New Zealand’s system of assessment relies heavily on voluntary compliance, which requires tax advisors to have a good understanding of the tax law in order to advise their clients to meet their obligations. Due to the complexity of the tax legislation, and the significant increase in the complexity of business and personal affairs, many taxpayers and agents will seek the advice of the Commissioner. In addition, the private sector (including tax intermediaries) will continue to play a significant role in providing advice to taxpayers.
The Government proposes that more of Inland Revenue’s resources are focused on helping taxpayers to get it right from the start, potentially reducing the need for post-assessment amendments.
The key constraint in providing more individualised advice for taxpayers is that Inland Revenue will never have sufficient resources to advise all taxpayers about the implications of every transaction or income source. The Government expects Inland Revenue will need to continue to balance its resources against the goal of providing more individualised advice and its other functions.
As a first step, the Government proposes to widen the scope of the rulings regime to make it more flexible, and affordable for small and medium-sized enterprises. While generally only used by larger taxpayers, binding rulings can provide certainty on the tax position for a wide range of transactions, from complex financing transactions to land subdivisions. They provide Inland Revenue's interpretation of how a tax law applies to a particular arrangement.
The Government is proposing to reduce the fees charged by Inland Revenue for providing a binding ruling, making them more accessible particularly for small and medium-sized enterprises. This could be achieved either by a low flat application fee for all rulings, or a graduated schedule of application fees depending on the size or type of entity applying for the ruling. A specific fee level has not been suggested but a significant decrease in fees is expected, at least for small and medium-sized enterprises. The current hourly rate fee would be removed.
Other advice proposals
The Government is also proposing to:
- allow post-assessment rulings – currently a ruling cannot be made following an assessment unless the application was received prior to the assessment. Removing this requirement could lead to a “blurring of the lines” with the disputes process but is consistent with the idea of focusing on the right level of certainty and advice for a taxpayer rather than a particular product;
- enhance the scope of rulings – this could be achieved by expanding the scope of what can be ruled on by:
- removing the prohibition on ruling on the purpose of a taxpayer under certain provisions;
- relaxing the requirement that a ruling can only be issued on an “arrangement” to allow the Commissioner to give certainty on some specific quasi-factual matters such as whether a person is resident in New Zealand;
- clarifying the connection between rulings and the financial arrangement rules determinations – this could eventually lead to replacing specific financial arrangement determinations with private or product rulings as appropriate; and
- clarifying the role of assumptions and conditions for rulings by setting out the difference between the two and when they should be used.