Remove the requirement to renew RWT exemption certificates annually

(Clause 101)

Summary of proposed amendment

The proposed amendment to section 32H of the Taxation Administration Act 1994 will legislatively require most resident withholding tax (RWT) exemption certificates to be issued for an unlimited period. This will remove the compliance costs of having to reapply for RWT exemption certificates.

Application date

The proposed amendment will come into force on 1 April 2017.

Key features

RWT exemption certificates will be required to be issued for an unlimited period. This will apply for all the available grounds of exemption, except for the taxpayer income estimation option (in section 32E(2)(j) of the Tax Administration Act 1994). Inland Revenue will still have the discretion to issue exemption certificates for a limited period in exceptional circumstances.

Background

Currently some taxpayers who hold a certificate of exemption from RWT must renew the certificate annually.[5] This was an operational decision made by Inland Revenue. Taxpayers have argued that this is creating relatively large compliance costs for those required to renew for relatively little value. It is also creating an administrative burden for Inland Revenue, as all the annual exemption certificates must be renewed at the same time each year. The proposed amendment will reduce these compliance and administrative costs.

Taxpayers will still be required to surrender their exemption certificates when they fail to meet the basis for eligibility on which they were granted. Inland Revenue will also retain its ability to cancel an exemption certificate. Taxpayers will also be required to indicate in their income tax returns for the 2017–18 and later tax years whether they are still eligible to hold their exemption certificates on the basis on which they were granted.

[5] Annual renewal is currently required by Inland Revenue if the applicant is applying for a RWT exemption certificate on the grounds that it has tax losses, a refund of over $500 RWT or estimated annual gross income of over $2 million. Applications on other grounds (such as annual gross income over $2 million in the prior year) do not require annual renewal.