Tax pooling rules
Clauses 207 to 212
Issue: Support for aspects of the reform
Submissions
(Tax Management New Zealand, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, KPMG)
Submitters supported the amendments to the tax pooling rules to enable purchased tax pooling funds to be used to meet outstanding interest obligations on increased amounts of tax resulting from an amended assessment or the resolution of a tax dispute.
The group strongly supports the proposed amendments, which restore the original intent of the tax pooling rules. The group is pleased that this issue is resolved in the bill having been the subject of discussions with officials since late 2012. (Corporate Taxpayers Group)
Comment
Officials welcome this support and recognise the assistance provided by the industry in working through this issue.
Recommendation
That the submissions be noted.
Issue: Extend tax pooling to disputes where proceedings are stayed
Submission
(Tax Management New Zealand)
The tax pooling rules are framed as if every taxpayer will settle a dispute in a timely manner or proceed through to challenge proceedings before a court. This is often not the case. Where a taxpayer’s dispute is the same or similar to that of another taxpayer whose dispute is before the courts, the Commissioner and the taxpayer can agree to stay proceedings and be bound by the outcome of the dispute before the courts. This is a sensible course of action for all parties, as it saves both sides the cost of preparing lengthy statements of position, and reduces the pressure on the court system by not requiring cases to be needlessly filed with the courts.
Currently, when a dispute is stayed and does not proceed to court, a taxpayer may not be able to access tax pooling funds when the dispute is finally settled. However, if the dispute had proceeded to court the taxpayer would be able to access tax pooling funds. This is an unintended policy outcome.
The amendments within the bill should be extended to ensure that these taxpayers are not disadvantaged by staying dispute proceedings pending the outcome of a similar case before the courts.
Comment
Officials agree with the submission and support the amendment proposed by the submitter.
Recommendation
That the submission be accepted.
Issue: Application of use-of-money interest and penalties rules
Submission
(KPMG)
Although the amendment to the tax pooling rules is a positive step, the need for tax pooling reflects underlying concerns about the application of use-of-money interest and the penalties rules generally. These need to be addressed more fundamentally. If use-of-money interest and the penalties rules are not reviewed, KPMG supports a wider application of tax pooling funds to meet tax liabilities, which could potentially reduce the historic tax debt.
Comment
The Government recently released a green paper setting out its initial thinking about how to modernise New Zealand’s tax administration. This paper outlined the Government’s intention to review the provisional tax rules and how the use-of-money interest rules apply to businesses.
The green paper also signalled that, at the same time, a review of the tax pooling rules should be undertaken to identify if they can be improved and made available to more taxpayers.
Officials therefore consider that the Government’s work on modernising New Zealand’s tax administration will include consideration of the issues raised by the submitter.
Recommendation
That the submission be noted.
Issue: Inland Revenue’s interpretation of the current legislation
Submissions
(Corporate Taxpayers Group, Tax Management New Zealand, Chartered Accountants Australia and New Zealand)
The tax pooling rules were drafted in a very prescriptive manner and are producing unintended and unnecessarily restrictive consequences, particularly in the settlement of tax disputes. (Chartered Accountants Australia and New Zealand, Tax Management New Zealand)
The amendment in the bill is the latest in a series of legislative changes to the tax pooling rules that have been required because Inland Revenue has not interpreted the existing legislation in the spirit in which it has been intended. This has caused significant uncertainty for taxpayers and tax pooling intermediaries, and the group is hopeful that Inland Revenue will adopt more of a pragmatic operational approach in the future to any remedial tax pooling issues. (Corporate Taxpayers Group)
Comment
Officials acknowledge that the tax pooling rules are prescriptive. To enable the smooth running of the tax pooling scheme Inland Revenue interprets the rules in line with their underlying policy intent. When the legislation is clear but does not achieve the intended policy outcome, remedial legislation is required.
As noted earlier, the Government has signalled its intention to review the tax pooling rules to see if they can be improved or made available to more taxpayers. Officials consider that the issue raised by submitters will be addressed as part of this review.
Recommendation
That the submissions be noted.
Issue: Inconsistency between the commentary and the bill
Submission
(Chartered Accountants Australia and New Zealand, Tax Management New Zealand)
There is an inconsistency between the officials’ commentary on the bill and the bill itself, in relation to the timeframe for adjustments to be made to the interest transfers. The commentary states that interest transfers must be made within 60 days of the date of enactment of the legislation whereas the bill refers to the timeframe of 60 days from the date on which the Commissioner notifies the amount of interest payable for the transfers to be made.
The application date should be clarified. The timeframe proposed in the legislation is more realistic for both taxpayers and Inland Revenue.
Comment
Officials confirm that the timeframe contained in the bill is correct. The timeframe in the commentary is an error and officials propose to clarify this error in Inland Revenue’s Tax Information Bulletin, which details the tax changes to the public once the legislation is enacted.
Recommendation
That the submission be accepted.