Changes to the collection and use of investment income information
Tax Alert - July 2019
Inland Revenue is changing the way that investment information is collected and utilised. This is aimed at reducing customers’ compliance costs and allowing tax to flow into business processes. With these changes Inland Revenue is also making their processes and systems theoretically simpler and more convenient in order for businesses to interact with them. Inland Revenue will collect more detailed information regarding investment income and they will collect this information more frequently than before. This is to ensure that over time, most salary and wage earners will pay what they need to, and receive what they are entitled to, during the year. It will also mean Working for Families Tax Credits entitlements will be more accurately monitored and adjusted throughout the year.
Financial institutions, Maori Authorities and companies will be required to provide investment information to Inland Revenue if they
- pay interest from which tax is withheld
- pay interest subject to an approved issuer levy (AIL)
- pay taxable dividend
- make taxable Maori Authority distributions to member
- pay royalties to someone who is not a New Zealand resident
- attribute income to investors in a multi-rate portfolio investment entity (PIE)
- pay interest, which can be claimed as a tax deduction, but from which tax may not be required to be withheld
- stop being a New Zealand resident for tax purposes but continue to exist.
What? More information, more frequently.
Inland Revenue will require payers to provide more detailed investment income information more frequently, and in an electronic format. For most types of investment income, that will mean reporting monthly. The new revised reporting requirements will be consistent for all types of investment income; there is a new non-declaration resident withholding tax rate of 45% for interest income; new PIE investors are required to provide their IRD number to the PIE; and there are some administrative changes.
Payers of investment income can only provide Inland Revenue with the information that the payee provides to them, so they will need to educate and communicate well with their investors so that they provide the relevant (correct) information to the payers.
The information will be required to be filed electronically on a monthly basis for payers of interest, dividends paid by companies, Maori Authority distributions. Other types of income, including royalties paid to non-residents, portfolio investment entities that attribute income, and unit trusts paying dividends, must provide this information annually.
This does not change what investment income is taxed and when tax withheld is paid to Inland Revenue. The only tax rate changing is the non-declaration rate for interest income.
When? 1 April 2020
Payers can provide this information from now on (the first date on which payers could provide it was 1 April 2019) but MUST provide it from 1 April 2020. Inland Revenue is keen to see payers starting to provide information before 1 April 2002 so that they are confident they understand the new process by April 2020.
As this is a new requirement, the details regarding how information about joint investments will be collected is yet to be confirmed. Income from joint investments will be allocated evenly between the joint owners. The following are not deemed to be jointly owned:
- Companies and their shareholders
- Look-through companies and their owners
As mentioned, investment income information will be required to be provided electronically from 1 April 2020. There will be a monthly $250 penalty for those who do not provide investment income information electronically each month and who do not have an exemption. Inland Revenue have indicated that initially they will not automatically apply this penalty as this is a new process, although no detail has been provided for how long this “initial” period will last.
Smaller payers of investment income will be able to file information through myIR using an online form, and other payers will be able to upload information in a specific file format (excel, csv or XML). This is similar to the process followed for payday filing. For payers with large volumes of information to submit, Inland Revenue will provide a business-to-business gateway. Payers will need to make sure they have technology capable of accessing this gateway and creating the relevant documents required for filing. The detailed specifications of the file formats are still under development, so we would recommend waiting for the detailed specifications before voluntarily adopting the new requirements, so as to avoid double handling.
Payers can apply to the Commissioner of Inland Revenue for an exemption if they are unable to provide their investment income electronically or it would be impractical to do so. The Commissioner will take the situation of the payer into account and Inland Revenue will publish guidelines on how the exemption would apply.
Inland Revenue will no longer issue resident withholding tax (RWT) exemption certificates and instead people will need to apply to Inland Revenue for RWT-exempt status. People who have applied for the status and been accepted will be placed on an electronic register created by Inland Revenue. RWT-exempt people will have to refer entities paying them investment income to this register instead of providing an exemption certificate. Payers will have a legislative obligation to check the RWT status of people to whom they pay investment income.
The register will be searchable using an IRD number and those who already possess RWT exemption certificates will generally be automatically placed on this register with no end date (charities will also be automatically registered).
Once a person has been added to the register Inland Revenue will notify them of their start date and end date (if applicable). If a person is no longer RWT-exempt, they must notify Inland Revenue within 5 days of their RWT status changing in order for Inland Revenue to update the register. A list of people who are no longer RWT-exempt will be available on the register.
Payers are able to correct errors occurring within a tax year, regardless of size and with no requirement to report these errors to Inland Revenue.
Errors relating to prior years can be corrected if the adjustment does not exceed the larger of:
- $2,000, or
- 5% of the payer’s withholding liability for the tax type that the error relates to (i.e. RWT or NRWT) for the year in which the first payment is made.
Under- and over-payments from prior years can also be rectified.
PIE income errors can be corrected on attributed income in earlier years within one month from the date of discovery, where the PIEs do not have to pay penalties or interest on these adjustments.
Where to start?
Payers will need to communicate with their customers so that they understand the impact of these changes, in particular:
- the non-declaration rate
- the need to provide an IRD number to remain invested in a PIE
- collection of more detailed information about joint account owners
- removal of the obligation to provide an end-of-year RWT on interest certificate
If you have any questions or need any assistance with implementing these new rules, please contact your usual Deloitte advisor.