Start preparing for changes to investment income

Tax Alert - May 2017

By Alex Kingston and Jenny Green

As reported in the April Tax Alert, significant changes to the tax administration of investment income are a step closer to enactment following the introduction of the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters Bill) (the Bill) that was released on 6 April 2017 – the latest development in the Government’s business transformation program to modernise New Zealand’s tax administration system.

Broadly, the Bill includes new rules that would result in more comprehensive and more frequent reporting of taxpayers’ investment income, allowing Inland Revenue to pre-populate individual’s tax returns with dividend and interest information, and to monitor and adjust social policy entitlements or tax rates during the year.

Whilst the new rules should reduce compliance costs for some investors, there will be a significant increase in the administrative and compliance burden on payers of the investment income. Questions have been raised as to whether this shift in the administrative and compliance burden from taxpayers and the Government to payers of investment income is appropriate. Nevertheless, changes are coming, so anyone who makes payments of investment income should begin preparing themselves for what is the next wave of tax reporting requirements.

Overview of rules

Investment income information

Investment income information includes:

  • the customer’s name, contact details, IRD number and date of birth (if held);
  • the customer’s tax rate / prescribed investor rate;
  • the amount and type of income paid;
  • the amount and date of tax withheld (if any), and any imputation or Maori authority credits attached to payments;
  • for PIE funds, whether the fund the payer is invested in is a retirement savings scheme or not.

The most significant (and onerous) change is the requirement for payers of interest (on domestically issued debt), dividends and taxable Maori authority distributions to provide investment income information to Inland Revenue monthly (or annually for recipients of those payments that are exempt from RWT). Multi-rate PIEs will also have to report investors’ prescribed investor rates (PIRs) every six months. These changes apply from 1 April 2020 onwards.

From 1 April 2018, the date that multi-rate PIEs (that are not superannuation funds or retirement savings schemes) must provide investment income information to Inland Revenue annually will be brought forward to 15 May from 31 May.


These proposals represent a substantial increase in detail and frequency of reporting from the current requirements, where only summaries of total income paid and RWT, NRWT, AIL and PIE tax deducted are required monthly, with the more detailed information (i.e. for each recipient) only required at the end of the year.

For payers of dividend and interest income, in particular those payers with a large quantity of recipients (such as banks and other financial institutions), the increase in customer information detail and frequency of reporting will require both upfront costs of building changes into existing systems, and additional ongoing compliance costs associated with the review and validation of monthly reporting information. This comes at a time when a number of entities have already had to invest in systems to cope with FATCA and CRS reporting requirements.

These changes are not just limited to banks and financial institutions; Inland Revenue data shows there were over 30,000 payers of resident withholding tax in 2014, indicating that a range of types of entities will be affected by the changes.

The application date of 1 April 2020 (for the bulk of the changes) seems a reasonable timeframe to enable business systems to be adapted for these changes, however time can be eroded quickly as the parliamentary process plays out, so payers of interest income should start planning for what changes may be required for implementation.

Other measures

Joint account holders

Payers of investment income to joint accounts will be required to provide information for all account holders if they hold such information. This is welcomed as it would be extremely difficult to obtain information for all joint account holders in many circumstances. Where information is provided to Inland Revenue but joint account holders are not entitled to an even share of income, it is expected they would need to make a manual adjustment in their personal income tax return to correct their tax positions, as Inland Revenue would assume an even split of income and tax credits.

Provision of IRD numbers

In order to incentivise taxpayers to provide IRD numbers to payers of investment income, the non-declaration rate will increase from 33% to 45% for interest payments. No similar non-declaration rate has been introduced for investors in multi-rate PIEs (as was floated in the investment income discussion document). Rather, investors in multi-rate PIEs will be deemed to have exited from the fund unless an IRD number is provided within six weeks of opening their account.

Interest payers and PIEs would be encouraged to ensure IRD numbers are requested as part of on-boarding procedures to ensure no unexpected tax consequences for customers / investors.


To enable the provision of more frequent information, investment income payers will generally be required to file investment income electronically, which is a positive shift from the current requirement to paper-file returns.

RWT-exempt status

Payers of investment income will be able to confirm if recipients have “RWT-exempt status” via an electronic register maintained by Inland Revenue (replacing the need for RWT exemption certificates). This should be a more reliable approach for confirming RWT-exempt status than the current position but may shift the responsibility from the recipient taxpayer to the investment income payer to confirm the RWT-exempt status.

Year-end withholding tax certificates

Due to the pre-population of individual tax returns with dividend and interest information, end of year RWT withholding tax certificates will only need to be provided to taxpayers who have not supplied their IRD number, so whilst there will be a reduction in the number of certificates required, there will still be a need for payers of investment income to be able to produce these.

Correcting errors

Errors in the amount of withholding tax deducted can be corrected if made and corrected in the same year. Errors of less than $2,000 or 5% of the payer’s annual withholding tax liability can be corrected without the imposition of penalties or interest if discovered in following years.


The changes result in a major shift in the compliance burden from investors to payers of investment income. There are a number of complexities that still need to be worked through, which will be particularly important for those payers of investment income with a large amount of investors, such as banks, financial institutions and other wealth management participants.

Although the detail on what format the investment income information will need to be provided to Inland Revenue in has been relatively light, payers of investment income should start considering what changes may be needed to systems and processes so they are ready to act once the rules are finalised.

Please contact your usual Deloitte tax advisor should you have any questions.

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