Collating all of a taxpayer’s income in one place and providing easy access to it will make it easier for taxpayers to manage their tax affairs. It will take less time and effort for recipients of investment income to understand their tax position and social policy obligations and entitlements, and filing a tax return will be quicker.
The systems changes required should be a one-off cost. It is possible however that reporting information more regularly may result in some additional on-going costs. These costs are likely to be limited as the more detailed reporting proposed will replace existing summary reporting, which already requires the detailed information to be calculated. Therefore, payers will be reporting more of the information they already hold.
The following proposed changes should help to decrease compliance costs for payers.
End of year tax certificate may no longer be required
Payers of interest income are currently required to provide end-of-year tax certificates to the recipients of the income. These certificates set out the amount of income earned and tax deducted.
If the information was pre-populated by Inland Revenue throughout the year, taxpayers could get a summary of their end-of-year position by logging onto the Inland Revenue website. Once this was working effectively the obligation for payers to provide end-of-year tax certificates to customers who have supplied their IRD numbers could be removed, as all their information would be in their Inland Revenue record.
It is proposed that payers would still be required to send out end-of-year tax certificates to taxpayers who hadn’t supplied their IRD number, so that these taxpayers are able to meet their tax obligations. This would enable them to pay tax at their marginal rate, rather than at the proposed non-declaration rate of 45%. The end-of-year tax certificate could include a message that giving their IRD number to their investment provider will enable the taxpayer to pay tax at their marginal rate, rather than at the non-declaration rate.
A certificate of exemption database could be established
Taxpayers holding certificates of exemption (COEs) from RWT are entitled to be paid interest and dividends without having any tax deducted by the payer. The holder of the COE is required to provide a copy to the payer and must inform them if their COE is cancelled. Cancellations and issues of COEs in the previous quarter are published in the New Zealand Gazette each quarter, and must be used by payers to keep their records up to date. Inland Revenue also publishes this information:
The Government seeks feedback on whether a live COE list or searchable database should be established. This would enable payers of investment income to confirm the status of a COE holder via a simple search, and could reduce the risk of people incorrectly claiming RWT exempt status. It would also mean that payers would no longer need copies of certificates from taxpayers.
Some people and organisations are also able to claim exemptions under Acts other than the Income Tax Act 2007 and the Tax Administration Act 1994, for example the Education Act. It is proposed that these people and organisations would need to apply for a certification of exemption to be treated as being exempt from RWT. This would ensure that all exempt recipients would be included on the searchable list or database.
Information would be provided digitally
Compliance costs will be further reduced by making interactions between businesses and Inland Revenue more efficient. Transferring information between payers and Inland Revenue is currently very manual, requiring physical transmissions and a number of interactions.
For example, because the files of the large payers exceed the 20 megabyte limit for email returns, they need to be provided via USB sticks or CDs that must be physically delivered to Inland Revenue. Also, monthly returns are paper based as well as end of year returns for small payers.
There will be an online form that payers who don’t use the gateway can fill in. This may be particularly useful for smaller payers as it would enable them to provide information online without having to make their information fit the gateway requirements.