Unclaimed monies

Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill

Officials' report to the Finance and Expenditure Committee on submissions received on the Bill

February 2001

Unclaimed monies

General submissions
Matters raised by officials

GENERAL SUBMISSIONS

Issue: Support for reforms

Submission

(Corporate Taxpayers Group, Bank of New Zealand, Financial Services Council of New Zealand Incorporated, New Zealand Law Society)

General support for the reforms.

Recommendation

That the submission be noted.

Issue: Application of the Unclaimed Money Act 1971 to crypto assets

Submission

(Chartered Accountants Australia and New Zealand)

The amended definition of unclaimed money focuses on “amounts payable” and would seem to apply to cryptocurrencies and other crypto assets. We believe this is appropriate but would welcome confirmation, particularly if it is not intended that the proposals apply to amounts denominated in cryptocurrency.

Comment

In the Commissioner’s view, crypto assets are property rather than money (as commonly understood). However, as an “amount payable” can include an amount in money’s worth, it is possible that crypto assets could come within the existing definition contained within proposals.

It is not intended that crypto assets be brought within the ambit of the Unclaimed Money Act 1971. Officials recommend that the legislation refer to money rather than amounts payable.

Recommendation

That the submission be noted subject to officials’ recommendation.

Issue: Extension of binding rulings regime

Submission

(Russell McVeagh)

The binding rulings regime within the Tax Administration Act 1994 should be extended to include the Unclaimed Money Act 1971. This would allow Inland Revenue to make binding rulings in respect of matters affected by the Unclaimed Money Act 1971.

Comment

Officials recommend that the binding rulings regime, including the short binding ruling process regime, be extended to the Unclaimed Money Act 1971.

Recommendation

That the submission be accepted.

Issue: Transitional period

Submission

(Bank of New Zealand, Financial Services Council of New Zealand Incorporated)

The two-year transitional period should be extended by an additional 12 months to allow holders sufficient time to update their systems.

Comment

The proposed reforms allow holders up to two years to transfer amounts of unclaimed money that fall between the current deeming periods of six and 25 years. However, the reforms are scheduled to come into force from the date of assent for money that becomes unclaimed money after that date.

Holders of unclaimed money may require more time to update their systems to comply with the new rules. Officials recommend that a transitional variation provision be added. This would allow holders the ability to apply to the Commissioner for up to two years to implement the reforms where required.

This allows the Commissioner to work with holders to update their systems on a case-by-case basis. Holders who are able to comply immediately with the reforms would be able to do so, while holders who require further time to update their systems would be accommodated.

Recommendation

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

Issue: Reduction of de minimis threshold of $100 to one cent

Submission

(New Zealand Law Society)

Lawyers can be left with small balances in a trust account without the ability to locate a rightful payee. Under the proposals, amounts below $100 do not qualify as unclaimed money unless the Commissioner exercises a discretion to accept the amount as unclaimed money. The submitter requests that the de minimis threshold for unclaimed money should be reduced from the proposed $100 (or less if the Commissioner agrees), to one cent.

If the $100 threshold is to be retained, holders of unclaimed money would welcome clear guidance from Inland Revenue in dealing with amounts below the $100 threshold, including the circumstances in which the Commissioner’s discretion to accept lesser amounts will be exercised.

Comment

Following stakeholder feedback, officials recommend the inclusion of an alternative use proviso to the existing reforms. This will allow holders to submit any amount of money as unclaimed money to the Commissioner. This will also mean that the Commissioner’s discretion in accepting amounts below $100 is no longer required.

This will be the subject of further guidance from Inland Revenue in a Tax Information Bulletin.

Recommendation

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

Issue: Retention of an alternative use proviso for amounts under $100

Submission

(KPMG, Financial Services Council of New Zealand Incorporated)

Section 4(1)(e)(ii) of the Unclaimed Money Act 1971 specifies that amounts under $100 can be applied for the benefit of the holder or for other purposes. The current proposals remove this.

Companies need the ability to pay unclaimed monies to Inland Revenue so they can be wound up. Some institutions donate funds under $100 to charity. It may be helpful if this is mandated or the money is paid to Inland Revenue and forfeited, with the holder relieved of any obligation.

The existing $100 de minimis should be subject to a proviso allowing a holder to put amounts below $100 to some other purpose. An equivalent proviso exists within the current Unclaimed Money Act 1971.

Comment

Officials recommend that an alternative use proviso to the de minimis threshold of $100 should be retained in the proposals. This will allow holders the continued option to apply amounts of unclaimed money below the de minimis threshold of $100 to other purposes.

The retention of the alternative use proviso will mean that the Commissioner will no longer need the discretion to accept amounts under $100 as there will continue to be a distinction between amounts under $100 that are applied to another purpose (and are therefore not unclaimed money), and other amounts of money, which are under $100 and are not applied to another purpose (and are unclaimed money).

Recommendation

That the submission be accepted.

Issue: Institutional approach to “account activity”

Submission

(Chartered Accountants Australia and New Zealand, Bank of New Zealand, Financial Services Council of New Zealand Incorporated)

Further guidance should be provided on the concept of “account activity” and an institutional approach should be applied to account interaction.

Currently, the treatment of on-call bank accounts which have been set up for the benefit of a third party is unclear and could negatively impact customers (for example, a compounding term deposit set up by grandparents for a grandchild). Without activity on the account, the amount will become “unclaimed money” after five years.

An “institutional” approach to account activity should be adopted to address situations where a customer deposits funds for the benefit of a third party. This would result in activity on one account held by the customer at an institution being deemed activity on any of their accounts held at that institution, thus avoiding funds being deemed unclaimed when the customer is still “active”.
Inland Revenue should work with holders to ensure that they have robust procedures in place for contacting owners every five years. Inland Revenue should educate owners of money on the importance of maintaining accurate contact information with holders.

Comment

Officials recommend that an institutional approach to account activity be adopted. This would prevent money within an account from being treated as unclaimed money where it is among the accounts held by an owner at the same institution. Officials also recommend this approach should extend to joint accounts and other products held with the same institution (for example, an account holder’s cash-PIE investment).
Officials note that on enactment of the proposed amendments, guidance will be provided through a Tax Information Bulletin.

Recommendation

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

Issue: Incorporation of portfolio investment entities

Submission

(KPMG)

A clear treatment for Portfolio Investment Entities (PIE) interests is required. The unclear treatment of PIE interests can prevent PIEs being wound up and investors’ funds being distributed. Including PIEs within the Unclaimed Money Act 1971 would allow PIEs to be more efficiently managed while protecting investors funds (as they will need to be paid to Inland Revenue).

Officials should be instructed to consult with the funds industry to confirm that a clear regime for dealing with unclaimed money for PIE interests would assist PIEs while protecting investors’ funds.

Comment

Currently, PIE fund managers choose between transferring unclaimed money to Inland Revenue under the Unclaimed Money Act 1971 or to the Crown under the Trustees Act 1956.[1]

Although there is merit to allowing fund managers flexibility in transferring unclaimed money under either the Trustees Act 1956 or the Unclaimed Money Act 1971, it is not intended that units in PIEs should come within the definition of unclaimed money. Rather officials consider it should be possible for fund managers to transfer the proceeds of the redemption of the units (in money) to Inland Revenue once the money has remained in the holder’s possession for the five-year deeming period.

The Unclaimed Money Act 1971 excludes the proceeds of pension and superannuation funds. This exception is also present in the KiwiSaver Act 2006. The current proposals maintain this position and officials consider this is the preferred treatment.

Officials will provide guidance on the treatment of unclaimed interests in PIE investments in a Tax Information Bulletin.

Recommendation

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

Issue: Information exchange with holders

Submission

(KPMG)

An ability for Inland Revenue and holders to match IRD numbers should be considered. This would:

stop unclaimed money potentially being paid by Inland Revenue to the wrong person; and/or
enable a holder to track an investor.

Although the first objective would not raise privacy concerns if only IRD numbers were matched, the second would require personal information to be provided by Inland Revenue to a holder.

A specific information-exchange rule to facilitate the objectives of the Unclaimed Money Act 1971 should be considered.

Comment

Inland Revenue offers banks and employers access to an Application Program Interface (API). This allows banks and employers to validate whether existing IRD number information held by an institution which is believed to be associated with an individual taxpayer, is correct. Inland Revenue is considering expanding access to the API to a broader range of institutions in future.

However, the current tax confidentiality framework does not permit Inland Revenue to provide institutions with individual taxpayers’ IRD number information where this is not already held by an institution.

Officials acknowledge the matter raised in this submission; however, further work on IRD information exchange will require prioritising and resourcing as part of the Government’s tax policy work programme.

Recommendation

That submission be declined.

Issue: Minor drafting amendment

Submission

(KPMG)

There is a circular reference in proposed section 8(1).

Comment

Officials recommend the drafting of proposed subsection (1) be amended to avoid the circular reference identified by the submitter.

Recommendation

That the submission be accepted.

Issue: Length of deeming period

Submission

(Financial Services Council of New Zealand Incorporated)

Support for a reduction in the deeming period from 25 to five years, but it should be possible for unclaimed money to be paid to Inland Revenue at any time, provided that a proper process has been followed to locate the owners of the money.

Further clarification as to what would constitute a period of less than five years, which is acceptable to the Commissioner, should be made.

Inland Revenue should work with institutions to determine the data fields that will be required as part of the new reporting, with clear instructions on file type and formatting requirements.

Comment

Proposed subsection 4(2)(d) provides the ability for holders to, in limited circumstances, pay funds to the Commissioner before the five-year deeming period has passed.

Following enactment, further guidance will be provided in a Tax Information Bulletin.

Officials will continue to work with account holders to ensure that data submission requirements are clear.

Recommendation

That the submission be noted, with further guidance will be provided.

Issue: Guidance on “reasonable efforts”

Submission

(Financial Services Council of New Zealand Incorporated)

Specific guidance should be provided as to what constitutes “reasonable efforts” in attempting to locate the owner of unclaimed money. This should encourage an approach that allows alignment with existing processes within the financial institution for finding customers.

A standardised approach for locating customers across various functions should result. This should involve up to three attempts via phone, and email with a physical postal address being the last resort.

Comment

Requiring a holder of unclaimed money to make “reasonable efforts” to locate an owner of unclaimed money is not intended to increase compliance costs for holders.

Provided the holder has taken active steps to locate the owner, using the contact details the holder has available, officials consider that the obligation to make “reasonable efforts” will have been met. Officials expect that most holders will have met this requirement by the time the proposed five-year deeming period has expired.

However, holders are not expected to use avenues of contact that they know will prove unproductive (for example, an invalid physical address), or to identify and pursue other avenues of contact beyond those they have available. For this reason, officials do not consider it is appropriate to specify a series of formal criteria that must be satisfied. Instead, holders should use their judgment and acumen in making “reasonable efforts” to contact the owner of the funds.

Following enactment, further guidance will be provided in a Tax Information Bulletin.

Recommendation

That the submission be accepted, noting that guidance will be provided.

Issue: Data collection amendment

Submission

(Bank of New Zealand)

The data collection requirements in proposed subsection 4(7) should be limited to those which are in a “readily retrievable electronic format”.

This would clarify that the reforms are not intended to impose new information collection costs on holders of unclaimed money, but are directed towards encouraging holders to provide Inland Revenue with information in their possession which may assist the Commissioner in locating the owner of the money.

Comment

Officials agree that the existing proposed data collection requirements could increase compliance costs for holders of unclaimed money and recommend the proposed amendment.

Recommendation

That the submission be accepted.

Issue: Definition of unclaimed money

Submission

(Bank of New Zealand)

The proposed definition of money is difficult to follow and apply to practical situations. It is not clear whether subsection (4)(2)(c)(ii) allows the holder and owner to agree at the outset a standing instruction to automatically roll over term deposits, or whether this requires an explicit instruction from the owner at the expiry of the first term.

A strict interpretation of subsection 4(2)(c)(ii) would mean that holders would be required to categorise all term deposits that have rolled beyond 10 years as unclaimed money unless they had a positive agreement at the end of every period to extend the term. This would be exacerbated if a holder cannot rely on other activity the customer has with the bank as evidence of continued engagement.

A requirement to seek new instructions near the end of every fixed-rate term deposit to avoid the funds being classified as unclaimed money would introduce significant complexity into a regime which the proposed reforms seek to simplify. Automatically rolling term deposits should not be unintentionally caught by the definition of “unclaimed money” as this would not be the customer’s expectation. If this is the intention, it should be clearly communicated and sufficient time should be allowed within the transition period.

Clarity is sought on the meaning of proposed subsection (4)(2)(d).

Comment

Officials have previously recommended an institutional approach to account interaction. Under this approach, the five-year deeming period would not begin in connection with any account where the customer continues to interact with at least one other account that the customer holds at the institution.

For customers with only one term deposit account at an institution, officials agree that these customers could expect their term deposit to be rolled over without an express instruction where this is in keeping with the originating term deposit agreement.

Officials have consulted with stakeholders and recommend that term deposits that are made under an agreement which provides they are to be automatically reinvested, only come within the definition of unclaimed money five years after the maturation of the first term. This means that the five-year deeming period would only commence at the beginning of the second term of the deposit.

However, in order to avoid breaking a term deposit mid-term, officials recommend that the proposals should provide that a term deposit should be deemed unclaimed money after five years, or at the conclusion of the term the five-year deeming period falls within, whichever is the later.

Additionally, officials recommend that the drafting of proposed subsections 4(2)(c) and 4(2)(d) should be clarified.

Following enactment, further guidance will be provided in a Tax Information Bulletin.

Recommendation

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

That the submission be accepted.

Issue: Publication of unclaimed money data

Submission

(Matter raised by officials)

A specific exclusion from the confidentiality of information provisions in the Tax Administration Act 1994 should be enacted, which will allow for the publication of unclaimed money data.

Comment

When the Unclaimed Money Act 1971 becomes an Inland Revenue Act, Inland Revenue intends to provide searchable information on its website to make it easier for people to find and claim funds.

Under current law, the Commissioner is able to publish only the names of the owners of unclaimed money and the amounts received.

A specific exclusion from the confidentiality of information provisions in the Tax Administration Act 1994 will allow for the publication of unclaimed money data. This disclosure would permit the publication of information that would assist owners in being reunited with their money. Publishing additional information aligns with the approach taken in other jurisdictions and by the Treasury for Trustees Act 1956.

Recommendation

That the submission be accepted.

Issue: Allowing use of unclaimed money to offset a liability

Submission

(Matter raised by officials)

Claimants of unclaimed money should be able to offset those funds to a liability they may owe to Inland Revenue on a voluntary basis.

Comment

On some occasions, customers may owe money to Inland Revenue and also be entitled to claim unclaimed money. These customers should have the ability to apply any amount of unclaimed money against a liability that they may owe to Inland Revenue. This option would be available to taxpayers on a voluntary basis.

Recommendation

That the submission be accepted.

Issue: Alignment of KiwiSaver Act 2006 with proposed reforms

Comment

The proposed amended definition of unclaimed money defines unclaimed money in terms of “an amount”. This differs from the current definition within the Act, which focuses on money.

Although the intention had been to update the language of the Act, officials are concerned that reference to “an amount” may substantially extend the application of the Act to various investment vehicles or other stores of value.

Additionally, officials recommend that a minor amendment to the proposed section 4(2)(d)(e), to ensure that amounts of exactly $100 are governed by the Unclaimed Money Act 1971.

Recommendation

That the submission be accepted.

Issue: Consolidation of deeming period under KiwiSaver Act 2006

Submission

(Matter raised by officials)

Where it has not been possible to associate an employee or employer contribution with a customer, the date that the money is in the Commissioner’s possession for the purposes of section 83 of the KiwiSaver Act 2006 should be deemed to be the last day of the month to which the employment income information applies.

Comment

Section 83 of the KiwiSaver Act 2006 provides that any money which the Commissioner is unable to administer will become unclaimed money once it has been in the Commissioner’s possession for a period of no less than six years.

Under the KiwiSaver Act 2006, different dates can apply to determine when employee and employer KiwiSaver contributions are deemed to be in the Commissioner’s possession.

This creates administrative issues where it is not possible to associate a contribution with a particular customer. To simplify the administration of unclaimed money, officials recommend that where it has not been possible to associate an employee or employer contribution with a customer, the date that the money is in the Commissioner’s possession for the purposes of section 83 of the KiwiSaver Act 2006 will be deemed to be the last day of the month to which the employment income information applies.

Recommendation

That the submission be accepted.