining an appropriate discount rate to calculate the
present value of the minimum lease payments. Classification as
a finance lease means the asset is recognised in the Statement
of Financial Position as property, plant, and equipment, whereas
with an operating lease no such asset is recognised.
Inland Revenue has exercised its judgement on the appropriate
classification of equipment leases, and has determined that
one of these arrangements included a finance lease.

ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results, financial position, and output
statements within part seven, Measuring our performance have
been applied.
Budget and forecast figures
The budget figures for 201415 are those included in The
Estimates of Appropriations for the year ending 30 June 2015.
The estimated actual figures for 201415 and the forecast
figures for 201516 are those included in The Estimates of
Appropriations for the year ending 30 June 2016. The estimated
actual figures represent forecasts submitted to Treasury based
on all Government decisions and assumptions as at 28 April 2015.
It is not intended that the forecast financial statements will be
updated subsequent to presentation.
The budget, estimated actual and forecast figures have been
prepared in accordance with NZ GAAP, using accounting
policies that are consistent with those adopted in preparing
these financial statements.
GST
All items in the financial statements, and appropriation
statements, are stated exclusive of GST, except for debtor
Crown, net debtors and accounts payable, which are stated on
a GST-inclusive basis. Where GST is not recoverable as input
tax, it is recognised as part of the related asset or expense.
The net amount of GST owing to or from Inland Revenue
at balance date, being the difference between output GST
and input GST, is included in creditors and other payables or
debtors and prepayments in the Statement of Financial Position.
The net GST paid to or received from Inland Revenue, including
the GST relating to investing and financing activities, is classified
as an operating cash flow in the Statement of Cash Flows.
Commitments and contingencies are disclosed exclusive of GST.
Income tax
Government departments are exempt from income tax as
public authorities, so accordingly, no charge for income tax has
been provided for.
Revenue
Revenue is measured at the fair value of consideration received
or receivable.
Revenue is recognised as follows:
Revenue Crown
Revenue Crown transactions are considered to be non-
exchange transactions.
Revenue Crown is measured based on Inland Revenues funding
entitlement for the reporting period. The funding entitlement
is established by Parliament when it passes the Appropriation
08
Acts for the financial year. The amount of revenue recognised
takes into account any amendments to appropriations
approved in the Appropriation (Supplementary Estimates)
Act for the year and certain other unconditional funding
adjustments formally approved prior to balance date.
There are no conditions attached to the funding from the
Crown. However, Inland Revenue can incur expenses only
within the scope and limits of its appropriations.
The fair value of Revenue Crown has been determined to be
equivalent to the funding entitlement.
Other revenue
Other revenue transactions as outlined below are considered
to be exchange transactions.
Sale of services
Sale of services are recognised in the accounting period the
services are provided in, by reference to completion of specific
transactions, assessed on the basis of actual services provided
as a proportion of the total services to be provided.
Revenue from recoveries
Revenue from recoveries is recognised as revenue when earned.
Sub-leases
Rental revenue from sub-leased property is recognised in the
surplus or deficit on a straight-line basis over the term of the
lease.
Insurance proceeds
Insurance claim proceeds are recognised as revenue when
the claim has been accepted by the insurer or when receipt
of the insurance proceeds is considered virtually certain. The
insurance proceeds will be disclosed as a contingent asset if the
receipt is only probable.
Capital charge
The capital charge is recognised as an expense in the period to
which the charge relates.
Foreign currency transactions, hedge
accounting, and hedging activities
Inland Revenues activities expose it primarily to risks
of changes in foreign exchange rates. Foreign currency
transactions (including those for which forward exchange
contracts are held) are translated into New Zealand dollars
using the spot exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
surplus or deficit.
For certain commitments Inland Revenue uses derivative
financial instruments (primarily, foreign currency forward
exchange contracts) to mitigate its risks associated with
ANNUAL REPORT 2015 101
foreign currency fluctuations. The use of financial derivatives is
governed by Inland Revenues foreign exchange policy, which
provides written principles on the use of financial derivatives
consistent with Inland Revenues risk management strategy.
Inland Revenue does not hold or issue derivative financial
instruments for trading purposes. It also has not adopted
hedge accounting.
Derivative financial instruments
Derivative financial instruments are recognised at fair value on
the date a derivative contract is entered into and subsequently
at fair value at each balance date. They are reported as either
assets or liabilities, depending on whether the derivative is in a
net gain or net loss position, respectively. The fair value gains
or losses on derivatives are recognised in the surplus or deficit.
Foreign currency forward exchange contracts are classified as
derivative financial instruments.
Foreign currency forward exchange contracts are classified as
current if the contract is due for settlement within 12 months
of balance date. Otherwise the full fair value is classified as
non-current.
Debtors and receivables
Accounts receivable and other debtors transactions are
considered to be exchange transactions. Debtor Crown
transactions are considered to be non-exchange transactions.
Debtors and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are recognised initially at fair value plus
transaction costs and subsequently measured at amortised
cost using the effective interest rate method. Debtors and
receivables issued with durations of less than 12 months
are recognised at their nominal value, unless the effect of
discounting is material.
Impairment of receivables
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivable. Significant financial difficulties of the
debtor, probability that the debtor will enter into bankruptcy,
and default in payments are considered indicators that the
debtor is impaired.
The amount of the provision is the difference between the
assets carrying amount and the estimated amount expected
to be collected. The carrying amount of the asset is reduced
through the use of an allowance account, and the amount of
the impairment loss is recognised in the surplus or deficit.
Cash and cash equivalents
Cash and cash equivalents include all cash held in the bank
accounts. All cash held in bank accounts is held in on demand
accounts and no interest is payable to Inland Revenue.
102 ANNUAL REPORT 2015
Inland Revenue is only permitted to expend its cash and cash
equivalents within the scope and limits of its appropriations.
Inventories held for distribution
Inventories held for distribution comprise forms, booklets and
returns held for distribution to the public at no or nominal
consideration in the ordinary course of operations.
Inventories held for distribution for public benefit purposes
are carried at cost, calculated using the first-in, first-out (FIFO)
cost method, adjusted where applicable for any loss of service
potential. The cost of inventories includes all costs of purchase,
costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. Where
inventories are acquired through a non-exchange transaction,
the cost is deemed to be the fair value at the date of
acquisition.
The carrying amount is recognised as an expense in the period
in which the goods are distributed. The amount of any write-
down for the loss of service potential is recognised in the
surplus or deficit in the period the write-down occurs.
Property, plant and equipment
Inland Revenue has operational assets that include IT
equipment, furniture and office equipment, motor vehicles, and
leasehold improvements. The capitalisation thresholds are:
IT equipment desktop all
computers and laptops
IT equipment other $2,000 and over
(or $20,000 for bulk
purchased IT equipment)
Furniture and office equipment $2,000 and over
(or $20,000 for bulk
purchased furniture)
Motor vehicles $2,000 and over
Leasehold improvements $20,000 and over
Property, plant and equipment are shown at historical cost, less
accumulated depreciation and impairment losses. Historical
cost is the value of consideration given to acquire or create the
asset and any directly attributable costs of bringing the asset to
working condition for its intended use.
Additions
The cost of an item of property, plant and equipment is
recognised as an asset if it is probable that future economic
benefits or service potential associated with the item will flow
to Inland Revenue and the cost of the item can be measured
reliably. In most instances, an item of property, plant and
equipment is recognised at its cost. Where an asset is acquired
through a non-exchange transaction, it is recognised at fair
value as at the date of acquisition.

Subsequent costs
Subsequent costs are included in the assets carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits or service potential
associated with the item will flow to Inland Revenue and the
cost of the item can be measured reliably. All repairs and
maintenance are recognised in the surplus or deficit during the
financial period in which they are incurred.
Depreciation
Depreciation is provided on a straight-line basis on all property,
plant and equipment, other than assets under construction.
The rate of depreciation will write off the cost of the asset to
the estimated residual value over the useful life of the asset.
The useful life of major classes of assets have been estimated as
follows:
IT equipment 3 to 6 years
Furniture and office equipment 5 to 7 years
Motor vehicles 5 to 7 years
Leasehold improvements up to 10 years
All property, plant and equipment other than motor vehicles are
assumed to have no residual value. Motor vehicles are assumed to
have a 20% residual value.
The cost of leasehold improvements is capitalised and
depreciated over the unexpired period of the lease, or the
estimated remaining useful life of the improvements, whichever
is shorter, up to a maximum of 10 years.
Assets under construction are recognised at cost less
impairment and are not depreciated. The total cost of a capital
project is transferred to the appropriate asset class on its
completion and then depreciated.
The assets residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance date.
Disposals
Gains and losses on disposals are determined by comparing
proceeds with the carrying amount. These are recognised on a
net basis in the surplus or deficit.
Intangible assets
Inland Revenue has intangible assets in the form of internally
generated intangible assets and software licenses.
Additions
Intangible assets are initially recorded at cost. Inland Revenue
only has intangible assets with finite useful lives. The two
main categories are: internally generated intangible assets and
software licences.
a) Internally generated intangible assets
The cost of internally generated intangible assets represents
expenditure incurred in the development phase of the asset only.
08
There are two types of internally generated intangible assets:
computer software developed and business processes.
The cost of computer software developed comprises direct
labour, material purchased and an appropriate portion of
relevant overheads. These costs are directly associated with the
development of identifiable and unique software controlled by
Inland Revenue, and will generate future economic benefits.
Expenditure on development activities where research
findings are applied to a plan or design for new or substantially
improved business processes, is capitalised if the business
process is technically and commercially feasible and Inland
Revenue has sufficient resources to complete development.
Other development expenditure as part of a new or improved
business process is recognised in the surplus or deficit as an
expense as incurred.
Expenditure incurred on research of an internally generated
intangible asset is expensed when it is incurred. Where the
research phase cannot be distinguished from the development
phase, the expenditure is expensed when it is incurred.
Costs associated with maintaining internally generated
computer software are recognised as an expense when
incurred. Costs of configuring and customising Commercial
Off-the-Shelf (COTS) software are capitalised.
Costs associated with ongoing development and maintenance
of Inland Revenues existing websites are recognised as an
expense in the surplus or deficit when incurred.
Staff training costs are recognised as an expense in the surplus
or deficit when incurred.
b) Software licences
Intangible assets acquired by Inland Revenue such as
computer software licences are stated at cost less accumulated
amortisation and impairment losses. Acquired computer
software licences are capitalised on the basis of costs incurred
to acquire and bring to use the specific software.
Costs associated with maintaining computer software licences
are recognised as an expense when incurred.
The capitalisation thresholds for intangible assets are:
Internally generated intangible assets $50,000 and over
Software licences $5,000 and over
Subsequent cost
The cost of intangible assets with finite lives is subsequently
recorded at cost less any amortisation and impairment losses.
Amortisation
The carrying value of an intangible asset with a finite life is
amortised on a straight-line basis over its estimated useful
life. Amortisation begins when the asset is available for use
and ceases at the date that the asset is de-recognised. The
amortisation charge for each period is recognised in the
surplus or deficit.
ANNUAL REPORT 2015 103
The useful lives of major classes of intangible assets have been
estimated as follows:
Internally generated intangible assets 5 to 10 years
Software licences 5 to 10 years
Assets under construction are recognised at cost less
impairment and are not amortised. The total cost of a capital
project is transferred to the appropriate asset class on its
completion and then amortised.
De-recognition
The gain or loss arising from the de-recognition of an intangible
asset is recognised in the surplus or deficit when the asset is
de-recognised.
Impairment of non-cash generating property,
plant and equipment and intangible assets
Inland Revenue does not hold any cash generating assets.
Assets are considered cash generating where their primary
objective is to generate a commercial return.
Property, plant and equipment and intangible assets that have
a finite useful life are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. Property, plant and equipment and
intangible assets including assets under construction are also
reviewed annually for impairment at each balance date.
An impairment loss is recognised for the amount by which the
assets carrying amount exceeds its recoverable service amount.
The recoverable service amount is the higher of an assets fair
value less costs to sell and value in use.
Value in use is the present value of the assets remaining
service potential. Value in use is determined based on either
a depreciated replacement cost approach, restoration cost
approach, or a service units approach. The most appropriate
approach used depends on the nature of the impairment and
the availability of information.
If an assets carrying amount exceeds its recoverable service
amount, the asset is considered to be impaired and is written
down to the recoverable service amount. The impairment loss
is recognised in the surplus or deficit.
The reversal of an impairment loss is also recognised in the
surplus or deficit.
Financial liabilities
Financial liabilities measured at amortised cost are recognised
initially at fair value less transaction costs and subsequently
measured at amortised cost using the effective interest rate
method. Included in this category are creditors and other
payables, finance leases and leasing incentives. Financial
liabilities entered into with durations of less than 12 months
are recognised at their nominal value, unless the effect of
discounting is material. Creditors and other payables are
recognised at their nominal value as the effect of discounting is
immaterial.
104 ANNUAL REPORT 2015
Leases
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards of ownership of an asset, whether or
not title is eventually transferred. A lease is classified as an
operating lease if it does not transfer substantially all the risks
and rewards incidental to the ownership of an asset.
Operating leases
Rentals payable under operating leases are recognised as an
expense on a straight-line basis over the term of the relevant
lease. Lease incentives received as an incentive to enter into an
operating lease are also recognised evenly over the term of the
lease as a reduction in the rental expense.
Contractual arrangements considered to be operating leases
have been recognised during the reporting period.
Finance leases
At the commencement of the lease term, finance leases are
recognised as assets and liabilities in the Statement of Financial
Position at the lower of the fair value of the leased item or the
present value of the minimum lease payments.
The finance charge is charged to the surplus or deficit over
the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
The amount recognised as an asset is depreciated over its
useful life. If there is no certainty as to whether Inland Revenue
will obtain ownership at the end of the lease term, the asset
is fully depreciated over the shorter of the lease term and its
useful life.
Contractual arrangements considered to be finance leases have
been recognised during the reporting period.
Employee entitlements
Short-term entitlements
Employee entitlements that Inland Revenue expects to be
settled within 12 months of balance date are measured at
nominal values based on accrued entitlements at current rates
of pay. These include salaries and wages accrued up to balance
date, annual leave and time off in lieu earned up to but not yet
taken at balance date, retiring, long-service leave and sick leave
entitlements expected to be settled within 12 months.
Inland Revenue recognises a liability for sick leave to the
extent that absences in the coming year are expected to be
greater than the sick leave entitlements earned in the coming
year. The amount is calculated based on the unused sick leave
entitlement that can be carried forward at balance date, to the
extent that Inland Revenue anticipates it will be used by staff
to cover those future absences.
Inland Revenue recognises a liability and an expense for
bonuses where it is contractually obliged to pay them, or where
a past practice has created a constructive obligation and a
reliable estimate of the obligation can be made.

Long-term entitlements
Employee entitlements that are payable beyond 12 months
such as long-service leave and retiring leave have been
calculated on an actuarial basis.
The actuarial calculations for long-service leave and retiring
leave liabilities are based on:
Employee contractual entitlements
Years of service accrued to balance date and years remaining
to entitlement
Present value of the estimated future cash outflows using an
applicable discount rate and salary inflation rate.
Sick leave, annual leave, and vested long-service leave are
classified as a current liability. Non-vested long-service leave and
retiring leave liabilities expected to be settled within 12 months
of balance date are classified as a current liability. All other
employee entitlements are classified as a non-current liability.
Superannuation schemes
Obligations for contributions to the Inland Revenue
Superannuation Scheme, State Sector Retirement Savings
Scheme, KiwiSaver, and the Government Superannuation Fund
are accounted for as defined contribution schemes and are
recognised as an expense in the surplus or deficit as they are
incurred.
Termination benefits
Termination benefits are payable when an employees
employment contract is terminated before their normal
retirement or when an employee accepts voluntary
redundancy in exchange for these benefits. Inland Revenue
recognises the expenditure in the surplus or deficit when it is
demonstrably committed to either terminate the employment
of current employees, according to a detailed formal plan
without the possibility of withdrawal, or as a result of an offer
for voluntary redundancy.
Termination benefits to be settled within 12 months are
reported at the amount expected to be paid, otherwise they are
reported as the present value of the estimated future cash outflows.
Provisions
Inland Revenue recognises a provision for future expenditure
of uncertain amounts or timing where there is a present
obligation (either legal or constructive) as a result of a past
event, and it is probable that expenditure will be required to
settle the obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are not recognised for net
deficits from future operating activities.
Provisions are recorded at the best estimate of the expenditure
required to settle the obligation. Provisions to be settled
beyond 12 months are recorded at their present value and are
discounted using market yields on government bonds at balance
date with terms to maturity that match, as closely as possible,
the estimated timing of the future cash flows. The increase in
08
the provision due to the passage of time is recognised as an
interest expense and is included in finance costs.
A provision for onerous contracts is recognised when the
expected benefits or service potential to be derived from a
contract are lower than the unavoidable cost of meeting the
obligations under the contract.
The provision is measured at the present value of the lower
of the expected cost of terminating the contract and the
expected net costs of continuing with the contract.
Taxpayers funds
This is the Crowns net investment in Inland Revenue. It is
measured as the difference between total assets and total
liabilities. Taxpayers funds are disaggregated and classified into
a number of components:
Capital injection
Capital withdrawal
Repayment of surplus to the Crown.
Statement of Cash Flows
Cash and cash equivalents mean cash balances in bank
accounts.
Operating activities include cash received from all revenue
sources of Inland Revenue, and cash payments made for the
supply of goods and services.
Investing activities are those activities relating to the acquisition
and disposal of non-current assets.
Financing activities comprise capital injections by, or repayment
of capital to, the Crown.
Commitments
Expenses and liabilities yet to be incurred on non-cancellable
contracts that have been entered into on or before balance
date are disclosed as commitments to the extent that they
are unperformed obligations. Information on non-cancellable
capital and lease commitments is reported in the Statement
of Commitments. Cancellable capital commitments that
have penalty or exit costs explicit in the agreement on
exercising that option to cancel are reported in the Statement
of Commitments at the lower of the remaining contractual
commitment and the value of those penalty or exit costs (i.e.
the minimum future payments).
Contingent liabilities and assets
Contingent liabilities and assets are recorded in the Statement
of Contingent Liabilities and Contingent Assets at the point
at which the contingency is evident. Contingent liabilities
are disclosed if the possibility that they will crystallise is not
remote. Contingent assets are disclosed if it is probable that
the benefits will be realised. Insurance claim proceeds are
disclosed as a contingent asset if the receipt of the insurance
proceeds is probable.
ANNUAL REPORT 2015 105
Cost allocations
Inland Revenue uses an integrated cost allocation process to
derive the cost of its outputs. This process involves the initial
costing of business processes followed by the full costing of
outputs.
Business processes represent Inland Revenues key functional
activities. These business processes are used to capture direct
costs.
Direct personnel costs are charged to business processes based
on actual hours and standard activity rates. Other related
direct costs including depreciation, are allocated to business
processes based on planned hours or relevant activity drivers.
Premises lease costs are charged to business processes based on
headcount or relevant activities.
Forecast policies
The forecasts have been compiled on the basis of existing
government policies and ministerial expectations at the time
the statements were finalised and reflect all government
decisions and circumstances as at 28 April 2015. It is not
intended that the forecast financial statements will be updated
subsequent to presentation. The main assumptions are as
follows:
The Departments main activities will remain substantially the
same as for the previous year.
Operating costs are based on historical experience. The
general historical pattern is expected to continue.
Estimated year-end information for 201415 is used as the
opening position for the 201516 forecasts.

Other indirect costs and corporate overheads that cannot be
attributed directly to a business process are apportioned to
outputs based on planned business process activity allocation
to outputs.
There have been no material changes in cost allocation policies
since the date of the last audited financial statements.
Comparatives
Certain comparative information has been reclassified, where
required, to conform with the current years presentation.
CHANGES IN ACCOUNTING POLICIES
For the preparation of the Departments financial statements,
forecast financial statements and output statements within
part seven, Measuring our performance as at 30 June 2015
there have been no changes in accounting policies and cost
allocation policies since the date of the last audited financial
statements. All policies have been applied on a basis consistent
with the previous year.
Variations to forecast
The actual financial results for the forecast period covered
are likely to vary from the information presented in these
forecasts. Factors that may lead to a material difference
between information in these forecast financial statements and
the actual reported results include:
Changes to the budget through initiatives approved by
Cabinet
Technical adjustments to the budget including transfers
between financial years
The timing of expenditure relating to significant programmes
and projects.
Any changes to budgets during 201516 will be incorporated
into The Supplementary Estimates of Appropriations for the year
ending 30 June 2016.

FORECAST FINANCIAL STATEMENTS

The forecast financial statements have been prepared in
accordance with the PFA 1989.
The purpose of the forecast financial statements is to facilitate
Parliaments consideration of appropriations for, and planned
performance of, the department. These forecast financial
statements may not be appropriate for other purposes.
The forecast financial statements have been prepared in
accordance with the accounting policies detailed above.
Additional accounting policies relating to the forecasts are set
out below.
The forecast financial statements comply with NZ GAAP
and have been prepared in accordance with PBE Financial
Reporting Standard 42 Prospective Financial Statements.
The forecast financial statements are not subject to audit.

106 ANNUAL REPORT 2015

 08
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: OTHER REVENUE

201314 201415 201415 201516
Actual Unaudited Actual Unaudited
budget forecast
$000 $000 $000 $000
Accident Compensation Corporation (ACC) agency fees 20,500 20,500 20,500 20,500
Support services to other government agencies 555 3,060 2,396 3,060
Court costs recovery 2,081 2,828 2,124 2,828
Revenue from rulings 1,061 1,088 865 1,088
Rental revenue from sub-leases 475 1,100 794 1,257
Services on behalf of other government agencies 1,009 244
Supply of information to other agencies 13 170 13 13
Net gains on disposal of property, plant and equipment 1 1
Insurance proceeds 1
Other 3 1 12 1
Total other revenue 25,698 28,747 26,950 28,747

NOTE 2: PERSONNEL
201314 201415 201415 201516
Actual Unaudited Actual Unaudited
budget forecast
$000 $000 $000 $000
Salaries and wages 371,178 395,310 388,272 409,770
Contractors and temporary staff 37,489 39,926 45,328 70,203
Employer contributions to defined contribution plans 11,745 11,952 12,181 12,790
Retiring, long-service and sick leave 242 3,000 5,109 3,000
Terminating benefits 1,926 2,051 1,995 2,106
ACC levies 1,536 1,714 1,653 2,036
Annual leave 1,114 759 1,585 1,589
Bonuses 258 275 223 235
Other 6,498 2,763 7,322 2,215
Total personnel 431,986 457,750 463,668 503,944

ANNUAL REPORT 2015 107

NOTE 3: OPERATING
201314 201415 201415 201516
Actual Unaudited Actual Unaudited
budget forecast
$000 $000 $000 $000
Information technology costs 50,545 50,312 52,093 55,556
Accommodation lease rentals 31,471 33,280 32,315 34,355
Printing and postage 17,943 18,623 16,304 17,122
Communication 15,845 15,404 14,025 14,136
Consultants 23,348 13,763 10,513 12,051
Travel and transport 9,027 7,905 9,198 9,305
Premises costs 9,505 8,120 8,109 8,868
Staff development 6,882 6,860 7,689 7,934
Legal expenses 8,568 8,642 6,404 6,937
Office supplies 3,604 3,435 3,963 4,189
Bank fees 3,400 3,241 2,849 2,953
Advertising and publicity 1,881 2,086 2,035 2,109
Equipment maintenance 1,780 1,297 1,734 1,789
Audit fees for audit of the financial statements 1,033 1,100 1,033 1,100
Disbursements for audit of the financial statements 20 46
Fees to Audit NZ for other services 30
Net loss on disposal of property, plant and equipment 87 8 639
Net loss on disposal of intangible assets 478 344
Inc/(Dec) in provision for onerous leases 488 (52)
Inc/(Dec) in provision for debt impairment 8 9 9 3
Realised foreign exchange losses 2,310 106 135 121
Bad debts written off 10 6
Other operating expenses 7,070 3,000 6,936 5,269
Total operating 194,845 177,191 176,867 183,745

108 ANNUAL REPORT 2015

 08
NOTE 4: PROPERTY, PLANT AND EQUIPMENT BY CATEGORY
IT equipment Furniture Motor Leasehold Assets under Total
and office vehicles improvements construction
equipment leasehold
$000 $000 $000 $000 $000 $000
Cost
Balance as at 1 July 2014 56,671 30,724 4,595 62,011 1,406 155,407
Additions by purchase 2,121 596 236 938 48 3,939
Other movements1 (684) (684)
Transfers between category 1,362 (1,347) 15
Disposals (5,329) (4) (1,120) (3,573) (10,026)
Balance as at 30 June 2015 53,463 31,316 3,711 60,054 107 148,651

Accumulated depreciation and

impairment losses
Balance as at 1 July 2014 47,232 23,528 1,508 27,689 99,957
Depreciation charge expensed 4,399 2,188 477 5,413 12,477
Depreciation charge capitalised2 1 (9) (8)
Impairment losses 20 20
Transfers between category
Disposals (4,812) (1) (735) (3,936) (9,484)
Balance as at 30 June 2015 46,820 25,706 1,250 29,166 20 102,962

Carrying amount as at 30 June 2015 6,643 5,610 2,461 30,888 87 45,689

Unaudited forecast carrying amount at
6,558 4,251 2,293 30,769 97 43,968
30 June 2016

Cost
Balance as at 1 July 2013 65,621 29,298 4,904 53,003 4,334 157,160
Additions by purchase 4,935 1,437 8,388 184 14,944
Other movements1 (175) (175)
Transfers between category 25 3,905 (3,112) 818
Disposals (13,910) (11) (309) (3,110) (17,340)
Balance as at 30 June 2014 56,671 30,724 4,595 62,011 1,406 155,407

Accumulated depreciation and

impairment losses
Balance as at 1 July 2013 54,952 21,190 1,123 26,343 103,608
Depreciation charge expensed 6,100 2,638 547 4,455 13,740
Depreciation charge capitalised 2 12 11 23
Impairment losses (300) (300)
Transfers between category
Disposals (13,832) (11) (162) (3,109) (17,114)
Balance as at 30 June 2014 47,232 23,528 1,508 27,689 99,957

Carrying amount as at 30 June 2014 9,439 7,196 3,087 34,322 1,406 55,450
There is no restriction over the title of Inland Revenues property, plant and equipment, nor is any property, plant and equipment
pledged as security for liabilities.
1
This relates to the addition/reduction of lease make-good costs on leased buildings.
2
The depreciation charge for existing assets that are used in the development of intangible assets.
Finance leases Inland Revenue has entered into an agreement for the provision of telecommunications services that includes
embedded finance leases. The net carrying amount of these finance leases within the IT equipment category is $1,117,000 (201314:
$935,000).

ANNUAL REPORT 2015 109

NOTE 5: INTANGIBLE ASSETS BY CATEGORY
Internally Software Assets under Total
generated licences construction
intangible intangibles
assets
$000 $000 $000 $000
Cost
Balance as at 1 July 2014 478,867 125,803 30,027 634,697
Additions by purchase 5,984 5,984
Additions internally developed 11,058 11,704 22,762
Transfers between category 21,715 (21,730) (15)
Disposals (1,100) (17,222) (146) (18,468)
Balance as at 30 June 2015 510,540 114,565 19,855 644,960

Accumulated amortisation and

impairment losses
Balance as at 1 July 2014 413,151 107,450 6,243 526,844
Amortisation charge expensed 22,227 7,422 29,649
Amortisation charge capitalised 1 17 17
Impairment losses 1,383 1,383
Transfers between category 2,519 (2,519)
Disposals (1,100) (17,019) (18,119)
Balance as at 30 June 2015 436,814 97,853 5,107 539,774

Carrying amount as at 30 June 2015 73,726 16,712 14,748 105,186

Unaudited forecast carrying amount at 30
80,612 25,073 52,126 157,811
June 2016

Cost
Balance as at 1 July 2013 465,001 124,343 26,517 615,861
Additions by purchase 5,445 5,445
Additions internally developed 6,826 17,706 24,532
Transfers between category 13,009 369 (14,196) (818)
Disposals (5,969) (4,354) (10,323)
Balance as at 30 June 2014 478,867 125,803 30,027 634,697

Accumulated amortisation and

impairment losses
Balance as at 1 July 2013 391,152 102,989 4,594 498,735
Amortisation charge expensed 27,938 8,338 36,276
Amortisation charge capitalised 1 32 32
Impairment losses 1,649 1,649
Transfers between category
Disposals (5,971) (3,877) (9,848)
Balance as at 30 June 2014 413,151 107,450 6,243 526,844

Carrying amount as at 30 June 2014 65,716 18,353 23,784 107,853

There is no restriction over the title of Inland Revenues intangible assets, nor are any intangible assets pledged as security for
liabilities.
1
Refers to the amortisation charge for existing assets that are utilised in the development of intangible assets.

110 ANNUAL REPORT 2015

 08
Internally generated intangible assets include the following items and carrying amounts: FIRST technology environment $30,378,000,
Child Support Reform $22,490,000, student loans $19,478,000, KiwiSaver $1,380,000 (201314: FIRST technology environment
$35,922,000, student loans $25,207,000, KiwiSaver $4,587,000). The amortisation period for these intangible assets ranges from 510 years.
Software licences include the following items and carrying amounts: FIRST technology environment $15,884,000, KiwiSaver
$669,000, Child Support Reform $159,000 (201314: FIRST technology environment $17,379,000, KiwiSaver $974,000). The
amortisation period for these intangible assets ranges from 510 years.

NOTE 6: CAPITAL CHARGE

Inland Revenue pays a capital charge to the Crown on taxpayers funds as at 30 June and 31 December each year. The capital charge
rate for the year ended 30 June 2015 was 8.0% per annum (201314: 8.0%, forecast 201516: 8.0%).

NOTE 7: FINANCE COSTS

201314 201415
Actual Actual
$000 $000
Interest on finance leases 74 148
Total finance costs 74 148

NOTE 8: SURPLUS PAYABLE TO THE CROWN

201314 201415
Actual Actual
$000 $000
Net surplus/(deficit) 43,650 19,357
Add unrealised losses/(gains) in relation to forward foreign exchange contracts 1
Total surplus payable to the Crown 43,651 19,357

ANNUAL REPORT 2015 111

NOTE 9: DEBTORS AND PREPAYMENTS
201314 201415
Actual Actual
$000 $000
Current assets exchange transactions
Debtors
Accounts receivable 5,098 4,368
Less provision for impairment (8) (14)
Other debtors 474 232
Net debtors 5,564 4,586
Prepayments 11,247 10,885
Total current assets 16,811 15,471

Non-current assets exchange transactions

Prepayments 834 328
Total non-current assets 834 328

Total debtors and prepayments exchange transactions 17,645 15,799

Given their short-term nature, the carrying value of accounts receivable and other debtors approximates their fair value.
Overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below:

Gross debtors Impairment Net debtors

actual actual actual
$000 $000 $000
201415
Not past due 4,339 4,339
Past due 1 to 30 days 55 55
Past due 31 to 60 days 63 63
Past due 61 to 90 days 27 27
Past due > 90 days 116 (14) 102
Total 4,600 (14) 4,586

201314
Not past due 3,061 3,061
Past due 1 to 30 days 2,107 2,107
Past due 31 to 60 days 299 299
Past due 61 to 90 days 26 26
Past due > 90 days 79 (8) 71
Total 5,572 (8) 5,564

The provision for impairment has been calculated based on expected losses for Inland Revenues debtors. Expected losses have been
determined based on a review of each debtor.
Movements in the provision for impairment are as follows:

201314 201415
Actual Actual
$000 $000
Opening balance (9) (8)
Additional provisions made during the year (8) (9)
Unused amounts reversed
Receivables written off during the year 9 3
Closing balance (8) (14)

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NOTE 10: INVENTORIES HELD FOR EXTERNAL DISTRIBUTION
Inventories comprise forms, booklets and returns held for external distribution. The carrying amount of inventories held for
distribution that are measured at cost as at 30 June 2015 amounted to $873,000 (201314: $879,000).
The write-down of inventories held for distribution amounted to $179,000 (201314: $331,000). There have been no reversals of write-
downs. The carrying amount of inventories held for distribution included the write-down of $179,000.
No inventories are pledged as security for liabilities.

NOTE 11: CREDITORS AND OTHER PAYABLES

201314 201415
Actual Actual
$000 $000
Creditors and other payables exchange transactions
Accounts payable 9,164 6,483
Accrued expenses other 23,816 21,501
Total creditors and other payables exchange transactions 32,980 27,984

Creditors and other payables non-exchange transactions

GST payable 11,323 9,106
Total creditors and other payables non-exchange transactions 11,323 9,106

Total creditors and other payables 44,303 37,090

Creditors and other payables are normally settled on 30-day terms, therefore the carrying value of creditors and other payables
approximates their fair value.

ANNUAL REPORT 2015 113

NOTE 12: EMPLOYEE ENTITLEMENTS
201314 201415
Actual Actual
$000 $000
Current liabilities exchange transactions
Annual leave 25,139 26,332
Accrued salaries and wages 14,180 22,542
Retiring leave 1,539 1,801
Long-service leave 1,007 1,348
Sick leave 1,138 1,140
Terminating benefits 886 941
Time off in lieu 10 3
Total current liabilities exchange transactions 43,899 54,107

Current liabilities non-exchange transactions

PAYE payable 4,032 4,238
Total current liabilities non-exchange transactions 4,032 4,238

Total current liabilities 47,931 58,345

Non-current liabilities exchange transactions
Retiring leave 28,971 30,764
Long-service leave 7,655 8,043
Total non-current liabilities exchange transactions 36,626 38,807

Total non-current liabilities 36,626 38,807

Total employee entitlements 84,557 97,152

The present value of retiring and long-service leave obligations depend on a number of factors that are determined on an actuarial
basis by an independent actuary using a number of assumptions. Two key assumptions used in calculating these liabilities are the
discount rate and salary inflation. Any changes in these assumptions will impact on the carrying amount of the liabilities.
The discount rates used by the independent actuary for the retiring and long-service leave valuations are based on Treasury published
forward rates at 30 June 2015. The forward rates are derived from New Zealand government bonds. The long-term salary inflation
assumption is based on Treasury published rates at 30 June 2015 and after obtaining advice from the independent actuary. The long-
term salary inflation assumption used was 3.0% (201314: 3.5%).
In 201415 there was a general decrease in Treasury published forward discount rates. The impact of the forward discount rate movement
was to increase the carrying amounts of the retiring leave liability by $1,578,000 and the long-service leave liability by $421,000.
The following table provides a sensitivity analysis for the key assumptions:
Discount rate Salary inflation
1.0% + 1.0% 1.0% + 1.0%
$000 $000 $000 $000
Retiring leave 1,776 (1,589) (1,722) 1,895
Long-service leave 489 (432) (474) 527

Movements in the provision for terminating benefits are as follows:

201314 201415
Actual Actual
$000 $000
Opening balance 2,410 886
Additional provisions made 1,907 1,995
Amounts used (3,431) (1,940)
Unused amounts reversed
Closing balance 886 941
The closing 201415 provision is expected to be fully utilised in the 201516 year.

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NOTE 13: PROVISION FOR OTHER LIABILITIES
201314 201415
Actual Actual
$000 $000
Current liabilities
Onerous contracts 90
Lease make-good 53
Total current liabilities 53 90

Non-current liabilities
Onerous contracts 397
Lease make-good 912
Total non-current liabilities 912 397

Total provision for other liabilities 965 487

Movements for each class of provision are as follows:

Onerous Lease Total

contracts make-good
$000 $000 $000
Balance at 1 July 2014 965 965
Additional provisions made 487 487
Amounts used (15) (15)
Unused amounts reversed (668) (668)
Discount unwind (282) (282)
Balance at 30 June 2015 487 487

Balance at 1 July 2013 1,895 1,895

Additional provisions made 803 803
Amounts used
Unused amounts reversed (999) (999)
Discount unwind (734) (734)
Balance at 30 June 2014 965 965

Onerous contracts
The provision for onerous contracts arises from non-cancellable accommodation leases where the unavoidable costs of meeting the
lease contract exceed the economic benefits to be received from it. Inland Revenue currently leases one property that includes some
residual floor space which is not currently being utilised. The residual floor space is available for sub-lease but there is no certainty that
the space can be sub-let due to it being part of one floor. The potential cost of a floor reconfiguration may outweigh the benefit of a
new sub-leasing agreement. The lease is due to expire in December 2020.

Lease make-good
As a result of changes in lease arrangements Inland Revenue no longer has any lease make-good obligations at 30 June 2015. In
201314 and prior years as a condition of some of its leasing arrangements, Inland Revenue was required at the expiry of the lease
term to make-good any damage caused to the premises and remove any fixtures and fittings it had installed.

ANNUAL REPORT 2015 115

NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS
To hedge its currency risk, Inland Revenue enters into foreign currency forward exchange contracts with the New Zealand Debt
Management Office (NZDMO).
The notional principal amount of outstanding forward exchange contract derivatives as at 30 June 2015 was NZ $nil (201314:
NZ $95,146). The prior year contracts consisted of the purchase of US $82,720 and the unrealised loss on the forward exchange
contract derivative was NZ $728 at 30 June 2014.
The fair value of forward exchange contracts entered into during the financial year was determined by reference to published price
quotations in an active market.

NOTE 15: FINANCE LEASES

201314 201415
Actual Actual
$000 $000
Total minimum lease payments payable
Not later than one year 456 788
Later than one year and not later than five years 637 513
Later than five years
Total minimum lease payments 1,093 1,301
Future finance charges (114) (107)
Present value of minimum lease payments 979 1,194

Present value of minimum lease payments payable

Not later than one year 386 707
Later than one year and not later than five years 593 487
Later than five years
Total present value of minimum lease payments 979 1,194

Represented by:
Current 386 707
Non-current 593 487
Total finance leases 979 1,194

Inland Revenue has entered into an agreement for the provision of telecommunications services that includes embedded finance
leases. The leased items are included within the net carrying amount of IT equipment (refer Note 4).
Inland Revenue has no rights of renewal and no option to purchase the assets at the end of the lease term.
There are no restrictions placed on Inland Revenue by any of the finance leasing arrangements.
Finance lease liabilities are effectively secured, as the rights to the leased assets reverts to the lessor in the event of default in
payment.

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NOTE 16: OTHER FINANCIAL LIABILITIES
201314 201415
Actual Actual
$000 $000

Current liabilities
Leasing incentives 183 275
Total current liabilities 183 275

Non-current liabilities
Leasing incentives 869 1,136
Total non-current liabilities 869 1,136

Total other financial liabilities 1,052 1,411

NOTE 17: RECONCILIATION OF NET SURPLUS/(DEFICIT) TO NET CASH FLOW

FROM OPERATING ACTIVITIES
201314 201415
Actual Actual
$000 $000
Net surplus/(deficit) 43,650 19,357

Add/(less) non-cash items

Depreciation and impairment 13,440 12,497
Amortisation and impairment 37,925 31,032
Net (gains)/losses on derivative financial instruments (2) (1)
Total non-cash items 51,363 43,528

Add items classified as investing or financing activities

Net loss/(gain) on disposal of property, plant and equipment 86 638
Net loss/(gain) on disposal of intangible assets 478 344
Total items classified as investing or financing activities 564 982

Add/(less) working capital movements

(Inc)/Dec in debtor Crown (39,675) (7,127)
Dec/(Inc) in debtors and prepayments 1,455 1,846
Dec/(Inc) in inventories held for distribution 485 6
(Dec)/Inc in creditors and other payables 8,917 (7,212)
Inc/(Dec) in provision for employee benefits (536) 12,595
(Dec)/Inc in provision for other liabilities (930) (478)
Inc/(Dec) in other financial liabilities 243 359
Net movements in working capital items (30,041) (11)

Net cash inflow from operating activities 65,536 63,856

ANNUAL REPORT 2015 117

NOTE 18: COMMITMENTS
Capital commitments
Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and
equipment and intangible assets that have not been paid for or recognised as a liability at balance date.

Operating commitments
Operating commitments for non-cancellable accommodation leases relate to Inland Revenues long-term leases on its premises at
many locations throughout New Zealand. The annual lease payments are reviewed regularly, and the amounts disclosed as future
commitments are based on current rental rates. These commitments also include office space vacated by Inland Revenue as a result
of organisational restructuring and sub-leasing. Provision has been made in the financial statements for the expected net expenses
for the duration of these leases.
The total minimum future sub-lease payments expected to be received under non-cancellable sub-leases at balance date is
$13,632,426 (201314: $12,294,537). The increase is mainly due to an upcoming establishment of a co-located building in Tauranga
with another government agency. The co-location is expected to take place in the 201617 financial year.
Inland Revenues non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no
restrictions placed on Inland Revenue by any of its leasing arrangements.

NOTE 19: CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Contingent liabilities
Legal proceedings and disputes taxpayer
This contingent liability relates to potential claims against Inland Revenue for court costs associated with tax disputes and other
legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue (tax) under
dispute is recognised as a non-departmental contingency (refer to part nine, Schedule of Non-departmental Contingent Liabilities
and Contingent Assets).
The expected value of the contingent liability is calculated using an outcome probability model that weighs the total potential
liability against outcome probabilities.
The contingent liability as at 201415 (excluding court costs recoverable) was $1,706,058 (201314: $843,283).

Legal proceedings and disputes departmental

This contingent liability relates to disputes such as claims made by departmental suppliers.

Personal grievances
Personal grievances represent amounts claimed by employees for alleged breaches of contract against Inland Revenue.

Contingent assets
Legal proceedings and disputes taxpayer
This contingent asset relates to potential court costs recoverable by Inland Revenue for court costs associated with tax disputes
and other legal proceedings being taken through the courts against taxpayers. It only relates to court costs; the actual revenue
(tax) under dispute is recognised as a non-departmental contingency (refer to part nine, Schedule of Non-departmental Contingent
Liabilities and Contingent Assets).
The expected value of the contingent asset is calculated using an outcome probability model that weighs the total potential court
costs recoverable against outcome probabilities.
The contingent asset as at 201415 was $2,646,669 (201314: $2,867,162).

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NOTE 20: RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
Inland Revenue is a wholly owned entity of the Crown. The government significantly influences the role of Inland Revenue as
well as being its major source of revenue.
Related party disclosures have not been made for transactions with related parties that are within a normal supplier or client/
recipient relationship on terms and conditions no more or less favourable than those that it is reasonable to expect that Inland
Revenue would have adopted in dealing with the party at arms length in the same circumstances. Further, transactions with
other government agencies (for example, government departments and Crown entities) are not disclosed as related party
transactions when they are consistent with the normal operating arrangements between government agencies and undertaken
on the normal terms and conditions for such transactions.
Inland Revenue has no related party transactions that are required to be disclosed in 201415 (201314: $nil).

Remuneration to key management personnel

The remuneration of key management personnel during the year was as follows:

201314 201415
Actual Actual
Leadership team, including the Chief Executive
Remuneration and other benefits $3,334,000 $3,526,000
Full-time equivalents 10 10

Key management personnel comprise the Minister of Revenue, the Commissioner, five Deputy Commissioners, Chief Tax
Counsel, Chief Financial Officer, Chief Technology Officer, Chief People Officer and those formally acting in those positions
during the financial year. The Commissioners remuneration is determined and paid by the State Services Commission.
The above key management personnel disclosure excludes the Minister of Revenue. The Ministers remuneration and other
benefits are set out by the remuneration authority, are not received only for his role as a member of key management personnel
of Inland Revenue and are not paid by Inland Revenue.

ANNUAL REPORT 2015 119

NOTE 21: FINANCIAL INSTRUMENTS CATEGORIES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial assets and financial liabilities in each of the financial instrument categories are as follows:

Notes 201314 201415

Actual Actual
$000 $000
Debtors and receivables
Cash and cash equivalents 30,643 20,679
Debtor Crown 238,430 245,557
Net debtors 9 5,564 4,586
Total debtors and receivables 274,637 270,822

Fair value through surplus or deficit

Derivative financial instrument liabilities 14 1
Total fair value through surplus or deficit 1

Financial liabilities measured at amortised cost

Creditors and other payables 11 32,980 27,984
Finance lease liabilities 15 979 1,194
Other financial liabilities 16 1,052 1,411
Total financial liabilities measured at amortised cost 35,011 30,589

NOTE 22: FINANCIAL INSTRUMENTS FAIR VALUE HIERARCHY DISCLOSURES

For those instruments recognised at fair value in the Statement of Financial Position, fair values are determined according to the
following hierarchy:
Quoted market price (level 1) Financial instruments with quoted prices for identical instruments in active markets.
Valuation technique using observable inputs (level 2) Financial instruments with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models
where all significant inputs are observable.
Valuation techniques with significant non-observable inputs (level 3) Financial instruments valued using models where one or
more significant inputs are not observable.
The following table analyses the basis of the valuation of classes of financial instruments measured at fair value in the Statement of
Financial Position.

Valuation Technique
Quoted market Observable Significant non - Total
price inputs observable inputs
$000 $000 $000 $000
201415
Financial liabilities
Foreign exchange derivatives

201314
Financial liabilities
Foreign exchange derivatives 1 1

There were no transfers between the different levels of the fair value hierarchy.

120 ANNUAL REPORT 2015

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NOTE 23: FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENT RISKS
Inland Revenues activities expose it to a variety of financial instrument risks, including market risk, credit risk, and liquidity risk.
Inland Revenue has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure
from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market risk
Currency risk
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates
is called currency risk.
Because Inland Revenue purchases fixed assets and services from overseas suppliers it is exposed to currency risk arising from
various currency exposures, primarily for the United States and Australian dollars. Currency risk arises from future purchases of
fixed assets and services which are denominated in a foreign currency.
Inland Revenue has policies in place to manage the risks associated with financial instruments and, being risk averse, seeks to
minimise exposure from its treasury activities.
Under its foreign exchange policy, Inland Revenue enters into foreign currency forward exchange contracts to manage foreign
exchange exposures when single foreign exchange transactions exceed NZ $100,000, or the transaction exposure for an individual
currency exceeds NZ $100,000. This policy has been approved by Treasury and is in line with the requirements of Treasurys
Guidelines for the Management of Crown and Departmental Foreign Exchange Exposure.

Interest rate risk

Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument
will fluctuate, due to changes in market interest rates.
Inland Revenue has no interest-bearing financial instruments so it has no exposure to interest rate risk.

Credit risk
The risk that a third party will default on its obligations to Inland Revenue, causing a loss to be incurred is called credit risk. In the
normal course of its business, credit risk from debtors and receivables is concentrated with the Crown and other government agencies.
The carrying amount of financial assets recognised in the Statement of Financial Position best represents Inland Revenues maximum
exposure to credit risk at balance date.
Inland Revenue does not require any collateral, security, or other credit enhancements to support financial instruments with financial
institutions that it deals with, because these entities have high credit ratings. Westpac is Inland Revenues main bank and has a
Standard and Poors credit rating of AA. Inland Revenue enters into foreign currency transactions with the NZDMO (Standard and
Poors credit rating of AA). For its other financial instruments, Inland Revenue does not have significant concentrations of credit risk.
The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated is not
material.

Liquidity risk
Liquidity risk is the risk that Inland Revenue will encounter difficulty raising liquid funds to meet commitments as they fall due.
As all but an insignificant proportion of funds come from the New Zealand Government and cash is drawn down on a fortnightly
basis, Inland Revenue does not have significant liquidity risk. In meeting its liquidity requirements, Inland Revenue closely monitors
its forecast cash requirements with expected cash drawdowns from the NZDMO. Inland Revenue maintains a target level of
available cash to meet liquidity requirements.

ANNUAL REPORT 2015 121

Contractual maturity analysis of financial liabilities, excluding derivatives
The table below analyses Inland Revenues financial liabilities that will be settled, based on the remaining period at balance date to
the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Notes Carrying Contractual Up to 1 year 1 to 5 years Over 5 years Total

amount cash flows
$000 $000 $000 $000 $000 $000
201415
Creditors and other payables 11 27,984 27,984 27,984 27,984
Finance lease liabilities 15 1,194 1,093 456 637 1,093
Other financial liabilities 16 1,411 1,144 275 604 265 1,144
Closing balance 30,589 30,221 28,715 1,241 265 30,221

201314
Creditors and other payables 11 32,980 32,980 32,980 32,980
Finance lease liabilities 15 979 1,028 441 587 1,028
Other financial liabilities 16 1,052 861 183 489 189 861
Closing balance 35,011 34,869 33,604 1,076 189 34,869

Contractual maturity analysis of derivative financial instrument liabilities

The table below analyses Inland Revenues forward exchange contract derivatives into relevant maturity groupings based on the
remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Notes Liability Asset carrying Contractual Less than 6 612 12 years

carrying amount cash flows months months
amount NZD NZD NZD NZD
$000 $000 $000 $000 $000 $000
201415
Gross settled forward foreign 14
exchange contracts
Outflow
Inflow

201314
Gross settled forward foreign 14 1
exchange contracts
Outflow 95 95
Inflow
1 95 95

The following provides a sensitivity analysis for the key assumptions:

At 30 June 2015, if the NZ dollar had strengthened by 5% against the US dollar, with all other variables held constant, the surplus
for the year would have been $1,083 (201314: $4,769) higher. At 30 June 2015, if the NZ dollar had weakened by 5% against the
US dollar, with all other variables held constant, the surplus for the year would have been $1,198 (201314: $5,271) lower. This
movement is attributable to the translation of US dollar-denominated creditors.
At 30 June 2015, if the NZ dollar had strengthened by 5% against the Australian dollar, with all other variables held constant, the
surplus for the year would have been $16,131 (201314: $8,232) higher. At 30 June 2015, if the NZ dollar had weakened by 5%
against the Australian dollar, with all other variables held constant, the surplus for the year would have been $17,829 (201314:
$9,098) lower. This movement is attributable to the translation of Australian dollar-denominated creditors.

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NOTE 24: CAPITAL MANAGEMENT
Inland Revenues capital is its taxpayers funds, which is made up of general funds. Taxpayers funds is represented by net assets.
Inland Revenue manages its revenues, expenses, assets, liabilities and general financial dealings prudently. Inland Revenues
taxpayers funds are largely managed as a by-product of managing revenue, expenses, assets, liabilities, and compliance with the
Government Budget processes, Treasury Instructions and the Public Finance Act 1989.
The objective of managing Inland Revenues taxpayers funds is to ensure that it effectively achieves its strategic direction, while
remaining a going concern.

NOTE 25: EXPLANATION OF MAJOR VARIANCES AGAINST BUDGET

The following major budget variances occurred between the 201415 actuals and the 201415 budget. The budget figures for
201415 are those included in The Estimates of Appropriations for the year ending 30 June 2015.

Notes 201415 201415

Unaudited Actual Variance Variance
budget
$000 $000 $000 %
Statement of Comprehensive Revenue and Expense
Revenue
Revenue Crown (a) 683,635 698,650 (15,015) (2%)
Expenses
Personnel (b) 457,750 463,668 (5,918) (1%)
Depreciation and impairment (c) 16,848 12,497 4,351 26%
Amortisation and impairment (d) 38,528 31,032 7,496 19%

Statement of Financial Position

Current assets
Cash and cash equivalents (e) 12,000 20,679 (8,679) (72%)
Debtor Crown (f) 195,502 245,557 (50,055) (26%)
Non-current assets
Property, plant and equipment (g) 59,176 45,689 13,487 23%
Intangible assets (h) 113,487 105,186 8,301 7%
Current liabilities
Creditors and other payables (i) 33,200 37,090 (3,890) (12%)
Employee entitlements (j) 43,815 58,345 (14,530) (33%)

Statement of Comprehensive Revenue and Expense

(a) Revenue Crown was higher than budget by $15,015,000 (2%). The increase was mainly due to additional funding of
$32,000,000 received for the business transformation programme. This was offset by an expense transfer of ($13,000,000)
from 201415 to 201718 and 201819 for depreciation to align with the proposed timing of capital expenditure for the
business transformation programme.
(b) Personnel expenses were higher than budget by $5,918,000 (1%). The variance in expenditure was mainly due to the
additional funding received for the business transformation programme and a contract settlement payment.
(c) Depreciation and impairment was lower than budget by $4,351,000 (26%). The variance was due to lower spending on
existing equipment and infrastructure, which reflects decisions to hold capital funding in reserves to contribute to future
business transformation programme capital expenditure.
(d) Amortisation and impairment was lower than budget by $7,496,000 (19%). This variance was due to lower spending on
existing systems and software, which reflects decisions to hold capital funding in reserves to contribute to future business
transformation programme capital expenditure.

ANNUAL REPORT 2015 123

Statement of Financial Position
(e) Cash and cash equivalents were higher than budget by $8,679,000 (72%). This was due to holding cash for salaries and
wages that were paid on 1 July 2015.
(f) Debtor Crown was higher than budget by $50,055,000 (26%). This variance was mainly due to $13,487,000 of
underspending in property, plant and equipment, $8,301,000 of underspending in intangible assets, and the net surplus
for 201415 of $19,357,000 that will be repaid to the Crown.
(g)&(h) Non-current assets were lower than budget by $21,788,000 (13%). The variance in non-current assets mainly reflects a
reduction in the capital expenditure during the year. Capital expenditure on existing systems and infrastructure has
been reduced, with capital funding held in reserves to contribute to future business transformation programme capital
expenditure.
(i) Creditors and other payables were higher than budget by $3,890,000 (12%). This was due to the timing of trade payables
and a higher than forecast GST liability.
(j) Employee entitlements were higher than budget by $14,530,000 (33%). This was mainly due to a contract settlement
payment and macroeconomic changes in the actuarial valuations for retiring and long-service leave in 201415.

NOTE 26: EVENTS AFTER BALANCE DATE

No events have occurred between the balance date and date of signing these financial statements that materially affect the actual
results within these financial statements.

124 ANNUAL REPORT 2015

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Non-departmental
financial schedules

ANNUAL REPORT 2015 125

SCHEDULE OF NON-DEPARTMENTAL REVENUE

FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Direct taxation
Income tax
Individuals
Source deductions 23,125,625 24,484,000 24,449,000 24,663,899 25,651,000
Other persons 5,246,993 2
5,428,000 5,661,000 5,848,242 5,584,000
Refunds (1,515,058)2 (1,395,000) (1,517,000) (1,595,041) (1,696,000)
Fringe benefit tax 488,535 512,000 519,000 514,071 540,000
Total individuals 27,346,095 29,029,000 29,112,000 29,431,171 30,079,000

Corporate tax
Gross companies tax 10,617,384 10,686,000 10,900,000 10,526,789 11,096,000
Refunds (192,338) (207,000) (152,000) (142,608) (148,000)
Non-resident withholding tax 427,714 481,000 486,000 470,073 506,000
Foreign-source dividend withholding payments 8,213 2,000 (2,000) (3,438) 2,000
Total corporate tax 10,860,973 10,962,000 11,232,000 10,850,816 11,456,000

Other direct income tax

Resident withholding tax on interest income 1,643,787 2,007,000 1,777,000 1,829,835 2,094,000
Resident withholding tax on dividend income 445,867 495,000 523,000 542,527 537,000
Employer superannuation contribution tax 1,077,974 1,209,000 1,130,000 1,113,918 1,175,000
Gift duties (70) 87
Total other direct income tax 3,167,558 3,711,000 3,430,000 3,486,367 3,806,000

Total direct taxation 41,374,626 43,702,000 43,774,000 43,768,354 45,341,000

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SCHEDULE OF NON-DEPARTMENTAL REVENUE
(CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2015
201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Indirect taxation
Goods and services tax
Gross goods and services tax 25,751,108 27,946,000 26,878,000 26,566,080 28,378,000
Refunds (11,191,411) (11,632,000) (11,312,000) (10,954,126) (11,949,000)
Total goods and services tax 14,559,697 16,314,000 15,566,000 15,611,954 16,429,000

Other indirect taxation

Cheque duties1 2,464 312
Approved issuer levy 90,522 90,000 93,000 100,075 92,000
Gaming duties 266,814 267,000 262,000 264,364 270,000
Other indirect taxation 2,709 5,000 5,000 2,480 5,000
Total other indirect taxation 362,509 362,000 360,000 367,231 367,000

Total indirect taxation 14,922,206 16,676,000 15,926,000 15,979,185 16,796,000

Total taxation 56,296,832 60,378,000 59,700,000 59,747,539 62,137,000

Other revenue
Child support 204,6742 229,620 187,350 196,985 200,250
Interest unwind student loans 579,318 601,000 596,000 604,175 605,000
Other revenue 86,059 92,000 76,000 86,341 78,000
Total other revenue 870,051 922,620 859,350 887,501 883,250

Total operating revenue 57,166,883 61,300,620 60,559,350 60,635,040 63,020,250

1
Cheque duties were abolished from 1 July 2014.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

ANNUAL REPORT 2015 127

SCHEDULE OF NON-DEPARTMENTAL EXPENDITURE

FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516

Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Benefits and other unrequited expenses
Child tax credit 1,835 1,300 1,300 1,298 1,100
Family tax credit 1,965,263 1,934,000 1,857,000 1,854,048 1,837,000
In-work tax credit 533,266 494,000 512,000 511,186 529,000
KiwiSaver: Fee subsidy (11) (8)
KiwiSaver: Interest 7,294 13,000 13,000 8,413 15,000
KiwiSaver: Kick-start payment 227,772 171,000 226,000 218,364
KiwiSaver: Tax credit 569,163 643,000 643,000 629,297 705,000
Minimum family tax credit 14,275 13,000 16,000 15,975 16,000
Paid parental leave payments 164,504 176,000 184,000 180,286 233,000
Parental tax credit 17,640 19,000 21,000 20,967 31,000
Payroll subsidy 3,129 4,000 4,100 3,945 5,100
Research and development tax credit (3,952)
Total benefits and other unrequited expenses 3,500,178 3,468,300 3,477,400 3,443,771 3,372,200

Borrowing expenses
Adverse event interest 12 10 20 (1) 10
Environmental restoration account interest 1,636 2,000 2,000 1,634 2,000
Income equalisation interest 7,260 7,000 15,000 3,543 15,000
Total borrowing expenses 8,908 9,010 17,020 5,176 17,010

Other expenses
Impairment of debt and debt write-offs1 1,025,0602 1,162,098 875,972 860,829 1,179,224
Impairment of debt relating to child support 2
Impairment of debt relating to student loans 12,000 100,000 253,000 269,000 100,000
Initial fair value write-down relating to student loans 629,539 668,000 606,000 601,665 646,000
Total other expenses 1,666,599 1,930,098 1,734,972 1,731,494 1,925,224

Total expenditure 5,175,685 5,407,408 5,229,392 5,180,441 5,314,434

1
Impairment of debt and debt write-offs relates to general tax, Working for Families Tax Credits and KiwiSaver debt.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

128 ANNUAL REPORT 2015

 09
SCHEDULE OF NON-DEPARTMENTAL ASSETS

AS AT 30 JUNE 2015
Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Current assets
Cash and cash equivalents 2,489,327 1,355,000 1,200,000 1,768,113 1,075,000
Receivables 1 8,228,2411 7,775,600 7,971,600 7,511,685 8,437,000
Receivables child support 2 10,899 13,720 10,899 12,001 10,899
Receivables other 111,065 128,352 128,352 97,120 133,352
Student loans 3 1,193,000 1,219,000 1,161,000 1,122,000 1,251,000
Total current assets 12,032,532 10,491,672 10,471,851 10,510,919 10,907,251

Non-current assets
Receivables 1 467,400 438,400 467,400 441,300 467,400
Receivables child support 2 64,506 72,325 71,506 67,037 77,166
Student loans 3 7,522,829 7,804,993 7,717,476 7,742,382 7,919,536
Total non-current assets 8,054,735 8,315,718 8,256,382 8,250,719 8,464,102

Total assets 20,087,267 18,807,390 18,728,233 18,761,638 19,371,353

1
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

ANNUAL REPORT 2015 129

SCHEDULE OF NON-DEPARTMENTAL LIABILITIES
AS AT 30 JUNE 2015
Notes 201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Current liabilities
Payables and provisions
Child support 37,359 30,096 37,359 42,752 37,359
Refundables and payables 4 4,489,2451 4,404,794 4,381,975 4,311,622 4,749,799
Unclaimed monies 5 13,818 12,475 13,818 14,859 13,818
Total current liabilities 4,540,422 4,447,365 4,433,152 4,369,233 4,800,976

Non-current liabilities
Reserve schemes 6 245,937 294,968 429,437 339,279 362,437
Total non-current liabilities 245,937 294,968 429,437 339,279 362,437

Total liabilities 4,786,359 4,742,333 4,862,589 4,708,512 5,163,413

1
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.

The accompanying accounting policies and notes form part of these financial schedules.

For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

130 ANNUAL REPORT 2015

 09
SCHEDULE OF NON-DEPARTMENTAL
MOVEMENTS BETWEEN DEPARTMENTS

FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415 201516
Actual Unaudited Unaudited Actual Unaudited
budget estimated forecast
actual
$000 $000 $000 $000 $000
Opening balance 14,956,5441 14,568,802 15,300,908 15,300,908 13,865,644
Net result from operating activities 51,991,1982 55,893,212 55,329,958 55,454,599 57,705,816
Asset transfer between departments Ministry of 1,521,537 1,597,153 1,539,647 1,528,794 1,594,060
Social Development student loans
New Zealand Debt Management Office (53,168,371) (58,014,490) (58,519,420) (58,231,175) (58,967,990)
Other 20,380 214,551 10,410
Closing balance 15,300,908 14,065,057 13,865,644 14,053,126 14,207,940

1
This number is restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
2
This number is restated due to the flow-on effect from the Schedule of Non-departmental Revenue and the Schedule of Non-
departmental Expenditure on the transition to the new PBE accounting standards. Refer to Note 9 for details.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

ANNUAL REPORT 2015 131

SCHEDULE OF NON-DEPARTMENTAL
COMMITMENTS
AS AT 30 JUNE 2015
Inland Revenue, on behalf of the Crown, has no non-cancellable capital or lease commitments (201314: $nil).

SCHEDULE OF NON-DEPARTMENTAL
CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
AS AT 30 JUNE 2015
Notes 201314 201415
Actual Actual
$000 $000
Quantifiable contingent liabilities
Legal proceedings and disputes assessed 7 535,388 148,178
Unclaimed monies 5 111,804 120,221
Total quantifiable contingent liabilities 647,192 268,399

Quantifiable contingent assets

Disputes non-assessed 7 89,798 103,323
Total quantifiable contingent assets 89,798 103,323

There were no non-quantifiable contingent liabilities and contingent assets for the year ended 30 June 2015 (201314: $nil).
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

132 ANNUAL REPORT 2015

 09
SCHEDULE OF NON-DEPARTMENTAL TRUST
MONEY

FOR THE YEAR ENDED 30 JUNE 2015

201314 201415 201415 201415
Actual Contributions Distributions Actual
$000 $000 $000 $000
Child support
Child support trust account 17,394 260,880 (262,075) 16,199
Reciprocal child support agreement trust account 397 12,546 (12,504) 439
Total child support 17,791 273,426 (274,579) 16,638

KiwiSaver
KiwiSaver returned transactions trust account 44 102 146
Total KiwiSaver 44 102 146

Total trust money 17,835 273,528 (274,579) 16,784

The child support trust accounts were established in accordance with sections 139 and 140 of the Child Support Act 1991. Inland
Revenue administers these trust accounts for amounts collected from liable parents and the subsequent child support payments
that are paid to the custodial parents.
The KiwiSaver trust account was established in accordance with section 74(4) of the KiwiSaver Act 2006. Inland Revenue
administers this account to hold money deposited with the Crown from KiwiSaver scheme providers, primarily for refunds and
payments made in error, pending the completion of the financial transaction.
The accompanying accounting policies and notes form part of these financial schedules.
For a full understanding of the Crowns financial position and the results of its operations, refer to the Financial Statements of the
Government of New Zealand for the Year Ended 30 June 2015.

ANNUAL REPORT 2015 133

STATEMENT OF ACCOUNTING POLICIES
These financial schedules are for the year ended 30
June 2015 and include forecast financial schedules for
the year ending 30 June 2016. The schedules have been
combined to provide a single view of actual, budget and
forecast information.
References to the financial schedules incorporate the financial
schedules and forecast financial schedules, unless otherwise
stated.
REPORTING ENTITY
These non-departmental financial schedules present financial
information on public funds managed by Inland Revenue on
behalf of the Crown.
These non-departmental balances are consolidated into the
Financial Statements of the Government of New Zealand for
the Year Ended 30 June 2015. For a full understanding of the
Crowns financial position, results of operations, and cash flows
for the year, refer to the Financial Statements of the Government
of New Zealand for the Year Ended 30 June 2015.
REPORTING PERIOD
The reporting period for these financial schedules is for the
year ended 30 June 2015. The forecast financial schedules are
for the year ending 30 June 2016.
The financial schedules were authorised for issue by the Chief
Executive of Inland Revenue on 29 September 2015.
BASIS OF PREPARATION
The accounting policies set out below have been applied
consistently to all periods presented in these financial schedules.
These financial schedules have been prepared on a historical
cost basis, unless otherwise stated. The accrual basis of
accounting has been used, unless otherwise stated.
These financial schedules are presented in New Zealand dollars,
and all values are rounded to the nearest thousand dollars
($000). The functional currency of Inland Revenue is New
Zealand dollars.
These financial schedules are the first prepared in accordance
with the new Tier 1 Public Benefit Entity (PBE) accounting
standards. The material adjustments arising on transition are
explained in Note 9.
There are no other new relevant standards and interpretations
issued this year and Inland Revenue has not early adopted any
new standards and interpretations.
134 ANNUAL REPORT 2015
CRITICAL ACCOUNTING ESTIMATES
The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of
receivables and payables within the next financial year are
referred to below:
Income tax
Income tax is recognised on an accruals basis in the period the
taxable event occurs. It is deemed to accrue evenly over the
period to which it relates.
Where income tax returns have not been filed for the relevant
period, accrued income tax revenue receivable or payable
has been estimated based on current provisional assessments
or prior year terminal assessments. The outcome of income
tax revenue and refunds is not known with certainty until
income tax returns for the period have been filed. This occurs
sometime after the publication of the annual report, usually in
the next accounting period.
The measurement of the income tax accruals requires
significant estimates where terminal tax assessments are not
yet available for the period. Key features of the estimation used
are as follows:
Where taxpayers subject to the provisional tax regime
have not yet filed a terminal tax assessment for the period,
provisional tax assessments are accrued.
Where taxpayers have made payments to Inland Revenue
but have not submitted a provisional tax assessment for the
period, their credit balance is accrued as revenue. Payments
into the tax pool are not captured by this approach.
For individual taxpayers not subject to provisional tax,
an estimate is made of the tax revenues receivable and
refundable based on prior year returns adjusted for current
year experience. This is a new estimate for 201415.
For company taxpayers not subject to provisional tax for the
current year, revenue is recognised on an assessment basis,
i.e. no estimate of tax revenue is accrued in the period of the
taxable event. This is because a reliable estimate cannot be
made in the period of the taxable event.
Other critical accounting estimates
Material estimates and assumptions impact on receivables,
student loan debt and refundables and payables. See Notes 1, 3
and 4 for more information on these.
ACCOUNTING POLICIES
The following accounting policies, which materially affect the
measurement of financial results and financial position, have
been applied.

Budget and forecast figures
The budget figures for 201415 are those included in The
Estimates of Appropriations for the year ending 30 June 2015.
The estimated actual figures for 201415 and the forecast
figures for 201516 are those included in The Estimates of
Appropriations for the year ending 30 June 2016. The estimated
actual figures represent forecasts submitted to the Treasury
based on all Government decisions and assumptions as at
28 April 2015.
The budget, estimated actual and forecast figures have been
prepared in accordance with NZ GAAP, using accounting
policies that are consistent with those adopted in preparing
these financial schedules.
Revenue
Operating revenue
The payment of tax in itself, does not entitle a taxpayer to an
equivalent value of services or benefits, because there is no
direct relationship between paying tax and receiving Crown
services and transfers, that is, tax revenue is a non-exchange
transaction.
Tax revenue is recognised when a taxable event has occurred,
the tax revenue can be reliably measured and it is probable
that economic benefits will flow to the Crown. The taxable
event is defined as follows:
Tax type Taxable activity
Income tax The earning of assessable income
during the taxation period by the
taxpayer.
Goods and services tax The purchase or sale of taxable
goods and services during the
taxation period.
The New Zealand tax system is predicated on self-assessment
where taxpayers are expected to understand the tax laws and
comply with them. This has an impact on the completeness
of tax revenues when taxpayers fail to comply with tax
laws, for example, if they do not report all of their income.
Inland Revenue has implemented systems and controls in
order to detect and correct situations where taxpayers are
not complying with the various acts it administers. These
systems and controls include performing audits of taxpayer
records where determined necessary by Inland Revenue.
Such procedures cannot be expected to identify all sources
of unreported income or other cases of non-compliance with
tax laws. Inland Revenue is unable to estimate the amount of
unreported tax.
Interest unwind student loans
Interest unwind on student loans is accrued using the effective
interest rate method. The effective interest rate exactly
discounts estimated future cash receipts through the expected
09
life of the financial asset to that assets net carrying amount.
Effective interest rates are assigned to new lending each year on
a year of lending basis.
Expenses
Expenses are recognised in the period to which they relate.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in
transit and funds held in bank accounts administered by Inland
Revenue.
Receivables
Receivables include taxes and Working for Families Tax Credits
(and any penalties and interest associated with these activities)
and exclude student loans and child support debt.
Receivables are initially assessed at nominal value, that is, the
receivable reflects the amount of tax owed or Working for
Families Tax Credits payable. The nominal value of receivables at
recognition does not materially differ from their fair value at that
point, taking into consideration the effects of uncollectability
and discounting of future cashflows to present value.
Receivables are subsequently adjusted for penalties and interest
as they are charged, and tested for impairment annually.
Interest and penalties charged on receivables are presented as
revenue in the Schedule of Non-departmental Revenue.
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that the asset is impaired.
Impairment movements are recognised in the Schedule of Non-
departmental Expenditure. Impairment losses can be reversed
where there is evidence that the impaired value of the asset has
increased.
Financial models have been constructed for Inland Revenue to
calculate the impairment of Crown debt. These models apply
a number of assumptions on future repayment behaviour as
well as economic assumptions such as the discount rate and
inflation.
Receivables child support
Child support receivables consist of penalties applied when
a non-custodial parent is in default. These receivables are
initially recognised at fair value and are assessed annually for
impairment.
Financial instruments
Financial assets
Student loans
Student loans are designated as loans and receivables
under PBE IPSAS 29 Financial Instruments: Recognition and
Measurement. Student loans are recognised initially at fair
value, plus transaction costs, and subsequently measured at
amortised cost using the effective interest rate method, and
adjusted for impairment movements. Fair value on initial
recognition of student loans is determined by projecting
ANNUAL REPORT 2015 135
forward expected repayments and discounting them back at an
appropriate discount rate. The difference between the amount
lent and the fair value on initial recognition is expensed on
initial recognition. The subsequent measurement at amortised
cost is determined using the effective interest rate calculated
at initial recognition. This rate is used to spread the Crowns
interest income across the life of the loan and determines the
loans carrying value at each reporting date.
Allowances for estimated irrecoverable amounts are recognised
when there is objective evidence that Inland Revenue will not
be able to collect all amounts due according to the original
terms of the receivables. Impairment losses are incurred if, and
only if, there is objective evidence of impairment as a result of
one or more events that occurred after the initial recognition
of the loan and a loss event has an impact on the estimated
future cash flows of the loan that can be reliably measured.
The amount of the provision is the difference between the
assets carrying amount and estimated impaired value. The
impairment losses are recognised in the Schedule of Non-
departmental Expenditure.
Impairment losses can be reversed where there is evidence that
the impaired value of the financial asset has increased.
Actuarial models have been constructed by a third party to
calculate the impairment of student loan debt. Refer to Note 3
for more information on this model.
Financial liabilities
Financial liabilities entered into with a duration of less than 12
months are recognised at their nominal value, unless the effect
of discounting is material.
Contingent liabilities and assets
Contingent liabilities and assets are recorded in the Schedule of
Non-departmental Contingent Liabilities and Contingent Assets
at the point at which the contingency is evident. Contingent
liabilities are disclosed if the possibility that they will crystallise
is not remote. Contingent assets are disclosed if it is probable
that the benefits will be realised.
Comparatives
When presentation or classification of items in the financial
schedules is amended or accounting policies are changed,
comparative figures have been restated to ensure consistency
with the current period, unless it is impracticable to do so.
Note 9 shows the adjustments to comparatives arising on
transition to the new PBE accounting standards.
FORECAST FINANCIAL SCHEDULES
The forecast financial schedules have been prepared in
accordance with the Public Finance Act 1989.
The purpose of the forecast financial schedules is to facilitate
Parliaments consideration of appropriations for, and planned
performance of, the department. These forecast financial
schedules may not be appropriate for other purposes.
136 ANNUAL REPORT 2015
The forecast financial schedules have been prepared in
accordance with the accounting policies detailed above.
Additional accounting policies relating to the forecasts are set
out below.
The forecast financial schedules comply with NZ GAAP
and have been prepared in accordance with PBE IPSAS 42
Prospective Financial Statements.
The forecast financial schedules are not subject to audit.
Forecast policies
The forecasts have been compiled on the basis of existing
government policies and ministerial expectations at the
time the schedules were finalised and reflect all government
decisions and circumstances as at 28 April 2015.
The key assumptions in the preparation of the forecasts
include:
Tax revenue: tax policy changes enacted and announced by
the Government will take place as planned and will affect tax
revenue and receipts as calculated and agreed between Inland
Revenue and the Treasury.
Student loans: the carrying value of student loans is based on
a valuation model adapted to reflect current student loans
policy. As such, the carrying value over the forecast period is
sensitive to changes in a number of underlying assumptions,
including future income levels, repayment behaviour and
macroeconomic factors such as inflation and discount
rates used to determine the effective interest rate for new
borrowers. Any change in these assumptions would affect the
present fiscal forecast.
For other key fiscal forecast assumptions, refer to the Budget
Economic and Fiscal Update 2015.
Variations to forecast
The actual financial results for the forecast period covered are
likely to vary from the information presented in these forecasts.
Factors that may lead to a material difference between
information in these forecast financial schedules and the actual
reported results include:
Changes to the Budget through initiatives or legislation
approved by Cabinet
Macroeconomics impacting revenue, expenditure and debt
levels
The timing of taxpayers filing and payment of returns
The timing of taxpayer refund and credit claims
Outcomes of the disputes process including litigation.
Any changes to budgets during 201516 will be incorporated
into The Supplementary Estimates of Appropriations for the year
ending 30 June 2016.
 09
NOTES TO THE FINANCIAL SCHEDULES
NOTE 1: RECEIVABLES
Receivables include taxes and Working for Families Tax Credits and exclude student loans and child support debt.
The recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical
debt data, deducting an estimate of service costs and then discounting using an appropriate rate. If the recoverable amount of
the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the
recoverable amount is more, the carrying amount is increased.
Tax pooling funds held in Crown bank accounts have been netted off against receivables. These funds have been deposited
by a commercial intermediary and allow taxpayers to pool tax payments to reduce their use-of-money-interest exposure.
Underpayments and overpayments are offset within the same pool. We estimate that the majority of pooling funds relate to
income accruals already included in not yet due receivables.

201314 201415
Actual Actual
$000 $000
Receivables
Gross receivables 13,162,0762 12,145,147
Impairment receivables (4,466,435) 2
(4,192,162)
Carrying value receivables 8,695,641 7,952,985

Current and non-current apportionment

Receivables current 8,228,2412 7,511,685
Receivables non-current 467,400 441,300
Carrying value receivables 8,695,641 7,952,985

Ageing profile of receivables gross

Not due 7,691,3702 6,992,052
Past due1
Less than 6 months 930,766 974,747
6 12 months 389,436 336,826
1 2 years 719,193 679,751
Greater than 2 years 3,431,311 3,161,771
Total past due 5,470,706 5,153,095

Total receivables gross 13,162,076 12,145,147

% Past due 42% 42%

Receivables impairment
Opening balance 4,371,533 4,466,435
Impairment losses recognised 1,025,060 2
860,829
Amounts written off as uncollectable (930,158) (1,135,102)
Closing balance 4,466,435 4,192,162
1
Figures are based on debt elements (a specific tax type and time period for which a debt is due). They are not comparable with
the figures in the Additional Information section, which are based on debt cases (one debt case can have one or more debt
elements) and also include overdue student loan debt.
2
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.
Receivables are classified as past due when any outstanding revenue is not paid by the taxpayers due date. Due dates will vary,
depending on the type of revenue outstanding (e.g. income tax, GST, KiwiSaver) and the taxpayers balance date. Past due debt
includes debt collected under instalment, debt under dispute, default assessments and debts of taxpayers who are bankrupt,

ANNUAL REPORT 2015 137

in receivership or in liquidation. Inland Revenue has debt management policies and procedures in place to actively manage the
collection of past due debt.
Not due receivables comprise estimations for taxation where the tax has been earned but is not yet overdue.
The estimated recoverable amount of this portfolio and significant assumptions underpinning the valuation are:

201314 201415
Recoverable amount of receivables not due ($000) 7,648,373 1
6,954,717
Recoverable amount of receivables past due ($000) 1,047,268 998,268
Use-of-money-interest rate 8.40% 9.21%
Discount rate 6.00% 6.00%
Impact on the recoverable amount of a 2% increase in discount rate ($000) (21,000) (20,000)
Impact on the recoverable amount of a 2% decrease in discount rate ($000) 22,000 21,000

1
This number is restated due to the transition to the new PBE accounting standards.
The fair value of receivables is not materially different from the carrying value.

Credit risk
In determining the recoverability of receivables Inland Revenue uses information about the extent to which the taxpayer is
contesting the assessment and experience of the outcomes of such disputes, from lateness of payment and other information
obtained from credit collection actions taken.
Under the Tax Administration Act 1994 Inland Revenue has broad powers to ensure that people meet their obligations. Part 10 of
the Act sets out the powers of the Commissioner to recover unpaid tax.
The Crown does not hold any collateral or any other credit enhancements over receivables which are past due.
Receivables are widely dispersed over a number of taxpayers and as a result the Crown does not have any material individual
concentrations of credit risk.

138 ANNUAL REPORT 2015

 09
NOTE 2: RECEIVABLES CHILD SUPPORT
The Crown collects monies from liable parents and remits this to custodial parents. The child support receivable represents
penalties which have been incurred as a result of the under-payment of the debt, and in the main, relates to penalties imposed on
liable parents who default on their payments.
Child support penalties grow exponentially due to their compounding nature. The recovery of debt is challenging and 97% of child
support debt is written down at initial recognition as it is not expected to be collected. There are limited provisions under child
support legislation to remit penalties. The non-recoverability of penalties has been allowed for in the initial fair value write-down
figure. At year end the fair value of the outstanding debt is also tested for impairment.
The concentration of credit risk is limited and this is not a risk that is actively managed. The Crown does not hold any collateral or
other credit enhancements over these receivables.

201314 201415
Actual Actual
$000 $000
Receivables child support
Gross receivables 2,372,026 2,605,488
Impairment receivables (2,296,621) (2,526,450)
Total receivables child support 75,405 79,038

Current and non-current apportionment

Receivables current 10,899 12,001
Receivables non-current 64,506 67,037
Carrying value receivables 75,405 79,038

Ageing profile of receivables gross

Not due
Past due
Less than 12 months 267,192 240,285
1 2 years 296,558 267,192
Greater than 2 years 1,808,276 2,098,011
Total past due 2,372,026 2,605,488

Total receivables gross 2,372,026 2,605,488

% Past due 100% 100%

Impairment of receivables child support

Opening balance 2,041,986 2,296,621
Initial write-down to fair value1 350,991 338,070
Impairment losses recognised during the year
Amounts written off as uncollectable (96,356) (108,241)
Impairment losses reversed
Closing balance 2,296,621 2,526,450

1
This is to comply with the new PBE accounting standards. Refer to Note 9 for details.

ANNUAL REPORT 2015 139

NOTE 3: STUDENT LOANS
Student loans are initially issued by StudyLink (Ministry of Social Development). The loans and any associated transactions are
transferred to Inland Revenue on a daily basis. Inland Revenue holds the total nominal debt and carrying value of the scheme. The
initial capital lending of student loans is administered under Vote Social Development. The initial fair value write-down expense on
new capital lending, and any subsequent impairment, is administered under Vote Revenue.

201314 201415
Actual Actual
$000 $000
Opening carrying value 8,288,177 8,715,829
Repayments (1,031,664) (1,113,751)
Borrowings transferred from Ministry of Social Development 1,521,537 1,528,794
Fair value write-down on new borrowings (629,539) (601,665)
Impairment (12,000) (269,000)
Interest unwind 579,318 604,175
Closing carrying value student loans 8,715,829 8,864,382

Current and non-current apportionment

Student loans current 1,193,000 1,122,000
Student loans non-current 7,522,829 7,742,382
Carrying value student loans 8,715,829 8,864,382

Opening nominal value 13,562,221 14,235,007

Borrowings transferred from Ministry of Social Development 1,521,537 1,528,794
Repayments (1,031,664) (1,113,751)
Interest on overseas based borrowers 150,925 141,345
Administration and establishment fees 21,794 22,365
Penalties 48,894 58,394
Death and bankruptcies (24,500) (34,831)
Voluntary repayment bonus (14,200) (295)
Closing nominal value 14,235,007 14,837,028

Student loan valuation model

The student loan valuation model reflects current student loan policy and macroeconomic assumptions. As such, the book
value is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and
macroeconomic factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers. For
these reasons, the valuation has a high degree of inherent uncertainty, and there is a significant risk of material adjustment to the
carrying value in future accounting periods.
Most of the data upon which the modelling depends is collated by Statistics New Zealand from Inland Revenue, Ministry of
Education and Ministry of Social Development. That data covers borrowings, repayments, income, educational factors and socio-
economic factors. It is current up to 31 March 2014. Some supplementary data from Inland Revenue and Customs, about loan
transactions and borrowers cross-border movements for the period up to 31 March 2015 are also factored into the modelling.

140 ANNUAL REPORT 2015

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The significant assumptions behind the carrying value and fair value are:

201314 201415
Carrying value
Carrying value ($000) 8,715,829 8,864,382
Effective interest rate 7.06% 7.00%
Interest rate applied to loans for overseas borrowers 5.1% 6.2% 4.5% 6.2%
Consumer price index 1.8% 2.5% 0.3% 2.5%
Future salary inflation 2.8% 3.5% 2.3% 3.5%

201314 201415
Fair value
Fair value ($000) 8,924,000 9,267,000
Discount rate 6.62% 6.20%
Impact on fair value of a 1% increase in discount rate ($000) (448,000) (492,000)
Impact on fair value of a 1% decrease in discount rate ($000) 501,000 554,000

Fair value is the amount for which the loan book could be exchanged between knowledgeable, willing parties in an arms-length
transaction as at 30 June 2015. It is determined by discounting the future cash flows at an appropriate discount rate.
Fair values will differ from carrying values due to changes in market interest rates, as the carrying value is not adjusted for such
changes whereas the fair value was calculated on a discount rate that was current at 30 June 2015. At that date, the fair value
was calculated on a discount rate of 5.66% which excludes expenses whereas a weighted average discount rate of 7.00% including
expenses was used for the carrying value. For reference, the representative discount rate for fair value including an allowance for
expenses is 6.20%.
The Student Loan Scheme Annual Report 2014/15 contains more information on the student loan scheme.
Impairment of student loans in 201415 totalled $269 million. This impairment is mainly due to data and modelling changes.
Extensive modelling enhancements were made to the income sub-models. The changes focussed on better reflecting the poorer
employment prospects arising after the Global Financial Crisis for those with lower qualifications. Macroeconomic changes
contributed to the impairment expense as well. All of the economic assumptions have fallen significantly since the previous
valuation. Actual repayments were lower than forecast. To reflect expected improvements in employment rates and repayment
compliance, an adjustment was made to reverse some of the modelling impairment loss.
In 201314 the impairment of student loans totalled $12 million. This was driven by lower than expected incomes and repayments
as well as changes to macroeconomic assumptions for income recovery and earnings inflation.
The valuation data is still very sensitive to changes in certain areas as can be seen from the sources of impairment set out below:

201314 201415
Actual Actual
$000 $000
Sources of impairment
Policy and legislative changes 53,000
Experience variance (2,000) (40,000)
Macroeconomic changes 29,000 (117,000)
Remaining model and data changes (92,000) (262,000)
Adjustments for expected improvements 150,000
Total sources of impairment (12,000) (269,000)

Credit risk
Credit risk is the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid, causing
the scheme to incur a loss.
The student loan scheme does not require borrowers to provide any collateral or security to support advances made. As the total
sum advanced is widely dispersed over a large number of borrowers, the student loan scheme does not have any material individual
concentrations of credit risk.

ANNUAL REPORT 2015 141

The credit risk is reduced by collection of compulsory repayments through the tax system.

Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in interest rates. Changes could
impact on the Governments return on loans advanced. The interest rate and the interest write-off provisions attached to student
loans are set by the Government.

NOTE 4: REFUNDABLES AND PAYABLES

Refundables and payables are recognised at their nominal value as they are due within 12 months. The nominal value is considered
to approximate their fair value.
Taxes refundable represent refunds due to taxpayers. Refunds are issued to taxpayers once account and refund reviews are
complete.

201314 201415
Actual Actual
$000 $000
KiwiSaver payable 943,133 917,020
Paid parental leave payable 6,659 7,894
Taxes refundable 3,539,453 1
3,386,708
Total refundables and payables 4,489,245 4,311,622
1
These numbers are restated due to the transition to the new PBE accounting standards. Refer to Note 9 for details.

NOTE 5: UNCLAIMED MONIES

Under the Unclaimed Money Act 1971, entities (e.g. financial institutions, insurance companies) hand over money not claimed
after six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.

NOTE 6: RESERVE SCHEMES

201314 201415
Actual Actual
$000 $000
Adverse event income equalisation 2 133
Environmental restoration 54,927 54,926
Income equalisation 191,008 284,220
Total reserve schemes 245,937 339,279

The adverse event income equalisation scheme operates in addition to the income equalisation scheme. Deposits earn interest at
a rate of 6.5% per annum from the date of receipt until the deposit is refunded. Deposits can be withdrawn immediately, but are
transferred to the main income equalisation account if not withdrawn within 12 months of the deposit.
The environmental restoration account allows businesses to set aside money to cover restoration costs for monitoring, avoiding,
remedying or mitigating the detrimental environmental effects which may occur in later years. Interest is calculated at a rate of 3%
per annum and is payable from the day after the deposit is made until the day before a refund is made. Refunds will be made when
the environmental restoration costs are incurred.
The income equalisation scheme allows taxpayers in the farming, fishing and forestry industries to make payments during the year
by way of income equalisation deposits. Interest paid at a rate of 3% per annum will apply where a deposit is left in the scheme for
a period of 12 months or more.

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NOTE 7: CONTINGENCIES
Contingent liabilities
Legal proceedings and disputes assessed
Contingent liabilities arise if a legal case is still not resolved at the end of the disputes process, Inland Revenue will issue an
amended assessment to the taxpayer and recognise revenue. The taxpayer is then able to file proceedings with the Taxation
Review Authority or the High Court disputing the assessment. These are recorded in the Schedule of Non-departmental Contingent
Liabilities and Contingent Assets as legal proceedings and disputes assessed. The contingent liability is the maximum liability
Inland Revenue has in respect of these cases.

Unclaimed monies
Unclaimed monies are repaid to the entitled owner on proof of identification. Based on trends from prior years, the estimated likely
amount of unclaimed monies that will be paid out is recorded as a liability in the Schedule of Non-departmental Liabilities and the
remainder is recorded as a contingent liability in the Schedule of Non-departmental Contingent Liabilities and Contingent Assets.

Contingent assets
Disputes non-assessed
Contingent assets arise as part of the tax dispute process, for example, when Inland Revenue has advised a taxpayer of a proposed
adjustment to their tax assessment through a notice of proposed adjustment (NOPA). At this point there has been no amended
assessment issued and no revenue has been recognised so these adjustments are recorded in the Schedule of Non-departmental
Contingent Liabilities and Contingent Assets as disputes non-assessed. The taxpayer has the right to dispute this adjustment and a
disputes resolution process is entered into. Inland Revenue quantifies a contingent asset based on the likely cash collectable for the
disputes process based on experience and similar prior cases, net of losses carried forward.
Contingent assets can also arise where the taxpayer has not filed an assessment but Inland Revenue believes they are liable for
tax. In this situation Inland Revenue will issue an assessment. Where the taxpayer chooses to dispute the Inland Revenue initiated
assessment, the assessment is not recognised as revenue and a contingent asset is recorded in the Schedule of Non-departmental
Contingent Liabilities and Contingent Assets. The value of the asset is based on the likely collectable portion of the default assessment,
net of losses carried forward.

NOTE 8: COLLECTION OF EARNER LEVIES

Inland Revenue collects these levies on behalf of the Accident Compensation Corporation and passes the monies directly to them.
The levies are not recognised as revenue or expenditure on the non-departmental schedules.

201314 201415
Actual Actual
$000 $000
Earner levy 1,546,101 1,443,343
Total collection of earner levy 1,546,101 1,443,343

ANNUAL REPORT 2015 143

NOTE 9: ADJUSTMENTS ON TRANSITION TO THE NEW PBE ACCOUNTING STANDARDS
Inland Revenue has adjusted the comparative year non-departmental schedules for the year ended 30 June 2014 arising from
transition to the new PBE accounting standards. The adjustments are shown in the table below:

Notes NZ IFRS Adjustment PBE accounting

(PBE) standards
201314 201314
$000 $000 $000
Schedule of Non-departmental Revenue
Income tax
Individuals
Other persons 5,216,335 30,658 5,246,993
Refunds (1,573,264) 58,206 (1,515,058)

Other revenue
Child support 459,309 (254,635) 204,674

Schedule of Non-departmental Expenditure &

Statement of Non-departmental Appropriations
Other expenses
Impairment of debt1 95,257 (355) 94,902
Impairment of debt relating to child support 254,635 (254,635)

Schedule of Non-departmental Assets

Current assets
Receivables 1 7,568,681 659,560 8,228,241

Schedule of Non-departmental Liabilities

Current liabilities
Payables and provisions
Refundables and payables 4 3,630,784 858,461 4,489,245

Schedule of Non-departmental Movements between Departments

Opening balance 15,244,664 (288,120) 14,956,544

1
This restated number is part of the Impairment of debt and debt write-offs figure in the Schedule of Non-departmental Expenditure
and is also shown in the Statement of Non-departmental Appropriations in part 7, Measuring our performance.

Measurement of child support penalties revenue and associated impairment

Under NZ IFRS (PBE), child support penalty revenue was recognised at the amount of penalty imposed (nominal value), with an
allowance for impairment recognised as expenditure. Under the new PBE accounting standards, child support penalty revenue is
recognised at fair value on initial recognition. The fair value incorporates uncollectability and discounting. The effect of this change
is to reduce child support penalty revenue and child support impairment expense. Therefore, the impact of this transition change
on the net result from operating activities is $nil.

Measurement of income tax for other persons and refunds

This year we have included a new accrual in the non-departmental financial schedules for income tax (other persons) for
non-provisional taxpayers including those who received personal tax summaries. Previously income tax revenue for these taxpayers
was only recognised when the terminal assessments were filed. The effect of this change is to increase both receivables and
refundables and payables. However, the impact of this transition change on the net result from operating activities is not material.

NOTE 10: EVENTS AFTER BALANCE DATE

No events have occurred between the balance date and the date of signing these financial schedules that materially affect the
actual results within these financial schedules.

144 ANNUAL REPORT 2015

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Audit Report

ANNUAL REPORT 2015 145

INDEPENDENT AUDITORS REPORT
To the readers of Inland Revenues annual report for the year ended 30 June 2015
The Auditor-General is the auditor of Inland Revenue (the Department). The Auditor-General has appointed me, Ajay Sharma, using the
staff and resources of Audit NewZealand, to carry out the audit on her behalf of:
the financial statements of the Department on pages 94 to 124, that comprise the statement of financial position, statement of
commitments, statement of contingent liabilities and contingent assets as at 30June 2015, the statement of comprehensive revenue
and expense, statement of changes in taxpayers funds, and statement of cash flows for the year ended on that date and the notes to
the financial statements that include accounting policies and other explanatory information;
the performance information prepared by the Department for the year ended 30June 2015 on pages 59 to 88;
the statements of expenses and capital expenditure of the Department for the year ended 30June 2015 on pages 89 to 92; and
the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 126 to 144 that
comprise:
the schedules of assets, liabilities, contingent liabilities and assets, commitments, expenditure, revenue, and movements between
departments for the year ended 30June 2015;
the schedule of trust monies for the year ended 30June 2015; and
the notes to the schedules that include accounting policies and other explanatory information.

Opinion
In our opinion:
the financial statements of the Department:
present fairly, in all material respects:
its financial position as at 30June 2015; and
its financial performance and cash flows for the year ended on that date;
comply with generally accepted accounting practice in NewZealand and have been prepared in accordance with Public Benefit
Entity Reporting Standards.
the performance information of the Department:
presents fairly, in all material respects, for the year ended 30June 2015:
what has been achieved with the appropriation; and
the actual expenses or capital expenditure incurred compared with the appropriated or forecast expenses or capital
expenditure;
complies with generally accepted accounting practice in NewZealand.
the statements of expenses and capital expenditure of the Department on pages 89 to 92 are presented fairly, in all material respects,
in accordance with the requirements of section 45A of the Public Finance Act 1989.
the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 126 to 144
present fairly, in all material respects, in accordance with the Treasury Instructions:
the assets, liabilities, contingent liabilities and assets, commitments, expenditure, revenue, and movements between departments
for the year ended 30June 2015; and
the schedule of trust monies for the year ended 30June 2015.

146 ANNUAL REPORT 2015

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Our audit was completed on 29 September 2015. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Chief Executive and our
responsibilities, and we explain our independence.

Basis of opinion
We carried out our audit in accordance with the Auditor-Generals Auditing Standards, which incorporate the International
Standards on Auditing (NewZealand). Those standards require that we comply with ethical requirements and plan and carry out
our audit to obtain reasonable assurance about whether the information we audited is free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence
readers overall understanding of the information we audited. If we had found material misstatements that were not corrected, we
would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the information we
audited. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the
information we audited, whether due to fraud or error. In making those risk assessments, we consider internal control relevant
to the Departments preparation of the information we audited in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Departments internal control.
An audit also involves evaluating:
the appropriateness of accounting policies used and whether they have been consistently applied;
the reasonableness of the significant accounting estimates and judgements made by the Chief Executive;
the appropriateness of the reported performance information within the Departments framework for reporting performance;
the adequacy of the disclosures in the information we audited; and
the overall presentation of the information we audited.
We did not examine every transaction, nor do we guarantee complete accuracy of the information we audited. Also, we did not
evaluate the security and controls over the electronic publication of the information we audited.
We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Chief Executive

The Chief Executive is responsible for preparing:
financial statements that present fairly the Departments financial position, financial performance, and its cash flows, and that
comply with generally accepted accounting practice in NewZealand.
performance information that presents fairly what has been achieved with each appropriation, the expenditure incurred
as compared with expenditure expected to be incurred, and that complies with generally accepted accounting practice in
NewZealand.
statements of expenses and capital expenditure of the Department, that are presented fairly, in accordance with the
requirements of the Public Finance Act 1989.
schedules of non-departmental activities, in accordance with the Treasury Instructions, that present fairly those activities
managed by the Department on behalf of the Crown.
The Chief Executives responsibilities arise from the Public Finance Act 1989.
The Chief Executive is responsible for such internal control as is determined is necessary to ensure that the annual report is free
from material misstatement, whether due to fraud or error. The Chief Executive is also responsible for the publication of the annual
report, whether in printed or electronic form.

ANNUAL REPORT 2015 147

Responsibilities of the Auditor
We are responsible for expressing an independent opinion on the information we are required to audit, and reporting that opinion to you
based on our audit. Our responsibility arises from the Public Audit Act 2001.

Independence
When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence
requirements of the External Reporting Board.
Other than the audit, we have no relationship with or interests in the Department.

Ajay Sharma
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand

148 ANNUAL REPORT 2015

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Additional
information

ANNUAL REPORT 2015 149

CUSTOMER SATISFACTION
TABLE 1: CUSTOMER SATISFACTION WITH OUR VOICE AND CORRESPONDENCE CHANNELS
Overall satisfaction 201314 201415
Satisfied Very Satisfied Very
Customer group satisfied satisfied
National results 85% 68% 85% 68%
Individuals (overall) 81% 64% 81% 62%
Working for Families Tax Credits 87% 72% 85% 68%
Child support 74% 54% 71% 48%
KiwiSaver (employees) 88% 76% 87% 75%
Student loan 79% 58% 86% 66%
Business (overall) 88% 71% 88% 72%
Small and medium enterprises 90% 73% 89% 73%
Large enterprises 86% 70% 87% 68%
Tax agents 89% 69% 92% 78%*
Not for profits 84% 70% 84% 68%
General public 87% 65% 87% 67%
* Statistically significant difference at 95% confidence level between 201314 and 201415

TABLE 2: CUSTOMER SATISFACTION WITH OUR ONLINE SERVICES

Overall satisfaction 201314 201415
Satisfied Very Satisfied Very
Customer group satisfied satisfied
National results 95% 77% 95% 79%
Individuals (overall) 94% 75% 94% 78%
Working for Families Tax Credits 93% 75% 96% 80%
Child support 93% 72% 94% 80%
KiwiSaver (employees) 95% 79% 93% 76%
Student loan 93% 71% 93% 72%
No social policy 94% 78% 95% 80%
Business (overall) 96% 79% 96% 81%
Small and medium enterprises 95% 78% 96% 81%
Large enterprises 98% 84% 96% 83%
Tax agents 97% 77% 95% 78%
Not for profits 95% 78% 96% 80%

There is no statistically significant difference at the 95% confidence level between 201314 and 201415 for different customer groups.

150 ANNUAL REPORT 2015

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TABLE 3: CUSTOMER PERCEPTIONS OF THE TAX SYSTEM

201314 201415
Agree Strongly Agree Strongly
agree agree
Confidence Inland Revenue does a good job 93% 67% 94% 71%
Overall fairness 82% 53% 82% 56%
Overall operational effectiveness 82% 55% 83% 57%
Easily accessed 83% 64% 87% 69%
Making it easy to get it right 79% 45% 80% 49%
Appropriate action against non-compliance 79% 54% 79% 55%
Paying tax contributes to New Zealand 96% 86% 97% 88%

ANNUAL REPORT 2015 151

DEBT TABLES
TABLE 4: COMPOSITION OF OUR DEBT PORTFOLIO AT 30 JUNE ($ MILLIONS)
Debt type 2011 2012 2013 2014 2015 One-year One-year
change change (%)
Debt under instalments $1,146.6 $1,176.3 $1,230.2 $1,228.2 $1,085.4 ($142.8) (11.6%)
Other collectable debt $2,663.5 $2,582.7 $2,561.5 $2,621.6 $2,367.0 ($254.6) (9.7%)
Tax Collectable debt* $3,810.2 $3,759.0 $3,791.7 $3,849.8 $3,452.4 ($397.4) (10.3%)
Tax Non-Collectable debt** $1,711.9 $2,157.4 $2,186.4 $2,390.3 $2,633.8 $243.4 10.2%
Total Debt $5,522.1 $5,916.4 $5,978.2 $6,240.1 $6,086.1 ($154.0) (2.5%)
WfFTC $275.1 $320.8 $371.8 $406.6 $334.8 ($71.8) (17.7%)
GST $1,908.5 $1,947.2 $1,873.9 $1,775.5 $1,527.5 ($248.0) (14.0%)
Income tax $2,207.8 $2,372.4 $2,365.7 $2,519.6 $2,653.0 $133.5 5.3%
KiwiSaver $19.8 $21.5 $22.5 $33.3 $29.4 ($4.0) (11.9%)
Other tax $76.6 $100.1 $121.6 $121.8 $115.9 ($5.9) (4.9%)
PAYE $622.6 $642.1 $586.8 $613.9 $492.4 ($121.4) (19.8%)
Student loan $411.7 $512.3 $635.9 $769.4 $933.0 $163.6 21.3%
Total $5,522.1 $5,916.4 $5,978.2 $6,240.1 $6,086.1 ($154.0) (2.5%)
Tax Penalties & Interest $2,359.0 $2,711.3 $2,862.6 $2,998.5 $2,936.7 ($61.9) (2.1%)
Penalties and Interest % 42.7% 45.8% 47.9% 48.1% 48.3%
Customers in debt (total cases) 389,947 408,605 436,298 435,360 367,864 (67,496) (15.5%)
Annual debt change (%) 7.2% 7.1% 1.0% 4.4% (2.5%)

Notes
* Collectable debt: debt cases where the assessment value is overdue and collections activity is in progress. This activity includes
instalment arrangements, deduction notices, cases linked to legal actions and other manual or automatic actions.
**Non-Collectable debt: debt cases where the assessed value is pending or in dispute and we are unable to proceed with collection
activity at present. This includes cases:
linked to investigations

linked to objections

pending write-off action

with limited or no collection activity due to insolvency.

TABLE 5: AGE OF DEBT AT 30 JUNE ($ MILLIONS)

Tax debt by age 2011 2012 2013 2014 2015 One-year One-year
change change (%)
<1 year $1,377.7 $1,254.7 $1,245.5 $1,298.9 $1,333.4 $34.5 2.7%
12 year $1,387.7 $1,079.1 $901.9 $936.7 $809.1 ($127.6) (13.6%)
25 year $1,787.7 $2,310.9 $2,304.8 $2,204.6 $1,928.3 ($276.4) (12.5%)
510 year $653.9 $793.5 $992.4 $1,126.5 $1,170.4 $43.9 3.9%
10 year+ $315.1 $478.1 $533.6 $673.4 $845.0 $171.6 25.5%
Total $5,522.1 $5,916.4 $5,978.2 $6,240.1 $6,086.1 ($154.0) (2.5%)

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CORE SERVICES COSTS
We track the cost of providing our core services, such as answering telephone queries and processing tax returns. Table six compares
those costs with targets and the previous years results. We are encouraging people and businesses to do as much as they can online to
lower the number of phone calls and items of correspondence we receive.

TABLE 6: COST INDICATORS

Indicator 201314 201415 201415
Actual Actual Target
Cost per telephone contact $29.88 $30.41 $36.00
Cost per correspondence contact $37.80 $35.81 $45.00
Cost per counter contact $64.89 $22.65 $65.00
Average cost per customer initiated contact $33.00 $31.10 $40.00
Cost per income tax return processed $4.92 $4.32 $6.50
Cost per GST return processed $1.34 $1.03 $2.00
Cost per employer monthly schedule processed $5.14 $4.56 $7.75
Average cost per return processed $3.95 $3.48 $5.00
Cost of collecting an overdue return $5.60 $9.00 $15.00

ANNUAL REPORT 2015 153

INFORMATION SHARING WITH THE
DEPARTMENT OF INTERNAL AFFAIRS
Under information sharing regulations, Inland Revenue must report annually, in respect of this approved information sharing agreement,
on actions taken during each financial year.

TABLE 7: INFORMATION SHARING WITH THE DEPARTMENT OF INTERNAL AFFAIRS

FOR THE YEAR ENDED 30 JUNE 2015
Description Total

Contact records received from DIA 520,457

Contact records not matched to a corresponding Inland Revenue record for: 509,733
overseas-based child support debtors
overseas-based child support non-debtors who do not appear to have up to date contact information
overseas-based student loan defaulters
Contact records matched to corresponding Inland Revenue records for:
overseas-based child support debtors 2,255
overseas-based child support non-debtors who do not appear to have up to date contact information 256
overseas-based student loan defaulters 8,387
On-going programme operating costs $1,728 1
Individuals successfully contacted2 using contact records matched to:
overseas-based child support debtors 1,067
overseas-based child support non-debtors who do not appear to have up to date contact information 159
overseas-based student loan defaulters 2,486
Payments received from individuals as a result of successful contact with:
overseas-based child support debtors (299 payments) $452,000
overseas-based student loan defaulters (1,790 payments) $4 million
Percentage of individuals who have addressed3 their debt as a result of being successfully contacted by Inland Revenue:
overseas-based child support debtors (429) 19%
overseas-based student loan defaulters (2005) 24%

In July 2014 an amendment was made to the information sharing agreement allowing us to contact overseas-based student loan
borrowers who are not in default, but whose contact information appears to be out of date. This amendment took effect operationally
from August 2014.
In July 2015, the operation of this information sharing agreement was reviewed. It assessed the adequacy of controls in place and in
particular, to ensure compliance with section 11 of the most current Approved Information Sharing Agreement (AISA). The review
confirmed that we are operating in accordance with the terms and conditions of the AISA and the Memorandum of Understanding (MOU).
A copy of the AISA is available to view on our website.

1
Approximate annual incidental administrative charge.
2
We have made attempts to contact 10,724 matched individuals, 3,712 have passed our three point identity verification process.
3
Individual no longer has payments overdue or has a payment arrangement with us.

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INFORMATION SHARING WITH
NEW ZEALAND POLICE
Our AISA with New Zealand Police sets out key activities that we need to report on each year in our Annual Report.
Under sections 96S(1)(b), 96T and 96U of the Privacy Act 1993, and clause 9 of the Privacy Regulations 1993, the Privacy Commissioner
has specified the following reporting in respect of the AISA for:
supply of information for the purpose of prevention, detection, investigation or providing evidence of serious crime.

A copy of the AISA is available to view on our website.

TABLE 8: INFORMATION SHARED

Description Total

Number of requests for information made by New Zealand Police to Inland Revenue 93
Number of responses with information provided by Inland Revenue to New Zealand Police 93
Number of occasions Inland Revenue proactively provided information to New Zealand Police 1

COSTS
The sharing agreement with New Zealand Police cost an estimated $3,658 since it started in November 2014 until 30 June 2015.
An additional one off cost of $5,444 in the year ended 30 June 2015, which was the cost to set up the systems and processes so we could
share information with New Zealand Police.

BENEFITS
Under the agreement we need to report if the information provided by Inland Revenue has been used in a case with a resolution of:
No offence
Prosecution
Warning
Diversion
Youth case action
We are unable to provide a breakdown of the number of times information has resulted in the above as prosecutions are currently before
the courts and yet to be decided. Some investigations have not been completed and charges are yet to be laid.
Of the 93 responses provided by Inland Revenue to New Zealand Police, 19 cases or prosecutions are currently being pursued. These
prosecutions include a total of 112 charges. Around 21% of requests for information and responses have resulted in prosecution action to date.
Warning, diversion and youth case action do not apply as the AISA focuses on serious offending and these possible resolutions are for
lower level offending which fall below the serious crime threshold.
New Zealand Police indicated 100% of the information provided by Inland Revenue is used in their investigations although this
information does not always result in a prosecution. Where Inland Revenue proactively provided information to New Zealand Police it
was for an investigation.

ASSURANCE
Under the agreement we are required to report if an audit or other assurance process has been undertaken during the year.
There has been no external audit of the referral process or referrals made during this period. Internally, all requests for information
received from New Zealand Police are subject to review by our Senior Solicitor Legal Technical Services. All 93 requests were reviewed by
our Legal Technical Services since the agreement began in November 2014. There were no issues identified in proposed responses.

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One proactive release of information by Inland Revenue to New Zealand Police was reviewed by a Senior Solicitor and also by the
Manager Legal Technical Services. The information was considered appropriate for release within the intent of AISA.

AMENDMENTS
Under the agreement we need to report details of any amendments made to the agreement since the Order in Council came into force.
The original agreement was amended on 16 March 2015 to clarify that Inland Revenue may share with New Zealand Police both current
and previous personal information held, and added that information about liabilities can be shared.
The amendment also permits that, in addition to using SEEMail to share personal information, Inland Revenue may share personal
information with New Zealand Police by other means, for example by permitting New Zealand Police to physically access Inland Revenue
premises to examine, copy and/or remove personal information and reasonable steps will be taken by the parties to maintain security
during this process.

PRIVACY BREACHES
Inland Revenue processes more than 25 million transactions and pieces of correspondence every year. When dealing with that volume
and level of information, occasionally mistakes will occur. Of the breaches identified for the 201415 year no individual was harmed by
the incident.
We take privacy very seriously and reporting incidents that may amount to a privacy breach are encouraged. This has resulted in
reporting incidents that do not involve personal information, but are still important to be aware of. Inland Revenue recognises the
importance of protecting information and reporting incidents identifies where processes can be strengthened or more awareness is
required.
In the 201415 financial year 323 incidents were reported to our Incident Management team and of those a potential 223 incidents
involved personal information. This compares to 287 in 201314. The remainder either involved entity information or were not
considered a breach at all. For example generic forms being sent to the wrong address so no personal information was involved.
Further analysis of the incidents found that 214 were actual privacy breaches where personal information was inadvertently disclosed, or
an address was not accurate. This is compared to 241 for 201314. Sending information to the wrong address including postal, email or
fax accounted for 35% of incidents. These are logged as a privacy breach as they indicate address information is not accurate, although do
not necessarily also result in information being disclosed. Of the incidents, 43% involved the disclosure of information.
Only eight per cent of breaches were considered to be potentially significant in that more than 10 individuals were affected or the
information disclosed was considered to be sensitive. However, none of the breaches recorded resulted in harm or adverse consequences
to any individual.
The main cause of breaches is through staff error when manually handling correspondence. Each incident is investigated and we look at
how to reduce staff errors by a continuous improvement focus which includes reviewing handling processes, educating staff and regular
performance reporting.

TABLE 9: INSTANCES OF PRIVACY BREACHES INVOLVING PERSONAL INFORMATION

Detail Number of affected people

Certificates for resident withholding tax on interest were detached from a return and 49
sent to the incorrect person
KiwiSaver information was sent to the wrong provider 71
Two incidents when tax agent email addresses were visible (rather than being blind carbon copied) 110
Mail merge email system failure resulted in incorrect information being sent to the wrong customers 132

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PROPERTY INFORMATION
TABLE 10: PROPERTY ACCOMMODATION AREAS
AS AT 30 JUNE

2013 2014 2015

Total IR Use Co- Total IR Use Co- Total IR Use Co-
locations locations locations
and and and
subleases subleases subleases
Accommodation area m2 101,678 100,072 1,606 93,439 91,644 1,795 94,713 87,680 7,033 (2)
Other area m (1) 2
927 927 1,113 1,113 1,697 1,697
Total area leased m2 102,605 100,999 1,606 94,552 92,757 1,795 96,410 89,377 7,033

(1)
Other area includes storage and atrium area.
(2)
201415 leased area includes 5,237m2 subleased to other parties in 110 Featherston Street.

TABLE 11: ADDITIONAL PROPERTY ACCOMMODATION INFORMATION

AS AT 30 JUNE

2013 2014 2015

IR Use IR Use IR Use
Vacant accommodation m 1003 339
Vacant m as a % of total m 0.99% 0.00% 0.38%
Average space per person m 16.93 15.62 14.44
Total rental per year per person $5,411 $5,490 $5,427
Utility costs per person $761 $791 $700
Total occupancy cost per person $6,172 $6,281 $6,127
Headcount 5,910 5,867 6,050

Notes:
Results quoted here are based on total space used by Inland Revenue (excluding co-located space), including front of house, and counts each
employee, including part-timers and registered contractors, as one person (headcount). This aligns with the methodology PMCoE will be
using in the future.

Results for previous years are re-stated using the same methodology.

Average space per person differs from that quoted on page 50 and reported to the PMCoE as those results exclude front of house space and
include the space occupied by our co-location partners and their people.

ANNUAL REPORT 2015 157

TABLE 12: HISTORICAL EXPENDITURE ON CONSULTANTS AND CONTRACTORS
201213 201314 201415
Actual Actual Actual
Total expenditure on consultants and contractors ($000) 52,907 59,191 55,643
% of total operating expenditure 8.1% 8.5% 7.9%
% of total capital and operating expenditure 7.5% 7.9% 7.5%

TABLE 13: EXPENDITURE ON CONSULTANTS AND CONTRACTORS

201213 201314 201415
Actual Actual Actual
$000 $000 $000
Information technology 17,882 20,481 20,597
Specialist advice and project management 29,151 31,436 28,205
HR and change management services 778 2,225 2,332
Tax issues 669 1,179 1,340
Property 2,074 2,023 1,258
Research 1,113 1,325 880
Communications 343 123 654
Other 897 399 377
Total 52,907 59,191 55,643

EVALUATING OUR WORK PROGRAMMES

We measure our effectiveness through evaluating our work programmes and contributions to revenue and social policy outcomes. The
findings help to inform government policy decisions and continuous improvement processes.
We completed and commenced evaluations for four key programmes.
The final stage of the KiwiSaver evaluation that began in 2007, involved publishing reports on the impact of KiwiSaver on savings
behaviour and impact on living standards in retirement.
We began the first stage of a multi-year evaluation of the impact of Child Support Reforms by collecting baseline information that will be
used as the basis of comparing future findings. We also completed the design of evaluations of Inland Revenues debt strategy and of the
programme to reduce participation in the hidden economy.

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DELEGATION OF AUTHORITY
In accordance with section 41(2C) of the State Sector Act 1988 we need to report when the Commissioner delegates their authority.
During the year the Commissioner of Inland Revenue delegated her authority to Hon. Todd McClay, Minister of Revenue for the purpose
of signing the OECDs Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. This was
done at a ceremony held in Paris on 3 June 2015.
The agreement was signed by Ministers from the countries involved at a ceremony held in the margins of this years OECD Ministerial
Council Meeting.
Signing the agreement is a necessary step in New Zealands implementation of the new global Standard for Automatic Exchange of
Financial Account Information in Tax Matters which is generally referred to as AEOI. It required agreement by the competent authorities in
the jurisdictions involved.
New Zealands tax treaties all designate the Commissioner as the New Zealand competent authority. Accordingly, it was necessary for the
Commissioner to delegate her authority for the Minister to sign the agreement.

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