In order to administer the tax system and associated social policies such as Working for Families, child support, student loans and KiwiSaver, Inland Revenue collects and holds information on virtually all New Zealanders, as well as most companies and other entities, such as trusts and partnerships. This is information that taxpayers are required to provide to Inland Revenue, and therefore it must be treated with care.
A key issue with the current rules about tax information is the difference between Inland Revenue and other government agencies in relation to official information. The Official Information Act 1982, which defines “official information” as including any information held by a department, provides a presumption of availability of information – that official information will be available to requestors unless there is a good reason for it to be withheld. Reasons for withholding include protecting the privacy of natural persons and not unreasonably prejudicing commercial positions or disclosing trade secrets.
In contrast, the starting point of the rule relating to tax information is that Inland Revenue officers must maintain the secrecy of “all matters relating” to the Inland Revenue Acts. It is clear that the relevant provision is not limited to information about taxpayers.
The breadth of the tax secrecy rule means that a wide range of information relating to procurement, analysis and statistics, information technology, finance and planning, policy development and even publicly available information is subject to the rule unless a subsequent exception applies. Much of this information would not be confidential in the hands of another government agency.
In Towards a new Tax Administration Act the Government proposed narrowing the coverage of tax secrecy from all information relating to the Inland Revenue Acts, to protecting information that identifies, or could identify a taxpayer. This is the approach taken in Australia and Canada, and a similar limitation applies in the United States where the legislation protects “return information”.
The Government proposes to replace the current tax secrecy rule with a rule that Inland Revenue must maintain the confidentiality of information that relates to the affairs of, or identifies (or could identify), a taxpayer. This new rule will better reflect the various policy reasons for protecting certain tax information, and continue to protect sensitive taxpayer information, while allowing the release of more generic, non-taxpayer-specific information.
Sensitive information that does not identify a taxpayer
Inland Revenue also holds very sensitive information not relating to specific taxpayers, and the release of this information could damage the integrity of the tax system. This would include in certain cases information regarding audit or investigative techniques or strategies, compliance information, thresholds, analytical approaches and so on. The release of such information could affect the Crown’s ability to collect revenue, for example by enabling taxpayers to “game” or defraud the system.
The Official Information Act allows information to be withheld if the release would prejudice the maintenance of the law, but there is no specific provision allowing information to be withheld if it is required to protect the public revenue. In contrast, the Australian and United Kingdom freedom of information legislation contain broader protections that are able to be used to withhold non-taxpayer-specific, sensitive revenue information.
While Inland Revenue’s sensitive information may be covered by the “maintenance of the law” exception from disclosure in the Official Information Act, that may not always be the case. The protection of public revenue is considered of sufficient importance that a residual protection should be retained in the TAA. This will allow the Commissioner to withhold such information if it is considered likely to affect the integrity of the tax system.