Other policy matters

FIF exemption simplification for ASX

Supporting co-location

Special tax codes for those receiving nz superannuation or veteran’s pension

Facilitating additional deductions from wages or salary

Changes to personal tax summary thresholds

Changes to rulings regime

Student loans – student loan interest

Tax secrecy and software intermediaries


FIF EXEMPTION SIMPLIFICATION FOR ASX


Clause 35

Issue: Support for the amendment

Submission

(Corporate Taxpayers Group, Chartered Accountants Australia and New Zealand, Covisory Partners, KPMG)

The submitters were supportive of the amendment, describing it as sensible. Making the exemption applicable to all entities listed on the ASX would greatly reduce compliance costs for taxpayers and provide greater clarity and certainty. This proposal will reduce compliance costs for taxpayers from having to determine whether an Australian investment is included on an approved index or not.

Comment

Officials welcome the submitters’ support for the proposed amendments.

Recommendation

That the submission be noted.


Issue: Not supportive of the amendment

Submission

(Deloitte)

The amendment should not be enacted. We believe that the change proposed does not have the effect intended by officials, and instead the amendment potentially has the opposite effect. Removing this requirement will increase the number of securities potentially eligible for the exemption from 500 to 600 to more than 2,100. As a result, the compliance time and cost would likely increase as there are a greater number of securities to consider, making it more difficult for taxpayers to self-assess their tax positions. Given that the status quo is acceptable from a policy perspective, we suggest that the current rules be maintained which will ensure that an increase in compliance costs and uncertainty is avoided.

Comment

The current requirement results in considerable uncertainty for investors and administrative cost for Inland Revenue as companies move on or off an approved index from period to period. For investors holding shares in companies on the fringe of the index (for example, the bottom 10 companies in the top 500 list which makes up the ASX All Ordinaries Index) the movement on and off the index as a result of periodic rebalancing results in different tax treatments from period to period. This not only increases their compliance costs as they switch between methods, but it also is not in line with the policy underlying the taxation of these investments, given that nothing else changes for these taxpayers other than the size of the company relative to others on the list (in other words, the company is just as likely to distribute reasonable levels of dividends).

Although officials acknowledge that the pool of potential securities which may qualify for the exemption will increase as a result of this amendment, it is not correct to conclude that this will necessarily result in increased compliance costs for taxpayers. Officials expect that the majority of investors relying on this exemption are likely to hold shares in companies listed on the All Ordinaries Index. For these investors, the amendment would mean that they no longer have to track index movements from period to period, which is expected to reduce their compliance costs.

Recommendation

That the submission be declined.


Issue: Amending the remaining requirements of the FIF exemption

Submission

(Corporate Taxpayers Group, Deloitte, KPMG)

The remaining requirements of section EX 31 place a significant compliance cost burden on taxpayers. The Corporate Taxpayers Group strongly submits that officials should consider whether the remaining criteria can be further amended to reduce compliance costs for taxpayers and Inland Revenue. The remaining requirements for application of the exemption are equally, if not more, onerous. Advice from a specialist may be needed to establish the correct position for some shares. (Corporate Taxpayers Group, Deloitte)

If the aim is simplification, the FIF exemption should apply if the share is ASX listed, without also having to consider the other requirements. (KPMG)

Comment

Officials consider that the removal of the remainder of the requirements of the exemption would not be appropriate. Each of the requirements is necessary both to adequately target the exemption – to those stocks for which dividend-only taxation is appropriate – as well as to protect the FIF tax base from erosion by inappropriate reliance on the exemption (for example, restricting the application to shares only). The residence requirements reflect the fact that dividend-only taxation is appropriate for investments in Australian companies which, like New Zealand companies, are encouraged to distribute dividends as a result of the Australian franking system. Removal of these requirements would allow for ASX-listed stocks in non-Australian companies to be included in the exemption. This could include, for example, US companies which are not tax-incentivised to pay reasonable levels of dividends resulting in effective non-taxation of these investments. This result is contrary to intended policy.

Recommendation

That the submission be declined.


Issue: Inland Revenue’s published exemption list

Submission

(Deloitte, KPMG)

Inland Revenue needs to continue to prepare a list of qualifying securities as guidance to taxpayers, to prevent taxpayers incorrectly treating securities. Investors are unlikely to be equipped with the knowledge or resources to complete analysis required by the exemption. If the remainder of the exemption is not simplified Inland Revenue should continue to publish the IR871 (Australian share exemption list) based on the ASX 500.

Comment

The proposed amendment will improve taxpayers’ ability to self-assess the criteria that the shares are in a company listed on the ASX, as this information is publicly available from the ASX website. Previously the shares had to be included on an approved ASX index and, given that the indexes are not generally publicly available, Inland Revenue published the exemption list, based on the indexes, to assist taxpayer compliance. Submitters have noted, and officials recognise, that many taxpayers rely on Inland Revenue’s published list to assist with their application of the exemption criteria. Post-enactment Inland Revenue will continue to provide guidance on the ASX exemption to assist taxpayer compliance.

Recommendation

That the submission be noted.


Issue: Retrospective application of the amendment

Submission

(Deloitte)

The proposed timing, application from 2016–17 and later income years, would mean that the amendment applies retrospectively for some taxpayers. For unit valuers, who are required to calculate FIF income on a periodic basis (typically daily) this retrospective application will result in compliance issues as tax calculations and payments have already been completed on the basis of the existing rules. The application date should be amended to apply to income years after the amendment is enacted.

Comment

Officials agree that for unit valuers, who may be calculating FIF income more regularly, the retrospective application is not appropriate. However, officials do not agree that the amendment should apply to all income years after the enactment of the amendment as this would result in a staggered application over two years (depending on balance date). Instead officials suggest that the application date should be amended to the 2017–18 and later income years to allow for enactment prior to application.

Recommendation

That the submission be accepted, subject to officials’ comments.


Issue: Exclusion for Australasian share sale proceeds of managed funds

Submission

(Corporate Taxpayers Group)

Section CX 55 of the Income Tax Act 2007 also refers to shares included in an approved index under the ASX Market Rules, and in the Group’s view it appears to be an oversight that an amendment is not also proposed to this section. Making an amendment to section CX 55 would be consistent with the policy reasoning stated in the Bill Commentary for the amendment to the FIF ASX exemption, being to reduce the uncertainty that taxpayers face in determining whether a company is on or off an approved index from period to period. Section CX 55 should also be amended to mirror the changes to the FIF ASX exemption as proposed.

Comment

Officials agree that an amendment is required to bring section CX 55 in line with the proposed amendment to the ASX FIF exemption, but not for the reasons raised by the submitter. Section CX 55 generally treats the proceeds from the disposal of Australasian shares as excluded income for managed funds such as portfolio investment entity (PIE) funds. In the absence of this section proceeds from the disposal of these shares would probably be taxable in the hands of the PIE, for example, as the shares are likely to be held on revenue account. For taxpayers investing directly, who are more likely to hold the shares on capital account, the sale proceeds are not likely to be taxable. Section CX 55 therefore ensures that individuals investing though PIEs, for example, are not tax disadvantaged compared with individuals investing directly in the same stocks.

The proposed amendment to the ASX FIF exemption would result in more Australian-listed stocks qualifying for the FIF exemption. Unless the same amendment is also made to CX 55, to bring the two provisions in line, taxpayers investing through a fund (who would rely on section CX 55) would be tax disadvantaged compared with direct investors (relying on the FIF exemption) with respect to the taxation of sale proceeds. This is not the policy intent.

Recommendation

That the submission be accepted.


SUPPORTING CO-LOCATION


Clauses 117(1) and 122

Issue: Support for the proposal

Submission

(Office of the Privacy Commissioner)

The Office of the Privacy Commissioner supported the proposal to address issues concerning the realities of working in open plan, co-located offices while still maintaining obligations on Inland Revenue employees to maintain a reasonable standard of confidentiality in respect to taxpayer information. The submitter noted that it was logical to remove barriers to efficient open-plan office environments for government agencies. The Office of the Privacy Commissioner had no objections to the proposed amendments.

Comment

Officials note the support for the proposed amendments.

Recommendation

That the submission be noted.


Issue: Whether co-located staff signing Inland Revenue certificates overcomes issue

Submission

(Chartered Accountants Australia and New Zealand)

The submitter supported the co-location of government departments as a measure to achieve efficiencies and cost savings in the public service. However, the submitter believed it would be a simpler process to require staff of co-located government agencies to sign the same secrecy agreements as Inland Revenue staff, rather than amending the law to specify that an employee does not breach the secrecy provisions if they unintentionally disclose tax-secret information in a co-location environment.

Comment

Officials do not consider that it is appropriate to have co-located staff from other agencies sign the same secrecy agreement that Inland Revenue employees sign. Further, even if the non-Inland Revenue co-located staff did sign the same secrecy agreement, that would not address the issue of Inland Revenue employees breaching section 81 by inadvertent communication to co-located staff.

Inland Revenue employees sign secrecy declarations under section 81 of the Tax Administration Act 1994 (TAA). The secrecy declarations under section 81 only relate to officers of Inland Revenue (as defined in section 81(8)) and not to employees of other co-located organisations.

Under section 81, Inland Revenue employees have an obligation to maintain the secrecy of all matters relating to the tax legislation. This ties in with their broader obligations under section 6 of the TAA to use their best endeavours to protect the integrity of the tax system (including keeping individual affairs of taxpayers confidential). These broad obligations are reflected in the Inland Revenue code of conduct.

In contrast, generally other people who have access to restricted information only have the obligation to protect the secrecy of the information that they receive (section 87 of the TAA). They do not have broader obligations to protect the integrity of the tax system and they are not subject to Inland Revenue’s code of conduct. Officials consider that it is more appropriate, given co-located staff will only inadvertently receive restricted information, that their obligations only relate to the information that they receive.

In addition, there are various exemptions in the secrecy obligation that Inland Revenue employees sign that allow them to share information with other government agencies in certain limited situations. It is not intended that co-located staff that receive restricted information inadvertently will be able to share that information with other government agencies under the various exemptions. Instead, officials consider it is appropriate that co-located staff have an unqualified obligation to maintain the secrecy of any information they inadvertently receive.

Further, having co-located staff sign the same secrecy obligation that Inland Revenue employees sign may blur the information sharing between Inland Revenue employees and the co-located staff. The proposed amendment is not intended to allow a broader sharing of information between Inland Revenue staff and co-located staff than is currently the case. The proposed amendment is only intended to deal with information inadvertently communicated to the co-located staff that arises as a consequence of being co-located. Having co-located staff sign a different secrecy obligation will better reflect the distinction between the Inland Revenue employees and co-located staff to Inland Revenue employees, the co-located staff and to taxpayers.

In any event, even if co-located staff did sign the same secrecy agreement as Inland Revenue employees, that would not address the issue of Inland Revenue employees breaching section 81 by inadvertent communication to co-located staff. Inland Revenue employees are only allowed to communicate tax-secret information for the purpose of carrying into effect the Tax Acts or for executing or performing a duty of the Commissioner. An inadvertent communication of tax-secret information by an Inland Revenue employee to a co-located staff member would generally not fall within that category, even if that co-located staff member had signed the relevant secrecy agreement. Therefore, the amendment as proposed is needed to address that issue.

Recommendation

That the submission be declined.


Issue: Whether the exception for unintentional breaches is necessary

Submission

(New Zealand Law Society)

The submitter suggested that it was unclear whether the proposed exception for unintentional breaches was necessary, given that an offence was committed only if a person "knowingly" acts in contravention of section 81 (section 143C(1) of the TAA). The submission stated it would be an unusual situation when a person knowingly communicates secret taxpayer information to another person in a way that breaches section 81(1) but the communication to that person was unintentional. The examples given in the Bill Commentary would be unlikely to mean that the Inland Revenue staff member has “knowingly” acted in contravention of section 81(1) and therefore committed an offence.

Comment

Officials consider that the amendment is necessary despite the criminal penalty provision only applying when the employee knowingly acts in contravention of section 81.

Officials consider that an employee could be held to have knowingly acted in contravention of section 81 in a situation where there is a real risk that a co-located staff member will overhear a communication, but this risk is inherent in the accommodation arrangements and the premises. This may be the case when the employee is required to carry out their employment duties in co-located premises. In that situation, an employee may be aware that a co-located staff member could overhear a conversation, but not always be able to avoid that possibility. Officials consider it would be unfair to expose the Inland Revenue employee to the risk of a criminal penalty for doing their job in the premises required by their employer.

In addition, even if there was not a risk of a criminal penalty, the Inland Revenue employee would still be placed in a position where there was a risk that they were breaching the law. This raises issues for the employee’s broader obligations to ensure the integrity of the tax system and Inland Revenue’s code of conduct.

Recommendation

That the submission be declined.


Issue: Whether a higher secrecy standard should apply

Submission

(New Zealand Law Society, Russell McVeagh)

The proposed amendment will mean an Inland Revenue employee will not breach the secrecy provision (section 81) if they do not intend the co-located staff member to overhear the conversation. The submitters stated that a higher standard should be prescribed than “does not intend”. To excuse all unintentional disclosures of secret taxpayer information that would otherwise breach section 81 would mean that negligent or even reckless practices would escape sanction. The taxpayer secrecy obligation is important to the integrity of the tax system and the language of any statutory exceptions should reflect that. Accordingly, at a minimum, the amendment should require the Inland Revenue officer to have taken reasonable steps to have avoided the communication being received by the recipient.

Comment

Officials consider that the amendment is not intended to, and does not, sanction negligent or reckless practices on the part of Inland Revenue staff. The “does not intend” wording seeks to make it clear that the relevant communication is inadvertent. In addition, officials consider that any obligations on ensuring that reasonable steps have been taken to take into account, and mitigate such risks in the context of the premises, should fall on the Commissioner and not the individual employee.

Officials consider the amendment will not allow negligent or reckless practices because of the various other obligations on Inland Revenue employees. Specifically, Inland Revenue employees are required under section 6 to use their best endeavours to protect the integrity of the tax system (including keeping individual affairs confidential). Inland Revenue employees are also subject to a code of conduct which requires staff to ensure secrecy is maintained. Employees risk dismissal if they breach the code of conduct. Inland Revenue also has a strong culture of protecting secret information, and internal practices and training to support that culture.

Officials consider the Commissioner’s obligations under section 6 will require her to take secrecy into account in deciding where co-location will occur and what physical safeguards will be put in place. Officials do not consider that it is appropriate to put such an obligation on individual employees if they are required to work in a co-located environment.

Recommendation

That the submission be declined.


Issue: Whether the proposal should be limited to Inland Revenue employees and co-located government employees

Submission

(New Zealand Law Society, Russell McVeagh)

The submitters noted that the Commentary to the Bill states that the amendment will remove a barrier to co-location arrangements between Inland Revenue and other government departments. However, the exception as currently drafted is not limited to unintentional disclosure to government employees (as section 87 can also apply to persons who are not government employees).

The submitters recommend that the amendment should be limited to Inland Revenue employees and co-located government employees.

Comment

Officials consider that the law should also apply to contractors who have signed section 87 certificates, as well as Inland Revenue and co-located employees.

Consistent with modern work practices, Inland Revenue and other government agencies often engage contractors who can in a practical sense be indistinguishable from employees. This means that Inland Revenue employees may not be able to distinguish contractors from Inland Revenue and co-located employees. Officials consider that it would be unreasonable for Inland Revenue employees to be subject to criminal penalties in such circumstances. Officials consider, therefore, the amendment should apply to inadvertent communications to all staff who sign secrecy certificates.

Recommendation

That the submission be declined.


Issue: Whether the proposal should be limited to co-located premises

Submission

(New Zealand Law Society, Russell McVeagh)

The submitters noted that the Commentary to the Bill stated that the proposed amendment was intended to align the approach to co-located staff working in open-plan areas, with the current approach to Inland Revenue staff working in open-plan areas.

The submitters note, however, that the exception as currently drafted is not limited to a place where co-location occurs. The submitters noted further that there did not appear to be an exception under current law for Inland Revenue officers that inadvertently disclose taxpayer information to other Inland Revenue officers. Accordingly, contrary to what the Commentary to the Bill suggests, the proposal appears to create an exception for breaches of section 81(1) for Inland Revenue officers that disclose taxpayer information to both Inland Revenue officers and to staff of other government agencies.

Comment

Officials consider the proposed amendment will clarify the application of the law to Inland Revenue open-plan offices, and extend that application to locations, and in conditions relating to the secrecy of information, where an Inland Revenue employee is expected to work.

Officials agree the clarifying aspect of the proposed amendment could have been more clearly set out in the Commentary, and recommend the issue be covered in the Tax Information Bulletin that follows the enactment of the Bill.

Officials consider the current law does not prevent Inland Revenue from operating in open-plan workspaces. However, in such an environment, there is an inevitable risk that an Inland Revenue employee may inadvertently overhear a conversation between two other Inland Revenue employees or inadvertently overhear an Inland Revenue officer discussing a matter with a taxpayer on a phone call. It would be impossible in a practical sense to completely eliminate such a risk in an open-plan environment. As a result, as there is not an explicit exception for Inland Revenue employees under the current law, officials consider it is possible that a court could hold an employee liable for criminal sanctions when a conversation was inadvertently overheard in an open-plan Inland Revenue office as well. Officials consider, therefore, the proposed amendment should clarify that Inland Revenue employees do not breach the secrecy provision when they are carrying into effect the tax legislation in an open-plan environment and another Inland Revenue employee inadvertently overhears a conversation. An Inland Revenue employee will still be liable for criminal sanctions if they intentionally communicate tax-secret information to another Inland Revenue employee, other than for carrying into effect the Tax Acts or carrying on a duty of the Commissioner.

Officials acknowledge that the exception could be made to apply only to Inland Revenue offices and co-located sites, and the definition could be amended accordingly.

However, officials’ preference is that the proposed amendment extends this approach to a location, and in conditions relating to the secrecy of information, where an Inland Revenue employee is expected to work. Officials consider the breadth of the provision will enable Inland Revenue to be flexible about the different work environments that it expects employees to work in.

Officials would point out that the breadth of the provision must be read in light of the various requirements and restrictions that will apply to the exception. Specifically:

  • the Commissioner will need to comply with her general obligation to use her best endeavours to protect the integrity of the tax system in determining where she expects employees to work and what secrecy conditions will apply in that environment;
  • the exception will only apply when the communication is not intentional;
  • the exception will also only apply when the inadvertent communication is heard by a staff member who has signed a secrecy agreement, and so is subject to severe criminal penalties for knowingly communicating any restricted information; and
  • all Inland Revenue employees will still be obligated to use their best endeavours to keep a taxpayer’s individual affairs confidential, and there will be sanctions for negligent or reckless behaviour.

Recommendation

That the submission be noted.


SPECIAL TAX CODES FOR THOSE RECEIVING NZ SUPERANNUATION OR VETERAN’S PENSION


Clauses 71(5) to (7), 83, 84, 85, 86, 87, 101 and 102

Issue: Support for amendments

Submissions

(Chartered Accountants Australia and New Zealand, KPMG)

The submitters support the amendments to allow the Commissioner to provide special tax code certificates directly to the Ministry of Social Development. These amendments will reduce compliance costs for superannuitants and veteran pensioners by reducing the extent of over- or under-deduction of tax.

Recommendation

That the submissions be noted.


Issue: Drafting error with section 24B(3)

Submission

(EY)

The submitter proposes that the wording of clause 83, although appropriate, does not read well with regard to how it fits with the section it amends and that the opportunity should be taken to improve the flow and logic of the provisions.

Comment

Clause 83 amends section 24B(3) of the Tax Administration Act. This section requires the employee to notify their employer of one of the tax codes listed in that section.

A “no notification” tax code applies when the employee does not provide their employer with a tax code. However section 24B(3) incorrectly includes the “no notification tax code in a list of codes that the employee advises the employer of. This error has existed for some time and officials agree with the submitter that the opportunity should be taken to correct this legislative error.

Recommendation

That the submission be accepted.


Issue: Allowing special tax codes to apply to more than one employer

Submission

(EY)

The submitter suggests that the draft legislation is too restrictive and that the special tax code can only apply in respect of a single employer, which is not what the current legislation provides.

Comment

An employee can apply for a special tax code to apply to their New Zealand superannuation or veteran’s pension income or their other employment income from one or more employers.

The Bill proposes changes to enable the Commissioner to provide the special tax code certificate directly to the Ministry of Social Development instead of having to give the certificate to the superannuitant who has to provide it to the Ministry of Social Development.

Officials agree with the submitter. In drafting these amendments, a legislative oversight has resulted in the Bill incorrectly limiting the application of the special tax code to the income of one employer instead of to income from more than one employer.

Recommendation

That the submission be accepted.


FACILITATING ADDITIONAL DEDUCTIONS FROM WAGES OR SALARY


Clauses 169, 185, 217, 219 and 221

Issue: Defaulting taxpayers should not be able to prevent deduction notices having effect by failing to notify a change of address

Submission

(Chartered Accountants Australia and New Zealand)

Currently, when a person has defaulted on tax, child support, gaming duty or student loan payment obligations, additional deductions from their wages or salary to recover the shortfall are prevented if the defaulter has failed to notify Inland Revenue of a change of address.

Defaulting taxpayers should not be able to prevent deduction notices having effect by failing to notify a change of address.

Comment

The submission confirms the problem the proposed amendments are intended to address.

Some taxpayers choose to ignore their tax obligations and other payment obligations by failing to maintain a valid address that Inland Revenue can use to contact them.

When the defaulter’s employer is known, requiring deductions from the defaulter’s wages or salary is an efficient means of recovering the outstanding payments, but that action is prevented if the defaulter has not kept Inland Revenue informed of their correct address. Under the proposed amendments, the deduction notice will be issued to the employer without a copy to the employee, but the defaulter’s rights to challenge an assessment or make alternative arrangements for payment will be protected through earlier correspondence.

Recommendation

That the submission be noted.


Issue: A copy of the deduction notice should be sent to the employee at the employer’s address

Submissions

(Chartered Accountants Australia and New Zealand, EY, KPMG, New Zealand Law Society)

When a defaulting taxpayer’s address is unknown, or they have not notified a change of address, the notice should be sent to the employee at the employer’s address prior to the deduction from wages or salaries. The submitter does not understand why a copy of the deduction notice cannot be sent to the employee at the employer’s address, as this would not impose a significant compliance burden on employers, who will be the first point of call for queries from employees. (Chartered Accountants Australia and New Zealand)

The Commissioner should retain an obligation to issue appropriate notices to taxpayer debtors, although it should not be necessary to prove that the notice had been received. We suggest that the Commissioner should be required to provide notices to the employers or other relevant debtors, which they can issue to the taxpayer debtors. (EY)

The Commissioner should be able to issue a deduction notice to a defaulting taxpayer at the employer’s address if the taxpayer’s address cannot be found. (KPMG)

Comment

Issuing a copy of the deduction notice to the defaulter’s employer to pass on to the employee was one of the options considered by Inland Revenue.

The option was discarded because it would require the following manual actions to be taken by Inland Revenue staff:

  • change the taxpayer’s address on the FIRST system to the employer’s address;
  • generate the issue of the deduction notice with a copy for the employee; and
  • change the taxpayer’s address back to “invalid” so other correspondence with the taxpayer is not issued to the employer.

It is not clear at this stage of Inland Revenue’s new tax administration system development whether a less manually intensive solution would be available in the new system.

Secondly, allowing the employer to pass on the deduction notice would not create any incentive for the defaulting employee to contact Inland Revenue to update their address details.

Finally, being required to pass on copies of deduction notices to employees would impose a compliance burden on employers, particularly those with a widely dispersed workforce.

Information for employers to support the proposed change would encourage them to direct any employee enquiries to Inland Revenue so that address details can be updated and give the person an opportunity to discuss alternative payment arrangements.

It should be noted that the proposed changes are to apply only to copies of notices for deduction from salary or wages. They will not apply to deductions that can be made from payments made to defaulters by other third parties.

Recommendation

That the submissions be declined.


Issue: The Commissioner should reconsider processes

Submission

(KPMG)

The waiver of the employee copy of a deduction notice is a step too far, denying the defaulting taxpayer any opportunity to respond to or challenge the Commissioner’s assessment. This right is fundamental to the integrity of the tax system.

Comment

Before there is an attempt to issue an automatic deduction notice to an employer there will have been earlier communications with the defaulting employee.

First, there will have been an assessment, which may have been a self-assessment by the taxpayer. If, however, Inland Revenue has generated the assessment, a notice of assessment will have been issued, giving the taxpayer the opportunity to object and follow through the dispute process.

Secondly, a statement of account, which may be issued prior to the due date in response to some transactions, is generally issued once the due date for payment has passed and Inland Revenue records show no or insufficient payment was made. The statement shows any penalties or interest added to the account.

In addition, for some taxpayers there will have been e-alerts through their myIR account or payment reminders by text to their mobile phone.

Thirdly, if payment has not been made in full within 20 to 50 days (the date varies depending whether the taxpayer is represented by an agent) after the due date for payment, a debt notice is issued. This gives the taxpayer a final opportunity to contact Inland Revenue and discuss the default and possible alternative payment arrangements before a deduction notice is issued to the taxpayer’s employer.

It is only when the final form of correspondence with the taxpayer is returned and the address coded as “invalid” that we propose that an automatic deduction notice be issued to the employer without a copy to the employee.

At earlier points in the process, if the taxpayer’s address becomes invalid it would be only when the case is identified for manual action that following enquiries, including to the employer about the employee’s address, a deduction notice would be generated.

Recommendation

That the submission be declined.


Issue: The proposed amendments address administrative issues

Submission

(Office of the Privacy Commissioner)

Clause 169 removes the obligation on Inland Revenue to advise both a tax-due defaulter and their employer when it plans to initiate deductions from a defaulting taxpayer’s salary or wages if the defaulter has not kept their personal address details up to date with Inland Revenue. This addresses administrative issues arising when taxpayers do not comply with their existing obligations to keep Inland Revenue informed of changes in their contact details.

Comment

The proposed amendments will create administrative efficiencies for Inland Revenue and faster recovery of unpaid taxes and other payments when the defaulter is in paid employment.

Recommendation

That the submission be noted.


CHANGES TO PERSONAL TAX SUMMARY THRESHOLDS


Clauses 59 and 116

Issue: Support for the proposals

Submissions

(KPMG, Chartered Accountants Australia and New Zealand)

Two submitters expressed their general support for the proposals.

We see these changes as an interim step until the broader issues with personal tax summaries and individual tax returns are dealt with as part of the Business Transformation process. (Chartered Accountants Australia and New Zealand)

Comment

Officials note the general support for the proposed amendments.

Recommendation

That the submissions be noted.


Issue: Clarification of interaction with section 80F(2)

Submission

(EY)

Clause 116 proposes amending section 80H(3) with the aim of reducing the time for automatically releasing refunds on unconfirmed personal tax summaries. The assessment could be treated as made on the 15th day after issue of an income statement, rather than on the 30th day under the present section 80H(3)(c), unless one of the other specified dates occurs first. We suggest clarification would be desirable as to how the section 80H(3) provision is intended to fit with the section 80F(2) period (the taxpayer’s terminal tax date or two months after issue of income statement, whichever is the later) for notifying Inland Revenue of errors.

Comment

The interaction of sections 80H(3) and 80F(2) remain unchanged. Section 80H(3) allows low-value refunds to be issued automatically without requiring an interaction between the taxpayer and Inland Revenue. Section 80F(2) requires any taxpayer receiving an incorrect personal tax summary to contact Inland Revenue and provide the necessary information before their terminal tax due date or the date two months after the personal tax summary was issued, whichever is the later.

Recommendation

That the submission be declined.


Issue: Use of the term “confirms”

Submission

(EY)

It is also proposed to change the section 80H(3)(d) reference to the date on which a person requests a refund to the date on which a person “confirms that the income statement is correct”. The term “confirms” is not one of the new communications terms listed and described in proposed sections 14 to 14G. We suggest the existing wording be retained or one of the specific new communications terms should be used instead of a further, different term, or the term “confirms” should be expressly included within one of the proposed section 14 communication categories.

Comment

The current section 80H(3)(d) refers to the date “on which the person requests a refund of tax under section RM 5 of the Income Tax Act 2007”. This request can only be made by the person confirming their personal tax summary.

The term “confirms” is also used in section RM 5 and is undefined as it retains its normal meaning.

Recommendation

That the submission be declined.


CHANGES TO RULINGS REGIME


Clauses 130, 137, 138, 145 and 152

Issue: Support for the proposal

Submissions

(Chartered Accountants Australia and New Zealand, KPMG, Corporate Taxpayers Group)

The submitters supported the proposed amendments to the binding rulings regime. The submitters noted that the amendments will remove certain restrictions on Inland Revenue when providing binding rulings in certain circumstance and reduce administrative costs, particularly to clarify that Inland Revenue can rule on issues under dispute by other taxpayers.

Comment

Officials note the support for the proposed amendments.

Recommendation

That the submissions be noted.


Issue: Publication requirements

Submissions

(EY)

The submitter noted the proposed amendment to allow the Commissioner to notify extensions of public and status rulings in a publication chosen by the Commissioner, rather than in the New Zealand Gazette. The submitter recommended that it be clarified whether such “publication” includes a website and, if so, that the Commissioner should be required to record, on the face of such website publications, details of the dates of their issue and the dates they become accessible to the public. The submitter also recommended that the Commissioner should also be required to publish similar date details in relation to any subsequent changes or additions affecting such publications.

Comment

Officials consider the amendment is intended to allow the Commissioner to notify extensions of public and status rulings on Inland Revenue’s website. The use of the term “publication” is intended to be broad enough to cover a wide variety of digital channels.

Inland Revenue is currently reviewing the way it publishes items, including on its website. Officials consider the submissions on the details that should be included when publishing should be passed on to the relevant Inland Revenue team to consider as part of their review.

Recommendation

That the submissions be noted.


Issue: Materiality requirements

Submissions

(Corporate Taxpayers Group)

The Group supports the move to amend section 91EB of the Tax Administration Act 1994 to clarify that an assumption needs to be “materially incorrect” rather than merely “incorrect” for the private ruling to cease to apply. The Group submits that Inland Revenue should release some further guidance as to when the Commissioner believes that the breach of an assumption in a binding ruling is “material”. This will assist taxpayers in determining whether a binding ruling continues to apply, as it will not always be obvious whether a breach of an assumption is “material” in nature.

On a related point, the Group notes that the concept of materiality features quite prominently throughout the rulings regime and the continued application of a ruling will often hinge on whether there is a “material” change to the arrangement to which the ruling relates. There is no New Zealand commentary or case law that considers this point, and whether there has been a material change to an arrangement is often an area of uncertainty for taxpayers, noting that rulings are often applied for before transactions or arrangements have been put in place. In the Group’s view, guidance on the concept of materiality as it relates to the rulings regime is required and Inland Revenue should issue an item on this matter.

Alternatively, consideration should be given to extending the scope of the “factual review” product offered by Inland Revenue to allow a taxpayer to request a factual review during the period of the ruling. At present Inland Revenue’s guidance states that “[a] Factual Review may be requested in writing at any time prior to or immediately following the issue of the ruling”.

Comment

Officials consider that whether an assumption is material will turn on the particular facts and circumstances. Officials note that Inland Revenue is currently considering whether to provide further guidance on the materiality requirement. We consider, however, that providing further guidance on the issue is beyond the scope of the current Bill.

Recommendation

That the submissions be noted.


STUDENT LOANS – STUDENT LOAN INTEREST


No clause

Submission

(Kim Parker)

The submitter proposes the imposition of interest on student loans.

Comment

Under current law, New Zealand-based student loan borrowers pay no interest on their loan as long as they comply with any assessed repayment obligations. However, interest is imposed on the consolidated loan balance of overseas-based borrowers.

There is no provision in the Bill relating to student loan interest and the Government is committed to retaining interest-free student loans for borrowers in New Zealand.

Recommendation

That the submission be declined.


TAX SECRECY AND SOFTWARE INTERMEDIARIES


Submission

(Matter raised by officials)

Section 81 of the Tax Administration Act 1994 should be amended to clarify that the transmission of customer-specific information via business software that is provided and maintained by a software provider (the software intermediary) does not breach the section 81 secrecy provision.

Comment

Tax secrecy requires Inland Revenue officers to maintain secrecy in all matters relating to Inland Revenue’s functions. Tax-secret information cannot be disclosed unless it is for tax purposes, or is covered by a specific exception contained in the legislation.

An integral aspect of Inland Revenue’s Business Transformation programme is that customers will be able to manage most tax transactions, complete their tax affairs and file their tax information directly from their business software. Inland Revenue in turn will be able to send information, confirmation and messages directly to a customer’s business software. However, by transmitting customer information directly to business software, Inland Revenue could be disclosing customer-specific tax information to a third party (the software intermediary that is providing and maintaining the business software) and potentially breach the tax secrecy obligations contained in section 81 of the Tax Administration Act.

Officials therefore recommend that section 81 of the Tax Administration Act 1994 be amended to clarify that the transmission of customer-specific information via business software provided and maintained by a software intermediary does not breach the secrecy provision. Software intermediaries who wish to offer this new service will be required to enter into an agreement with the Commissioner, which will specify obligations and expectations about access and use of taxpayer information.

Officials recommend this amendment apply generally from the date of enactment of the amending legislation, but that it applies retrospectively to any software intermediary agreements that have been entered into with the Commissioner before that date.

Recommendation

That the submission be accepted.