The Inland Revenue FIF calculator still missing in action
Tax Alert - August 2021
By Sam Mathews & Vicky Yen
You may have seen recent media articles (including on stuff.co.nz and NewstalkZB) where Inland Revenue (IR) has conceded that its Foreign Investment Fund (FIF) income calculator is faulty.
Avid readers of Tax Alert (and/or FIF enthusiasts) will recall our November 2020 article which highlighted this issue. To briefly recap the issue, there is a problem with the way IR’s FIF calculator is calculating income under the Fair Dividend Rate (FDR) method where there is a “quick sale”. A “quick sale” occurs where a FIF interest is bought and later sold in the same income year.
IR has acknowledged the calculator has been faulty since April 2020, meaning there were approximately 15 months where it wasn’t working properly. This means that taxpayers who relied on the calculator during this period to calculate FDR income and who had a “quick sale” may have overpaid or underpaid tax. The 2020 and 2021 income years are the periods that will most likely be impacted. IR has released communications targeted at tax agents to highlight this issue and encourage return positions taken by clients to be checked and reassessed if they were wrong.
We make the following observations:
- We first raised the issue with IR back in September 2020. The calculator was taken down briefly and then put back online in December 2020 along with a statement from IR saying “…we can now confirm that it is working correctly”. However, when we tested a range of scenarios it was not working correctly. We advised IR of this early this year.
- We have worked through examples where the result of using the IR’s FIF calculator would have resulted in an over-payment of tax, in some examples it would result in an under-payment of tax. The issue does not appear to be confined to losses on “quick sales” not being offset against gains, as has been suggested by Inland Revenue.
- While it is great that IR make resources like this available for taxpayers, we think they have a duty of care to ensure the resource is 100% accurate.
- IR has noted that they will be reasonable with customers who have difficulty meeting filing deadlines because of this issue, which is obviously great, but what is also needed is guidance on what taxpayers who have relied on the calculator in filing their tax returns and have overpaid/underpaid tax as a result should do. While the ultimate responsibility for the positions taken in a tax return sits with the taxpayer, we would expect IR to process any reassessments quickly and grant requests for penalties and interest charges to be waived if they arose from reliance on or unavailability of the calculator.
With increased access to global share markets (including the ease in which buying and selling activity can occur), and the FDR method being the default and most common FIF method for listed portfolio FIF interests, we suspect that there may be a number of impacted taxpayers.
When investing in international equities, taxpayers should ensure they fully understand the tax consequences of these investments, including the need to file annual tax returns. The rules around these investments are complicated – perhaps best illustrated by the trouble IR is having with its calculator. Deloitte has developed FIF calculation software that automates FIF calculations under the FDR method and the comparative value method. This is particularly useful where there are a number of transactions involving FIF interests during the year, including “quick sales”.
Please contact your usual Deloitte adviser if you would like to discuss this issue, including how we can assist with reviewing or preparing FIF calculations.
August 2021 Tax Alert contents
- What’s on the tax policy agenda?
- Extra tax could be payable on Australian software sales
- New OIO rules require acquisition structure and other tax-related information to be provided up-front
- Balancing risk and control in a COVID-19 world
- Are you ready for shovel-ready?
- Can I claim my lunch as a tax deduction?
- The great ute FBT debate
- Government moves to collect more bulk data from payment service providers
- The Inland Revenue FIF calculator still missing in action
- Snapshot of recent developments