New tax bill - the start of the business transformation process
Tax Alert - July 2015
Earlier this week, a new tax bill (the Taxation (Transformation: First Phase Simplification and other Measures) Bill) was introduced which paves the way for the Business Transformation and modernisation of the tax system project. The bill includes measures that will make communication easier with Inland Revenue, simplify some tax rules and allow the Inland Revenue to share information with other government departments in certain situations.
The key measure is a new communications framework in the Tax Administration Act 1994 which provides for varying levels of communication ranging from informal telephone conversations to electronic communication or delivery (via website, email or other means) to more formal notification methods requiring paper or original documents.
Currently most communication under tax legislation is paper-based (i.e. must be in writing) or must be delivered by post which has become outmoded in today’s electronic age. As a consequence, much of the bill replaces outmoded language throughout the various tax acts.
The new rules allow for new modes of communication so that as new technologies emerge, the legislation can be future proofed to a degree. An amendment will also allow for documents to be signed with a digital or electronic signature.
These rules will apply from the date of enactment (likely to be later in 2015).
Collection of tax on employee share schemes
The bill also slips in a key change regarding the collection of tax on employee share schemes. Readers will recall that earlier this year, the Government consulted on this issue (see our April 2015 Tax Alert). Employee share schemes, where employers offer shares in the company to employees, are often used to encourage staff retention and motivation. The value of the benefit from these schemes is treated as an income substitute under the current tax rules, but unlike most employment income, is not currently subject to PAYE. Instead, employees who receive share scheme benefits must file a tax return and account for the tax on the value of the benefit themselves which can be problematic.
Following consultation, the bill proposes to allow an employer to choose to withhold tax on any employment income an employee receives under a share purchase agreement using the PAYE system. Submitters generally preferred the PAYE option and submitted that an elective approach was preferred.
However, all employers will be required to disclose the value of any benefits an employee receives under a share employee agreement via the employer monthly schedule (whether or not PAYE is withheld). In other words, where the employer decides to leave it up to the employee to pay their own tax on any benefit, this must be disclosed and Inland Revenue will be on notice to ensure the employee has included this in his or her own tax return.
These changes will apply from 1 April 2017 to employment income received on or after this date.
Rules are being amended to improve the service provided to members when transferring from one scheme to another by expanding the current information sharing provision. The bill also proposes that minors, who have been incorrectly enrolled into KiwiSaver, be allowed to opt out before their 19th birthday.
FIF exemption simplification for ASX
The bill amends the FIF exemption for certain share investments listed on the Australian Stock exchange (ASX) for attribution under the foreign investment fund regime. The bill removes the requirement that shares must be listed on an approved index under the ASX operating rules and replaces it with a requirement that the shares are in a company listed on the ASX. This will remove the considerable uncertainty and administrative issues in practice as companies move on and off this list each year. Taxpayers should be able to better self-assess their compliance as it will be easier to check whether they are simply listed on the ASX given this is publicly available.
Once the bill has had its first reading, it will be referred to a select committee and at that time a submission date will be set.
July 2015 Tax Alert contents
CIR v Trustpower Ltd: Unfeasibility expenditure
Bright-line test for sale of residential property - issues paper released
Currency conversions for branches – draft released
Tax avoidance: Inland Revenue sheds further light on their approach in practice
Take care when transferring funds from a UK pension plan
New tax bill – the start of the business transformation process
Increase in pooling value threshold for depreciation purposes