What tax reform to expect through to Election 2023
Tax Alert - July 2022
By Robyn Walker
Tax reform has a history of influencing election outcomes and as we’re over halfway through the currently parliamentary term, with a lot of tax reform still on the cards in the next 12 months, it seems likely that Election 2023 could have taxes featuring heavily on the minds of voters.
With that in mind, we summarise some key tax developments expected over the next year.
Dividend Integrity and Personal Services Income Attribution Rules
In March the Government released a discussion document with some extensive proposals to tax share sales and to extend the ambit of the existing personal services income attribution rules. The discussion document proposed that legislation would be introduced in the second half of 2022 and the resulting tax rules would take effect from 1 April 2023.
The feedback received from the public on the proposals raised a number of complex issues requiring resolution; including whether the rules were sufficiently targeted at taxpayers who were deliberately seeking to avoid the application of the 39% tax rate. As such, rather than rushing through legislation, it is now expected that there will be an additional round of consultation on more targeted proposals later this year. The Government still intends to have legislation before Parliament prior to Election 2023.
Tax Principles Act
In a speech earlier this year, the Minister of Revenue signalled a desire to improve the tax system and has proposed introducing a “Tax Principles Act” to help have an apolitical framework for future tax reform. The Minister has highlighted the prior reviews of the New Zealand tax system have generally endorsed four taxation principles:
- Horizontal equity, so that those in equivalent economic positions should pay the same amount of tax;
- Vertical equity, including some degree of overall progressivity in the rate of tax paid;
- Administrative efficiency, for both taxpayers and Inland Revenue; and
- The minimisation of tax induced distortions to investment and the economy.
It is proposed that there will be consultation on the proposed Tax Principles Act in “mid-2022”. This consultation will be in relation to not just what the tax principles should be, but how Inland Revenue will analyse and report on compliance with the tax principles. It’s expected that following consultation, legislation will be introduced into Parliament and enacted prior to Election 2023.
High Wealth Research Project
When the 39% tax rate was legislated in December 2020, the Government also introduced a new power for Inland Revenue to collect information to assist with the development of tax policy. The first high-profile use of this power has been to collect extensive information about some of New Zealand’s wealthiest New Zealanders. Inland Revenue describes the project as follows:
“The project seeks to fill a gap in our knowledge of effective tax rates in relation to economic measures of income, particularly for high-wealth individuals. Gaining this information will help us assess the fairness of our tax system, and allow us to provide more robust advice on future tax policy. The project will not make policy recommendations, but may feed into future policy advice. … The effective tax rates calculated will compare the amount of tax paid by an individual with different measures of income – including a measure of economic income. Using different income measures allows as to assess what is fair through different lenses. Economic income is a broader concept than taxable income – it seeks to measure the increase in an individual’s ability to consume goods and services in a period.”
Information is currently being collated and it's expected that a report will be made publicly available in June 2023.
August Tax Bill
Each year we see at least one taxation bill before Parliament, it generally sets annual rates of tax and then makes some major and remedial tax changes. This year, we’re expecting a tax bill to be introduced to Parliament in late August or September. While the contents of the Bill are not publicly known, it could contain changes resulting from recent tax policy consultation items, including:
- Improvements to the taxation of cross-border workers
- Reform of GST apportionment rules
- The introduction of reporting rules and potential GST obligations for certain ‘gig economy’ digital platforms
- Changes to how distribution networks are depreciated
- Remedial changes to the foreign trust rules
- Remedial changes to ensure the recent residential land changes work as intended
International Tax reform
The OECD continues to seek international tax consensus on some major tax reforms. Assuming it’s possible to reach a global consensus, New Zealand is expected to introduce tax legislation later this year or early 2023 to facilitate New Zealand’s implementation of the GloBE rules. Consultation was undertaken last month on “Pillar Two” proposals.
New Zealand Income Insurance Scheme
Earlier this year the Government consulted on the introduction of a New Zealand income insurance scheme. While no details have been released on the final design of the scheme, there were signals in Budget 2022 that the scheme will be proceeding, with Budget forecasts including expected revenue and expenses from the scheme. While the imposition of insurance levies on both employees, employers, and the self-employed is not technically a tax, when the scheme is introduced it is likely to require some changes to tax laws, with the levies likely to be collected by Inland Revenue.
Keep an eye on future editions of Tax Alert for more details on these proposals as they develop.
July 2022 - Tax Alerts