Amalgamating income tax return forms

(Clauses 15, 60, 74, 87, 88(11) and (12)(a)(i), 100(2), (5) and (6), 101, 102, 106, 107, 108, 109, 112, 114, 115−117, 121 and 123−129)

Summary of proposed amendment

The bill contains several clauses which will remove the distinctions between the two major income tax returns currently available for individual taxpayers to file – either a personal tax summary or an IR 3 income tax return. The result will be that the forms are effectively “amalgamated” and replaced with one income tax return form making the process simpler for taxpayers and Inland Revenue to deal with.

Application date

This amendment will apply for the 2014−15 and later tax years.

Key features

The two forms currently used by individual taxpayers will be replaced with a customised, web-based income tax return form. This will operate over a secure connection and will require taxpayers to answer questions about their income and expenses. Where possible, details will be pre-populated with information already held by Inland Revenue. Paper forms will be available only in limited circumstances.

In order to deliver a simpler income tax return for individual taxpayers, the distinction between the two income tax returns will be removed.

The proposed change is a significant step towards achieving Inland Revenue’s goal of delivering the major part of its services to taxpayers online.

Background

Tax simplification changes made in the 1999−2000 tax year introduced income statements into the tax Acts and the administration of individual filing requirements. Commonly referred to as personal tax summaries, they were designed for taxpayers who received the majority of their income from sources that had tax withheld, such as salaries and wages. They are pre-populated with any salary and wage information that Inland Revenue has about the individual.

In addition to income statements, taxpayers with additional income that is not taxed at source must file an IR 3 income tax return, which is longer and more detailed than a personal tax summary.

Many taxpayers have found the distinction between the two forms confusing, and identifying which form a taxpayer should file has, in the past, been resource-intensive for Inland Revenue.

Delivering tax returns through online services provides an opportunity for Inland Revenue to ask taxpayers about all of their income, instead of restricting it to the types of income information it has on record. In this way, tax returns can be tailored to individual requirements, and be as comprehensive or as simple as necessary.

This policy change requires the repeal of Part 3A of the Tax Administration Act 1994. This part was originally inserted in 1998 and is specific to the income statement process of tax filing. With the proposed amalgamation of the tax return forms, the rules in Part 3A around the issuing, receipt, details and processes of income statements are no longer necessary.

References to income statements throughout the Tax Administration Act 1994 and the Income Tax Act 2007 will also be removed.

To retain flexibility, the Commissioner will have the power under new section 92AC to make an income tax assessment for any person.

The application date of the 2014−15 and later tax years has been chosen to allow sufficient time for implementation of the changes in Inland Revenue systems.

Officials have taken this as an opportunity to re-write section 33A of the Tax Administration Act 1994 − as new section 33AA. This provision is based on the premise in section 33 that all taxpayers must file, and sets out who is not required to file. It has been substantially altered since it was first enacted, so it has been re-written to make it more comprehensible.