Business Transformation – where are we now?
Tax Alert - June 2017
By Emma Marr and April Wong
Over two years ago, the Government started consulting on a new tax system. Stage 1 went live in February 2017, so with Stage 2 currently underway, we check in on the road to Inland Revenue’s Business Transformation.
Planned as a four-stage, multi-year program, Business Transformation intends to make it quicker and easier to comply with tax obligations - to pay the right amount tax on time, every time. So far, Inland Revenue has made visible progress, with taxpayers starting to see greater adoption of digital technology in completing tax returns and interacting with Inland Revenue.
The four-stage program stretches to 2021, meaning we have a long wait to see whether New Zealand will truly have a modernised and less burdensome tax system at the end of it. Although one of the goals is to reduce compliance costs, we have seen signs that some parts of the taxpaying community will have increased compliance costs. It remains to be seen whether this will be balanced by other efficiencies.
We recap below the progress to date and look ahead to the next steps.
Stage I: Online tax administration
1. GST Returns
The first and very welcome step was to fully digitise GST returns. Effective from 7 February 2017, GST registered persons have been able to choose to submit their GST returns to Inland Revenue directly from their accounting software, rather than filing a GST return as a separate process. This will also include the ability to voluntarily attach accompanying documents or correspondence to a GST return, and enhanced payment solutions to make it easier for registered persons to pay GST. GST refunds can also be made by direct credit to a customer’s bank account.
Since GST services have gone live on Inland Revenue’s website, more than 37,000 people have taken up the new direct debit option, and around 1,500 people have set up payment plans online. People have also attached over 450 documents online to save on postage costs. Modernising GST administration is a welcome change, given that there are currently approximately 630,000 GST-registered persons and businesses in New Zealand.
2. IRD number registration
It is now possible for migrants on resident, work, student or Australian visas coming into New Zealand to register for IRD numbers online. The service is also available for entities, such as companies, clubs, trusts, and societies, and facilitates information sharing between Inland Revenue and Immigration New Zealand (INZ) which allows INZ to verify an applicant’s identity online and in real time. Previously it took up to 24 days just to receive an IRD number with a paper application. With this new online registration service, online applicants are receiving their IRD numbers by SMS message or email within 1 – 2 days. As at 12 April 2017, Inland Revenue recorded a total of 5,131 new migrants who utilised the new online registration system.
The Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill (Bill) released mid-April also proposes to slightly relax the current requirement for an offshore person to have a New Zealand bank account before they can have an IRD number. If enacted, the Commissioner will have discretion to issue IRD numbers if she is satisfied as to the identity of the offshore person. Deloitte welcomes this amendment.
3. Other enactments to date
Businesses will also be delighted to know that Inland Revenue now accepts mobile phone calls to all of its 0800 numbers. Customers will also be able to use Inland Revenue’s call-back system to get a call on their mobile phone at times when the contact centre is busy, which is good news for those that have an urgent matter or dislike being put on hold.
New use of money interest rules for provisional taxpayers have also taken effect from 1 April 2017 for taxpayers paying provisional tax for the 2018 income year (refer to our March Alert article for more information on the new rules). The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (BT Act) increased and expanded the safe harbour threshold for UOMI for provisional taxpayers. The BT Act also introduced a new method of calculating provisional tax, “Accounting Income Method” (AIM), which is based on accounting income as calculated by accounting software.
Under the BT Act, employers are also required to report share benefits under an employee share scheme in the PAYE system. Employers now have the ability to withhold PAYE on such benefits at the employer’s option (refer to our April Alert article for more information).
Effective 21 February, new international rules for data collection and reporting, known as the “Common Reporting Standard” (CRS) were also enacted into New Zealand law. CRS obligations will commence from 1 July 2017. Inland Revenue will be publishing its initial list of reportable jurisdictions – those with which New Zealand has agreed to exchange information with – by the end of this month. This is designed to counter offshore tax evasion by requiring financial institutions to undertake due diligence to identify offshore accounts and to report information on those accounts to Inland Revenue.
Stage 2 – the future of BT
The Bill proposes to streamline PAYE processes and reduce compliance costs. However, the new proposals also change the way investment income information is gathered which could potentially have the opposite effect.
1. PAYE administration
The Bill proposes to change PAYE to streamline some processes and eliminate others, consistent with Stage 2 of the Business Transformation program. Broadly, PAYE will shift to a semi-automated process similar to the GST processes implemented at Stage 1. The following changes include:
- Employers and payroll intermediaries will no longer be required to file an employer monthly schedule. Instead, they will file PAYE information on a payday basis from 1 April 2019.
- Employers using payroll software will be able to file their information directly from their payroll system.
- Employers will not be required to use payroll software but will have to file their PAYE information on a payday basis.
- The threshold for electronic filing of PAYE information will reduce from $100,000 a year of PAYE and Employer Superannuation Contribution Tax (ESCT) deductions to $50,000 a year so smaller employers will still be able to file their PAYE information on paper if they choose to do so.
- The Government is no longer proposing to change the dates by which PAYE and related deductions have to be paid to Inland Revenue. However, employers will be able to make these payments on payday if they so choose.
- To improve the workability of the rules, minor changes will be made from 1 April 2018 to the PAYE rules for holiday pay paid in advance and to align when rate changes come into effect.
- The payroll subsidy, which subsidises employers to outsource their PAYE obligations to listed payroll intermediaries, will cease from 1 April 2018.
We are pleased to see that these changes are consistent with the goals of the BT program. The measures will also ensure that Inland Revenue has the latest and most accurate information relating to employees, which is key in Inland Revenue’s goal for transforming the administration of individual taxation. While small businesses save on compliance costs, it is unclear whether or not the mandatory aligning of PAYE payments with payday could place pressure on the cash flows of smaller businesses.
2. Investment Income information
As reported in our April and May Tax Alerts, the new rules proposed in the Bill impose a requirement for more comprehensive and more frequent reporting of taxpayers’ investment income, which will allow 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. This will create a greater administrative and compliance burden for payers of investment income. It is important that payers of investment income consider what changes may be needed to their systems and processes so that they are ready to act once the rules are finalised. Most of the proposed changes will come into force on 1 April 2020, although some rules apply earlier.
June 2017 Tax Alert contents
- Material advancement and tangible progress on feasibility expenditure
- New Zealand implications of Australian debt pricing decision
- Good news: resident withholding tax compliance issues relating to dividends are now resolved for companies
- Business Transformation – where are we now?
- GST best practice: a timely reminder
- Mileage rate released by Commissioner of Inland Revenue
- A snapshot of recent tax developments