Don’t hold back; investment income reporting is almost here
Tax Alert - December 2019
By James Arbuthnott & Yulia Borodina
Do you, or does an entity you are connected with, pay interest, dividends, royalties or make other taxable distributions? If so, is that payer set up to comply with the new investment income information reporting rules that are effective 1 April 2020? It’s only four months away!
Further to the detail included in our related July Tax Alert article, we discuss below some key practical implications to be aware of to ensure that an investment income payer will be ready to comply with the new requirements.
Key changes and steps to take now
Some of the key points to be conscious of and prepared for in advance of 1 April 2020 are:
1. Even if a payer has not had a reporting requirement in the past, they may have a reporting requirement going forward. In that case, the payer should set up a myIR account now (if one is not already set up), and also register with Inland Revenue for RWT if required.
2. Unless explicitly exempted, a payer will have to file the relevant information electronically. They will need to be set up to do this through myIR by either using an online form or an upload of information in a specific file format. As such, we suggest testing this now and identifying any issues or changes required in terms of the format and detail of the information to be reported. It’s worth noting that the rules are currently optional so taxpayers can start applying the rules any time before they become compulsory.
3. The types of information to be submitted to Inland Revenue are likely to have increased, with the specifics of that being dependent on the type of investment income being paid. So, get familiar with the 21 rows of information set out in Schedule 6 of the Tax Administration Act 1994 (the Act) and which of them applies to the investment income you are dealing with. If there is any missing information, then efforts should be made to collect that as soon as practicable.
4. Even if a payer does not have an obligation to withhold tax in relation to an amount being paid, they could still have an information reporting requirement.
5. Communicate with your customers / members / recipients so that they clearly understand any impact of the changes. As an example, a new non-declaration rate of 45% applies for RWT on interest income when the recipient does not provide their IRD number to the payer, and additional information may have to be provided to Inland Revenue. Understanding and communicating these requirements early should help mitigate the risk of any recipients having a “negative experience” as a result of the new requirements.
On the plus side, reporting will no longer be required for periods during which no payments of investment income are made (albeit nil returns can be filed) or for amounts paid to RWT-exempt recipients. Further, Inland Revenue is going to produce a searchable, electronic list of RWT-exempt taxpayers, so finding and maintaining that information should be simpler going forward.
Timing of information reporting requirements
In general, the reporting of investment income information, and the payment of any related withholding tax, will need to be done by the 20th of the month following the month in which the investment income was paid.
For example, if a payer pays a taxable dividend of $6,000 on 27 April 2020, they will need to pay any withholding tax and report the relevant information to Inland Revenue by 20 May 2020.
However, a payer of royalties to non-residents or a payer with no withholding obligation should only need to report investment income information on an annual basis, and PIEs also have different requirements.
No withholding tax? You may still have an information reporting obligation
As mentioned above, a payer of investment income that does not have a withholding requirement may still have an investment income information reporting obligation.
For example, assuming none of the parties below has RWT-exempt status:
Investment income information reporting obligation?
Mike lends funds to his company on an interest-bearing basis. The annual interest paid is less than $5,000. The company does not use the funds in a taxable activity.
The company has no RWT withholding requirement as the funds are not used in a taxable activity.
If company used the funds for a taxable activity, the $5,000 threshold may be applicable such that there would still be no RWT withholding requirement.
Mike’s company will likely need to register and file investment income information for the interest it pays to Mike.
Anna lends funds to Tim on an interest-bearing basis. The annual interest paid is greater than $5,000. Tim does not use the funds in a taxable activity.
Tim is not required to withhold RWT from interest paid because he does not use the funds in a taxable activity.
Tim is not required to register for and report investment income information for the interest he pays to Anna as he is not allowed a deduction for the interest.
If you have any questions or need any assistance with implementing these new rules, please contact your usual Deloitte advisor.
December 2019 Tax Alert contents
- Inland Revenue: “No place to hide overseas income”
- “You Do The Math” – 10 Simple Ways to Keep Inland Revenue Away
- Corporate Tax Governance – From the Top Down…
- Tax Policy: What to expect in the twenties
- Don’t hold back; investment income reporting is almost
- OECD consults on “GloBE” global minimum corporate tax rate
- Snapshot of Recent Developments