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Matters raised by submitters

Provision of tax information

Issue: IRD number application process

Submission

(Chartered Accountants Australia and New Zealand)

The process for obtaining a New Zealand IRD number will need to be kept simple, fast and efficient.

Comment

Once a completed application is received, the current timelines for Inland Revenue to issue an IRD number is 8–10 working days.

Inland Revenue plans to increase its resources in this area to ensure that it continues to meet the current timeframes.

As part of Inland Revenue’s business transformation work, a key business objective is to encourage as many customers as possible to deal with us through digital channels. Any future improvements for people obtaining an IRD number would be part of this work.

Recommendation

That the submission be noted.

Issue: Online IRD number application

Submission

(Auckland District Law Society)

Inland Revenue should make available the option to apply for an IRD number online.

Comment

As part of Inland Revenue’s business transformation work a key business objective is to ensure that officials encourage as many customers as possible to deal with us through digital channels. Any future improvements for people obtaining an IRD number would be part of Inland Revenue’s business transformation work.

Recommendation

That the submission be noted.

Issue: Validation of residence status

Submission

(Chartered Accountants Australia and New Zealand)

Inland Revenue should have a system for validating a person’s residence status before exchanging information with a foreign jurisdiction’s tax authority.

Comment

Inland Revenue does not need to validate a person’s residence status before exchanging information with a foreign tax authority. This is because the standard for exchanging information under double tax agreements with other countries is whether the information would be “foreseeably relevant”. If a foreign tax information number has been used by a person in the past, then information relating to that person can justifiably be exchanged with other tax authorities under this standard without validation of the tax residence status of that person. Officials note that safeguards are built into exchange of information processes to maintain data protection and secrecy.

Recommendation

That the submission be declined.

Issue: Application date

Submission

(New Zealand Law Society)

The requirement to provide a tax statement should only apply to transfers of land under contracts entered into on or after 1 October 2015.

Comment

Officials consider that, for simplicity, the best policy is for any transfers of land where registration is done on or after 1 October 2015 to be subject to the new requirement to provide a tax statement. Thus, where the contract for transfer of land is concluded before this date, the parties to the transfer may still be required to provide tax statements upon registration. An information campaign is planned to inform people of the changes as early as possible.

Recommendation

That the submission be declined.

Issue: Non-active trust compliance costs

Submission

(Chartered Accountants Australia and New Zealand, EY, PricewaterhouseCoopers)

Trusts that are required to obtain an IRD number due to the proposed changes should not have to file a tax return for years in which they derive no income. (Chartered Accounts Australia and New Zealand, EY)

A non-active trust declaration similar to the non-active company declaration should be introduced. Trustees should be made aware of the extra tax obligations that arise once a trust has an IRD number and also the required criteria for a non-active trust declaration, if introduced. (PricewaterhouseCoopers, Chartered Accountants Australia and New Zealand)

Comment

All trusts, including trusts that only hold a family home, will be required to provide an IRD number under this proposal.

Any tax implications will be considered as part of the second stage (which will include the “bright-line” test) of the property law reform process. This will include clarification that trusts do not generate income (for example, because their only asset is the family home) will not be required to file.

Officials understand that an administrative practice has allowed non-active trusts to not file and will ensure that this practice continues until that stage of reform is completed.

Recommendation

That the submission be declined and considered as part of the second stage of the property law reform process.

Issue: Exemption for death and relationship property transfers

Submission

(EY)

Death and relationship property transfers should be exempt or addressed specifically in relation to the requirement to provide tax information.

Comments

Officials note that in some cases the information collection provisions will not entirely align with the proposed bright-line rule. This bill relates to information collection only and not to core taxing provisions.

Officials note that the legislation makes provision for transactions to be exempt via Regulations where it is impractical, there are high compliance costs, or there is a low risk of tax avoidance. As part of developing regulations officials will consider whether death and relationship property transfers should be exempt.

Recommendation

That the submission be declined

Issue: Fast-tracking IRD number application process for trusts

Submission

(New Zealand Law Society)

Inland Revenue should allow the IRD number application process for trusts to be fast-tracked.

Comment

The current application process is between 8–10 working days upon receiving a completed application. As part of the application process, trusts are required to provide the trust deed and the names of the trustees.

Officials do not consider that there is a reason to prioritise applications for trusts over other taxpayers.

Recommendation

That the submission be declined.

Issue: Change of trustees as an exempt transfer

Submission

(Auckland District Law Society, New Zealand Law Society)

Land transactions that are the result of a change in the trustees of a trust should be exempt transfers.

Comment

A land transfer transaction is already required where there is a change in trustee. There is therefore no additional on-going compliance cost from this requirement as the same IRD number will be used and it will already be known.

Further, it is possible that a change in trustees could result in a change in the tax residence of a trust for overseas tax purposes. For example, adding a new trustee who is considered to be tax resident in another country may, in certain cases, result in the trust itself becoming tax resident in the other country for the purposes of that country’s laws. The policy intent is that in this situation, any new foreign tax information number should be captured.

Recommendation

That the submission be declined.

Issue: Mortgagee sale or power of sale conferred by statute

Submission

(New Zealand Law Society)

There should be no obligation to provide a tax statement where a transfer of land is pursuant to a mortgagee sale or power of sale conferred by statute. This is because the transferor’s tax information is not relevant as they are the mortgagee, and the mortgagor’s tax information may not be available to the mortgagee.

Comment

This is an issue for consideration under the proposed regulation-making power. Officials will consult with stakeholders as part of the regulation-making process.

Recommendation

That the submission be declined.

Issue: Determining tax residence

Submission

(Chartered Accountants Australia and New Zealand, EY)

Inland Revenue should release some guidance as to how people determine their tax residence (for the purpose of providing a foreign tax information number).

Comment

A person will need to provide their foreign tax information number, if they are currently treated as tax resident in another jurisdiction under that jurisdiction’s tax laws. Where a person is tax resident in a jurisdiction, the jurisdiction is entitled to tax them on their worldwide income.

Most jurisdictions’ rules relating to tax residence provide that a person will be resident if they have a significant presence in that jurisdiction (common examples are having a house in that jurisdiction at the time, or spending more than six months in that jurisdiction during the relevant period). Accordingly, officials expect the person will have already had contact with the relevant tax authority.

Officials will ensure that Inland Revenue guidance makes it clear that the person should contact the relevant overseas jurisdiction’s tax authority for assistance in determining whether they are tax resident, if they are uncertain.

Recommendation

That the submission be declined.

Issue: Passport basis instead of tax residence basis

Submission

(PricewaterhouseCoopers)

For simplicity, the requirement to provide a foreign tax information number if an individual is tax resident in another country should be replaced with a passport basis. That is, if an individual has a passport in another country, they will be required to provide information from that jurisdiction.

Comment

The information that is being collected is to be used for tax purposes, and therefore should be on the basis of tax residency.

Recommendation

That the submission be declined.

Issue: Transfer to an offshore person

Submission

(EY)

The legislation is not clear as to whether a transfer to an offshore person intending to use the property as their main home is exempt.

Comments

The submitter queries whether transfers to an offshore person made by a person who qualifies for the main home exemption will be exempt. The Bill’s intention is that, in such a case, the transferor’s transaction would be exempt, but that the offshore person’s transaction would not be exempt. Officials consider that the current drafting achieves this intention.

Recommendation

That the submission be declined.

Issue: Foreign tax information provision from multiple jurisdictions

Submission

(EY, PricewaterhouseCoopers)

Foreign tax information should be sought for all jurisdictions in which a non-individual person is tax resident. The current drafting tends towards only requiring foreign tax information from one foreign jurisdiction.

Comment

The Bill’s intent is that a person who is tax resident in more than one jurisdiction will have to provide all of their foreign tax information numbers. Officials consider that the drafting currently achieves this policy intent.

Recommendation

That the submissions be noted.

Issue: Form of tax statement should be standardised

Submission

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

There should be a standard form tax statement agreed to by Inland Revenue and Land Information New Zealand.

Comment

The Bill sets out clearly what information is required to be included on the tax statement. Land Information New Zealand and Inland Revenue intend to produce a standard form.

Recommendation

That the submissions be accepted.

Issue: Form of tax statement should be published in the Gazette

Submission

(New Zealand Law Society)

The standard form of the tax statement could be Gazetted.

Comment

Publishing the form in the New Zealand Gazette would require everyone to use that form as gazetted, and officials believe that is unnecessarily restrictive.

Recommendation

That the submission be declined.

Issue: Country code availability

Submission

(Chartered Accountants Australia and New Zealand)

Country codes should be made publicly available on the websites of Inland Revenue and Land Information New Zealand.

Comment

Officials will ensure that the country codes are publicly available, including on appropriate websites.

Recommendation

That the submission be accepted.

Issue: Remove certifiers’ retention period for holding of tax statement

Submission

(Chapman Tripp, Chartered Accountants Australia and New Zealand)

The ten year retention period obligation for tax statements on certifiers should be completely removed.

Comment

The ten year retention is required for all other land transfer requirements. Further, the retention period should be preserved as stated in the Bill, because tax statements must be available for prosecution purposes under the Tax Administration Act 1994.

Recommendation

That the submission be declined.

Issue: Reduce retention period for holding of tax statement

Submission

(Chartered Accountants Australia and New Zealand)

The retention period should be reduced to seven years to align with the retention period for tax records.

Comment

The reduction of the retention period to seven years would result in a misalignment with other land transfer documentation retention periods, which are (generally) specified to be ten years.

Recommendation

That the submission be declined.

Issue: Removal of certifier obligation to provide Commissioner of Inland Revenue with tax statements

Submission

(Chapman Tripp)

Certifiers should not be required to give a copy of a tax statement to the Commissioner of Inland Revenue upon request. This information will already be provided to Land Information New Zealand.

Comment

The information that will be provided to Land Information New Zealand is the summary of the tax information, not the tax statement itself. In situations where a tax investigation is necessary, the tax statement may be required by Inland Revenue for evidentiary purposes.

Recommendation

That the submission be declined.

Issue: Retention by electronic means

Submission

(Auckland District Law Society, New Zealand Law Society)

Retention of tax statements should be able to be done electronically as an additional option.

Comment

The Electronic Transactions Act 2002 already provides that electronic retention can be done instead of physical retention. The Bill does not overrule the relevant part of that Act, nor is it intended that electronic retention is disallowed.

Recommendation

That the submissions be noted.

Issue: No certification of tax statement accuracy and no liability for incorrect information

Submission

(Auckland District Law Society, Chapman Tripp, New Zealand Law Society, Real Estate Institute of New Zealand)

It is submitted that an explicit provision be included in the Bill to ensure that Certifiers do not certify the accuracy of the tax statement information provided to Land Information New Zealand. Further to this, the Bill should state that there will be no liability for incorrect information provided by Certifiers. (Chapman Tripp, New Zealand Law Society)

The liability for providing false or misleading tax information should be limited to transferees and transferors. (Real Estate Institute of New Zealand)

The references to certifiers and chief executives should be removed altogether. (Auckland District Law Society)

Comment

The Bill provides for an offence to apply to a person who knowingly gives false information. As the person who gives the tax statement is either the transferee or the transferor, the offence contained in the bill would not apply to certifiers such as a conveyancing lawyer.

However, it should be noted that, under existing provisions of the Tax Administration Act 1994, a person who knowingly provides a false or misleading tax statement to any person could be liable for similar penalties. This could include a certifier who knowingly provides false information to Land Information New Zealand.

A transferee, transferor, or certifier will not be liable (under existing law or under the proposals in the bill) for unintentionally providing incorrect information. The bill provides a process for information to be corrected.

Recommendation

That the submissions be noted.

Issue: Definition of “chief executive”

Submission

(Auckland District Law Society, New Zealand Law Society)

“Chief executive” should be defined.

Comment

The references to Chief Executive will form part of the Land Transfer Act 1952. That Act currently only defines “department”, which is Land Information New Zealand. Officials agree that as currently drafted this may create confusion. Officials recommend amending the Bill to add the words “of the department” after “Chief Executive”. This addition, in combination with the existing provisions in the Land Transfer Act 1952, will make it clear who the Chief Executive is.

Recommendation

That the submissions be accepted.

Issue: “Nominee” by reference to the Income Tax Act 2007

Submission

(New Zealand Law Society)

The meaning of the term “nominee” should be clarified by reference to the Income Tax Act 2007.

Comment

Officials accept that the term “nominee” can have different meanings in different areas of law and that it is sensible to clarify that, in this case, the term has a meaning that matches the one that can be found in the Income Tax Act 2007.

Recommendation

That the submission be accepted.

Issue: Focus on person who makes the nomination rather than nominee

Submission

(Chapman Tripp)

In situations where a nominee is a transferor or transferee of land, it is crucial that the Bill’s focus is on the person who makes the nomination rather than the nominee in order to collect the right information.

Comment

Officials note that the Bill as currently drafted reflects this focus on the person who makes the nomination.

Recommendation

That the submission be noted.

Issue: Information sharing concerns

Submission

(Office of the Privacy Commissioner)

The Bill as introduced addressed concerns raised by the Office of the Privacy Commissioner that the legislation could allow for the sharing of any information between Inland Revenue and Land Information New Zealand beyond the stated policy objectives. Amendments were made to limit information sharing between Inland Revenue and Land Information New Zealand to the extent necessary to meet the stated policy objective of assessing tax liability on property transactions.

Comment

Officials are aware of the need to consider privacy issues and the use of information collected under the Bill. There is a proposed amendment to allow information to be used by Government departments for housing policy. This information will be provided in aggregate form by Land Information New Zealand and will not allow for the identification of particular individuals or entities. Inland Revenue will have access to individualised information, but only for the purposes of tax compliance.

Recommendation

That the submission be noted.

Issue: Requiring information through IRD number application process

Submission

(EY)

If New Zealand entities are established by other individuals or entities which might fall within an “overseas” category, officials suggest any similar information required of those owners or controllers should be sought as part of the CIR’s process for allocating an IRD number to the entity, rather than as part of the LTA property transfer process.

Comments

Requiring information as part of the land transfer process gives Inland Revenue the information it needs to help enforce tax rules relating to income from property and property transactions.

Recommendation

That the submission be declined.

Issue: No further information in tax statement

Submission

(EY)

There should be no information as to the person’s residence or the use or characterisation of the property disclosed as part of the tax statement.

Comment

The information provided on the tax statement will be relevant for tax purposes and therefore officials consider that it should be collected.

Recommendation

That the submission be declined.