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Tax Policy

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Taxation Transformation First Phase Simplification and Other Measures Bill

Overview

SUMMARY OF PROPOSALS

The taxation amendments proposed in this bill are generally aimed at simplifying aspects of the tax system. The main policy measures in this bill have been developed from a consideration of the reforms necessary to progress the Government’s transformation of tax administration in New Zealand. The objective of this bill is to make necessary changes to tax legislation which will enable future bigger changes.

Simplification of the tax system can be achieved by simplifying rules around processes, administration and taxation. This overview provides a brief discussion of some of the proposed changes in those categories:

  • facilitating easier communication with Inland Revenue;
  • simplifying tax rules; and
  • sharing information.

Improving communication

Communications between taxpayers and the Commissioner are primarily governed by tax legislation which predates the widespread use of digital services. As a result, many of the provisions are restrictive in their description of communication and methods of communication delivery, stipulating for example that communication be provided “in writing” or delivered “by post”. The current rules are also unclear as to what electronic communications are permissible for tax matters.

The proposed amendments clarify the communication options available and also provide general rules governing methods of communication delivery. These proposed general rules provide greater certainty for both taxpayers and Inland Revenue.

Employee share purchase agreements

Benefits an employee receives from a share purchase agreement are treated as employment income under the Income Tax Act 2007. These benefits are not subject to tax at source under the PAYE or FBT rules. Instead, the employee is required to file an individual tax return and include the benefit as income and pay an appropriate amount of tax on the benefit. For some employees who are not used to filing tax returns, the current method for collecting tax on employee share benefits may not be well understood and create taxpayer uncertainty. This uncertainty can also deter employees from accepting shares offered under a share purchase agreement. This bill contains a proposal to allow employers to withhold tax on these benefits and pay it on their employees’ behalf. The proposals were the result of public consultation in April 2015 – Simplifying the collection of tax on employee share schemes.

Information sharing

Tax information is governed by strict secrecy but in certain situations, sharing specific information within defined criteria can be beneficial. This bill proposes:

  • to allow information to be shared where it could assist in identifying breaches of workplace legislation;
  • to establish a pilot project to investigate whether voice recordings used currently to verify identity could be matched between Inland Revenue and the Ministry for Social Development as a means for increased efficiency; and
  • that secrecy provisions applying to Inland Revenue staff are amended to allow for IRD staff working in shared office space with another government agency.