How are you affected by new individual tax assessment regime?

Tax Alert - June 2019

By Nick Cooke

On 20 May 2019, Inland Revenue began automatically assessing the 2019 tax position for over 380,000 tax paying individuals. These assessments, which finalise the end-of-year information for the annual tax year ending 31 March 2019, are a part of Inland Revenue’s business transformation programme which aims to modernise New Zealand’s tax system. Inland Revenue’s ultimate goal is to streamline processes, policies and upgrade online services, making it easier for taxpayers to manage their tax affairs at the click of a button.

Who will be affected?

You will generally receive an automatic assessment if you have reportable income only e.g. salary and wages, schedular payments, interest or dividends and NZ super. See here for a comprehensive list of reportable income.

The end-of-year assessment finalises the end-of-year information for the annual tax year ending 31 March 2019. It uses employer and bank information and shows how much you’ve earned, how much tax you’ve paid and your tax calculation. If you have a myIR account, you’ll be notified by email when your tax assessment is ready to view. If not, the assessment will be posted to you.

If you have other sources of income, are self-employed, or do your own tax return, you should not receive an automatic assessment. You’ll still need to file an income tax return. In these cases, we recommend you reach out to your friendly Deloitte tax advisor for assistance.

What to do if you receive an assessment

We would recommend that you check the assessment as soon as possible. You will need to inform Inland Revenue if you received income over $200 (before tax) that is not showing on your assessment, and you will have until your terminal tax date to do so. Your terminal tax date will be 7 February 2020 (or 7 April 2020 if you have a tax agent). Inland Revenue will then send you a new assessment stating your correct position.

If the assessment is correct and you have no tax to pay, you do not need to do anything else. Inland Revenue will automatically pay any refund directly into your bank account within 48 hours of the automatic assessment being completed. This means that you may receive a refund before you have even reviewed the assessment.

If you owe tax, Inland Revenue will confirm the amount owed and when it’s due. A range of payment options are available, including payment plans.

Where Inland Revenue believes further information is needed

In some cases Inland Revenue’s records will show more information is required in order to raise an assessment. For example, taxpayers who have schedular income and/or generally claim expenses. Inland Revenue will issue a notice to you advising that you have 45 days to provide this information, otherwise an assessment will be made based on the information held only.

Changing your details couldn’t be easier, you just need to log into your myIR account and submit the changes online. We recommend that you make sure your contact and bank account information is up-to-date.

It all seems straightforward, but caution is advised

For a large majority of us, these changes will greatly increase the ease of getting back what we are owed or paying any extra tax due. We have identified however some instances where things may not be as straightforward as they seem.

Other income

Inland Revenue can only utilise the information it has readily available, which obviously doesn’t include any non-reportable income. Therefore there will be instances where assessments are raised which are incorrect, and the onus is on the taxpayer to inform Inland Revenue of the changes required.

Calculation errors

Inland Revenue’s system is new and untested, which means there are likely to be errors. One such error we have seen is Inland Revenue incorrectly calculating the independent earner tax credit.

Employer reporting

The assessments are driven off the income reported and PAYE withheld by employers through payroll. Therefore the importance of employers getting this right has never been more important, especially as ‘payday filing’ is now in effect reducing the time employers have to provide this information to Inland Revenue. The risk of mistakes is greater for overseas employers who may not be familiar with New Zealand tax or reporting rules. We would therefore recommend that employers take this opportunity to get a PAYE compliance review as mistakes are complicated and expensive to correct.

Employers of globally mobile assignees

Globally mobile assignees generally receive a mixture of salary and wages, bonuses and employee share scheme income, some of which may not necessarily be taxable in New Zealand. Where the income is taxable, it may be subject to a lower effective tax rate due to the availability of foreign tax credits. If this applies to you, we would advise you to apply for a special rate tax code to avoid over withholding. Equally any under withholding by your employer is also problematic and may cause you to receive an unexpected tax bill at the end of the year and may even push you into the provisional tax regime.

          Provisional tax

Where you meet the criteria for an automated assessment, by issuing these assessments in the months of May and June following the end of the tax year, Inland Revenue appear to have circumvented the ability for taxpayers to manage the timing of their provisional tax obligations under the standard uplift method for the following year.

For example, if based on your 2018 residual income tax you are not currently a provisional taxpayer and an automatic assessment is raised in May 2019 which shows your 2019 residual income tax is more than $2,500, you fall into the provisional tax regime and two provisional tax instalment obligations for the 2020 tax year arise on 28 August 2019 and 15 January 2020 respectively. Without such automatic assessment, you may not be required to pay provisional tax until the final instalment date of 7 May 2020.

If you are already a provisional taxpayer and do have a provisional tax obligation at 28 August 2019 and 15 January 2020, your instalment obligation at these due dates will instead be calculated by reference to your 2019 residual income tax as opposed to your 2018 residual income tax which may mean higher payments are required than otherwise would have been the case.

Where you are on our agency list, we will continue to review your tax return as pre-populated by Inland Revenue unless you advise otherwise.  If you have any queries with regards to any of the above, please do not hesitate to contact us.

Did you find this useful?