Making tax simpler… for some
New government discussion document aims to simplify tax for investors
Tax Alert - August 2016
By Robyn Walker
In early July we received the sixth in a series of government consultation documents aiming to improve tax administration for New Zealanders. The purpose of this document is to ensure that more information about investment income is received in “real time” by Inland Revenue in order for individual’s tax returns to be pre-populated with dividend and interest information and for social policy entitlements / obligations to be adjusted during the income year.
For Joe & Joanne Public, if they were to ever read a tax technical paper, the outcomes for these proposals may well be met with a moderate shrug of indifferent approval; however those businesses who are paying dividends and interest may be less thrilled with the additional compliance costs heading their way.
So what is proposed?
- Payers of investment income will be required to provide Inland Revenue with information about each recipient in the month following the month in which the income is paid. Information would include:
- the amount of income paid;
- the amount of tax withheld (if any), and any imputation or Māori authority credits attached;
- the investor’s IRD number (if held);
- the investor’s name and address, and date of birth (if held);
- information on each owner if the investment is jointly held;
- for approved issuer levy payments, details of relevant customers;
- for interest exempt from withholding tax, details of relevant customers.
- Payers of interest won’t have to provide end of year tax certificates to their customers who have provided them with their IRD number.
- The “non-declaration rate”, the rate that applies to a taxpayer who doesn’t declare their IRD number, for RWT on interest and portfolio investment entity (PIE) tax will be increased to 45% to act as an incentive to provide IRD numbers.
- A database of taxpayers holding certificates of exemption from withholding tax will be created.
- Recipients of investment income who claim an exemption from withholding tax will be required to obtain a certificate of exemption.
The overall aim of the proposals is admirable if all taxpayers have basic investments and tax affairs. Sadly, this will often not be the case as those who have capital to invest will often be looking at a diverse range of investment options, including property and foreign shares. Without being able to capture this information, seeking perfection for New Zealand sourced interest and dividends is largely pointless. There is also a real lack of information in the document about the size of the problem to justify the potential costs which will be imposed on payers of investment income.
The document itself contains a number of statistics, such as:
- 16,600 interest payers filed over 5 million interest certificates. That’s a lot of payers of interest who will need to comply with these new rules.
- Interest income is earned by 355,537 student loan holders, 239,077 recipients of working for families, and 83,315 payers of child support. No details are provided about whether the quantum of interest earned by these investors is significant enough to have a material impact on their entitlements and obligations. Statistics indicate that the median level of deposits held by individuals in New Zealand is only $5,000, and at current interest rates this would equate to around $100 of interest income per annum.
- Dividends are received by only 7,980 student loan holders, 8,804 recipients of working for families, and 2,009 payers of child support. This seems to be a low population base to justify all dividend payers supplying information to Inland Revenue after every dividend payment.
One of the biggest complexities is how the proposals are intended to apply to jointly owned investments. Inland Revenue considers that the “current method of reporting jointly owned investment income is not considered to be sustainable going forwards”. That’s well and good, but the appropriate allocation of income to each owner is not something which the payer is going to be in a position to determine. The discussion document makes no attempt to quantify how many investments are jointly owned, and while Inland Revenue is unlikely to hold this information for all investments they should know this information in respect of interest. The requirement for payers of interest and dividends to provide IRD numbers, addresses and birth dates for all joint account holders is an onerous task. A quick review of application forms for recent bond issues and share offers shows that this information is not currently collected – the application forms make it clear that only one Inland Revenue number and address is required even for joint applications. A date of birth is not something being routinely collected.
While it is pleasing that the discussion document refers to payers only supplying information “if held”, there is no confirmation in the discussion document that these data points will not become compulsory in the future. If businesses were to be required to actively seek out this information this could be a time consuming exercise. Any businesses who are planning debt or equity issues may well wish to start collecting this information going forward.
Investors in PIEs who have not provided an IRD number will be well incentivised to do so if the proposals proceed. PIE tax is usually considered to be a final tax, with a maximum rate of 28 percent. The discussion document proposes taxing investors who have not supplied IRD numbers at 45 percent; with the suggestion that investors will not be able to include these amounts in their tax returns to claim back the excess. Investors are unlikely to view this favourably and it is the PIE who is likely to be the first port of call for complaints.
Like with the rest of the consultation documents in the series, the Government is interested in your views. Submissions can be made in writing until 19 August 2016 and feedback is also being taken through an online forum.
Proposals that the Government decides to go ahead with would be included in legislation to be introduced in 2017. The application date would allow sufficient time for system changes.
Please contact your usual Deloitte advisor if you wish to know more.
 Statistics New Zealand; Household Net Worth Statistics: Year ended June 2015; Table 1.02 Assets & Liabilities by individual
Tax Alert August 2016 Contents:
- Supreme Court delivers Trustpower decision
- Undeveloped software taxation
- Safe Harbours for Trans-Tasman related party loans
- Employee share schemes? New PAYE rules will impact you
- Making tax simpler… for some
- Inland Revenue targeting language schools on GST issue
- Will the Commissioner be an unlikely beneficiary of the unitary plan?
- A snapshot of recent developments