Tax reform bill progresses

New tax legislation, much of which applies from 1 April 2019, has progressed in Parliament, and will soon be passed into law. The Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill, sometimes referred to as the ARMTARM Bill (the Bill), was reported back by the Finance and Expenditure Select Committee on 16 January 2019.

The Bill contains significant proposals to change and reduce the end of year filing obligations for individuals and the way
that they interact with Inland Revenue. The changes reflect the increased level of information employers and payers of interest and dividends have to provide to Inland Revenue in respect of “reportable income” (salary, wages, interest & dividends and employee share scheme income). The changes also rely heavily on automated processes being made possible by Inland Revenue’s new computer system. These new rules will apply for the tax year ending 31 March 2019, so taxpayers should expect a new experience when dealing with their personal taxes this year.

You can read our August 2018 Tax Alert for detail on the changes as originally proposed.

We outline below the key changes that have been made by the Select Committee. A number of these changes follow
submissions on the Bill from taxpayers and other interested parties, but there are also some changes made as a result of two Supplementary Order papers from the Minister, and in response to suggestions of Officials.

You can see further detail on the Bill as reported back in the Officials’ report.

If you are interested in how particular changes might affect you, we recommend that you contact your usual Deloitte tax
advisor for further information.

Main changes made at Select Committee:

There are a number of taxpayer favourable changes made as a result of submissions:

Proposed thresholds for the write-off of tax debts for individuals will be further simplified. Write-offs will apply for “qualifying individuals”, those with only “reportable income”, that have tax owing of $50 or less. The write-offs are expected to affect approximately 580,000 individuals each year. 

In response to a number of submissions, new Subpart 3B of the Tax Administration Act 1994 will allow “qualifying individuals” to correct or add to information held by Inland Revenue up until their terminal tax date without being subject to interest or penalties. It will not be necessary to ask Inland Revenue to exercise discretion under section 113 of the Tax Administration Act 1994. These changes should significantly reduce the compliance burden for taxpayers, and eliminate interest or penalties concerns for them.

The changes should also reduce the administrative burden for Inland Revenue.

Other individuals i.e. those with income other than “reportable income”, or with expenses, will need to make changes to the
information held by Inland Revenue by the due date for their return (7 July, or later if the person has an extension of time). 

• The threshold for a taxpayer being able to apply for a short-process ruling will be increased from turnover of $5 million to
  turnover of $20 million, provided that the tax at stake remains less than $1 million. This should make the regime accessible to many more taxpayers.
• Technical amendments will be made to the bright-line test for residential land to fix legislative anomalies affecting land
  that was purchased off the plans, and for freehold estates converted from leases with a perpetual right of renewal. 
• Changes will be made to reduce compliance obligations for fire and emergency volunteers that are reimbursed for their loss of income when they attend a training course. Until now the volunteers have had to lodge income tax returns to account for the taxable reimbursements, which have been subject to withholding tax as schedular payments. The proposed change would treat the reimbursement payments as “salary and wages”, and therefore subject to PAYE rules, so volunteers would no longer need to file annual tax returns specifically for these payments.
• The Bill removes the five year lock-in period for people who join KiwiSaver after age 60, so that they will be able to access their contributions at age 65. As originally introduced the Bill would have enabled this only for over 60 year olds that joined KiwiSaver after July 2019. This will be amended so that, effective from 1 April 2020, all people who joined KiwiSaver, when over 60, regardless of when that was, will be able to access their contributions at age 65.

Changes as a result of Supplementary Order papers from the Minister, or at the suggestion of Officials:

The following changes relate to ‘other’ aspects of the Bill, rather than to tax-filing obligations. The GST changes were covered in a Tax Alert in September 2018.

• Amendments to require non-profit bodies to return GST on supplies of goods and services if they have received
  GST deductions on those goods and services.
• The original Bill contained clauses that would have given the Commissioner of Inland Revenue the power to make minor
  changes to tax legislation to remedy legislative anomalies by recommending a regulation be made, by making a
  determination, and/or by undertaking an administrative action. These clauses have been removed from the Bill. This appears to be at the instigation of Officials rather than as a result of submissions, which were largely positive. Officials’ have said that the removal of this proposal reflects a cautious approach to ensure that Parliament’s law-making authority is appropriately respected, will allow time for further consideration with the Legislation Design and Advisory Committee, and that redrafted provisions may be reintroduced in a future tax bill.
• The extension of depreciation roll-over relief provisions for the Canterbury earthquakes for a further five years to the end of the 2024 income year. In addition, the introduction of roll-relief for owners of land and buildings that are revenue account property, which were affected by the November 2016 Hurunui/Kaikoura earthquake (replicating relief provided in relation to the Canterbury earthquakes).
• Amendments to give effect to the Government’s policy of encouraging new investment in bloodstock breeding. These will allow for tax deductions on the cost of high-quality horses acquired for breeding (with minor amendments SOP 135 released on 16 October 2018.
• A clause ensuring that information sharing with the Police is able to be extended to Police employees that are not sworn constables. The explanatory comments note that many officers in Police Financial Intelligence Unit are sworn constables. 
• Fixing a technical flaw in relation to disregarded hybrid payments in the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (with minor amendments to SOP 74 released on 14 August 2018). A number of other remedial fixups have been made to Base Erosion and Profit Shifting rules.

February 2019 Tax Alert contents

• Payday reporting is just around the corner
• Guidance on tricky provisional tax issues released
• Inland Revenue goes back-to-basics

• New rules for companies with Australian connections
• A Snapshot of Recent Developments