The Tax Administration Act 1994 sets out who is eligible to be a tax agent. The current “tax agent” definition relates to the preparation of income tax returns, and therefore does not cover intermediaries who only deal with returns of PAYE or GST, or who otherwise prepare fewer than 10 income tax returns per year.
As a consequence of the statutory definition of a tax agent, Inland Revenue’s operational practice has been to exclude tax intermediaries who do not meet this definition from the services provided to tax agents. At present, intermediaries who are not eligible for listing as tax agents but who prepare and file tax returns on behalf of taxpayers must be set up as “nominated persons” in Inland Revenue’s systems in order to access their clients’ tax information, to receive correspondence from Inland Revenue on a taxpayer’s behalf, or to file tax returns for their clients electronically.
Stakeholders consider that there needs to be more recognition of tax intermediaries who may not be a client’s actual tax agent for income tax preparation and filing purposes, but who may be an intermediary carrying out specific work for the client such as payroll or GST.
On this basis, the Government proposes that the tax agent definition be changed to include a wider group of “tax intermediaries”. The proposal is intended to create more transparency about the group eligible for Inland Revenue’s extended service offerings, as well as make these intermediaries subject to sanctions in the form of delisting (which would include revoking the services provided to them) if they engage in fraud or other behaviour which would adversely affect the integrity of the tax system.
The statutory tax agent definition could be widened to cover intermediaries who act on behalf of taxpayers in relation to their tax affairs for a fee, as well as those who prepare tax returns on behalf of their employer. To better reflect the proposed wider group of tax intermediaries who would be eligible to apply for listing under Section 34B, it may be appropriate to replace the term “tax agent” with an alternative term. A change to the tax agent definition would have no impact on tax advisors’ privilege under Section 20B.
To clarify the application of a new definition, it is proposed that a “fee” could be defined as consideration paid for the tax intermediary services supplied, which is (or has a monetary value equivalent to) a dollar value typically paid in an arm’s length transaction on the open market for the type of services provided. This could also include margins charged by the intermediary (for instance, a percentage of a tax refund paid out) and any government subsidies, as well as direct fees.
In Inland Revenue’s new revenue system, nominated person access (as opposed to access as a listed tax agent) will likely be sufficient for some intermediaries. Applying for listing as a tax agent will therefore be optional for those who qualify.
Eligibility criteria for extension of filing time for income tax
The Government considers that the existing extension of time for filing and paying income tax for clients linked to tax agents should continue to apply to income tax only. Any extension of time for PAYE and GST would be inconsistent with the policy objective of increasing the regularity at which businesses send PAYE and GST information to Inland Revenue.
It is proposed that the legislation defines eligibility for an extension of time separately from the definition of a tax intermediary or agent, using the current tax agent definition. This is to ensure that the two concepts are not automatically linked.
While at this stage there are no firm proposals for any change to the eligibility criteria for an extension of time, Towards a new Tax Administration Act noted that the extension of time may become less important in the modernised tax administration and may be reviewed later. For the time being, only listed intermediaries who prepare income tax returns for 10 or more taxpayers will be eligible.