On 28 June 2018, the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill (72-1) was introduced into Parliament. The Bill proposes modernising the revenue system by making tax simpler and easier for individuals and simplifying rules and processes.
The flagship measures of this Bill build on the enhancements to the collection of more frequent, better quality employment and investment income information contained in the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018, enacted on 29 March 2018. The following is a summary of some of the proposals in the Bill:
Better administration of individuals’ income tax: Proposals relating to individuals mean that most people will pay what they need to and get what they are entitled to during the year without having to do anything. For instance, the changes for individuals in this Bill mean from April 2019:
- refunds will be automatically paid out — where Inland Revenue is reasonably confident it has information about all a person’s income and the tax they have paid on it
- Inland Revenue can use the better information it has to help people pay and receive the right amounts during the year, and
- Inland Revenue will automatically finalise end-of-year refunds or bills to pay for as many people as possible without them having to do anything.
It will be easier for people to understand their obligations and entitlements and will take them less time to ensure they pay and receive the right amounts.
Modernising aspects of the Tax Administration Act 1994: Proposed improvements
to the Tax Administration Act will help shift the tax system to be more taxpayer focused. The improvements range from streamlining how information is collected, used and shared, to simplifying the provision of tax advice to make it more accessible to small and medium enterprises.
PAYE error correction rules: Minor amendments to PAYE error correction and adjustment supplement the proposed error correction regulations aimed at simplifying and clarifying how errors can be corrected.
Mid-year entry to the accounting income method: The Bill also enhances the new provisional tax option – the Accounting Income Method (AIM), which started on 1 April 2018. It allows taxpayers to join AIM from some other provisional tax options during an income year, making it more accessible to customers.
Other policy measures: In addition to tax administration improvements, this omnibus Bill also introduces a number of other policy measures including:
- introducing two new contribution rates for KiwiSaver
- opening up KiwiSaver to over 65s
- clarifying the tax status of crown controlled companies and the tax rules for deregistered companies
- adding 13 charities to sch 32 of the Income Tax Act 2007 (those with overseas donee status)
- amending the definition of market interest that banks and other money lenders can elect to use for valuing the fringe benefit of a loan provided to an employee, and
- extending to the securitisations regime in the Income Tax Act 2007.
The Bill also sets the annual rates for 2018–19 and implements a number of minor remedial changes to existing legislation.
The Bill proposes the following amendments to the Goods and Services Tax Act clarify the relevant legislation or correct a clear error:
Exemptions to the requirements to make an adjustment: Section 21(2) currently states that a person is not required to make an adjustment if one or more of the criteria listed in paras (a) to (d) apply. Inland Revenue’s interpretation of this current drafting is that it prohibits a person from making an adjustment if any of the criteria listed apply. However, it is possible that some are interpreting the section as meaning that it allows but does not require adjustments when any of the criteria listed apply. The amendment clarifies that a person may not make an adjustment if one or more of the criteria listed in s 21(2) apply, consistent with Inland Revenue’s interpretation of the current drafting. The proposed amendment will come into force on the date of enactment.
Notification to the Commissioner of a change in company constitution: A registered person is required to notify the Commissioner within 21 days of a change in status. Changes in status include changes to a registered person’s name, address, constitution or principal taxable activity or activities. A proposed amendment to s 53(1)(a) will remove the requirement for a registered person to notify the Commissioner of a change in constitution, as this information is generally not necessary or relevant to Inland Revenue’s operations and it would only be in extremely rare circumstances where a change in a company’s constitution may have an impact on its GST position. The proposed amendment will come into force on the date of enactment.
Outdated references to the former principal purpose test: Section 55(7) has been amended by replacing paras (db) and (dc) with new para (db), which provides for the consequences of a company joining a group of companies by reference to the percentage intended use and percentage actual use of supplies by the company for making taxable supplies for the period before the company joins the group. The proposed amendment will apply on and after 1 April 2011.
Cross references: Amendments to s 10(3C) and (3D) provide that the exclusions under those sub-sections also apply to supplies of remote services for which the recipient is required to account for output tax. The proposed amendments will apply on and after 1 October 2016. Section 2A(4) has been amended to correct a cross-reference relating to associated persons. The proposed amendment will come into force on the date of enactment.
The Bill introduces amendments to the following enactments: Tax Administration Act 1994, Income Tax Act 2007, Goods and Services Tax Act 1985, KiwiSaver Act 2008, Child Support Act 1991, Student Loan Scheme Act 2011, Taxation (Annual Rates for 2017–18, Employment and Investment Income and Remedial Matters) Act 2018, Families Package (Income Tax and Benefits) Act 2017, Income Tax Act 2004, Accident Compensation Act 2001, Intelligence and Security Act 2017, Financial Advisers Act 2008, Financial Service Providers (Registration and Dispute Resolution) Act 2008, Income Tax Act 1994, Taxation Review Authorities Act 1994, Taxation Review Authorities Regulations 1998, and Tax Administration (Binding Rulings) Regulations 1999.