Tax update – Simplification of taxes, Foreign Trusts & Automatic Exchange of Information

Haven Accounting | 3 MIN READ August 14, 2016

The Government introduced the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill (149-1) into Parliament on 8 August 2016. The aim of this legislation is to simplify tax processes, reduce compliance costs for smaller businesses, tighten foreign trust disclosure rules and ensure NZ meets its international obligations in respect of automatic exchange of information.

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What does it means for you as a taxpayer?

If you or your business is a provisional taxpayer then the following most popular changes apply from 1 April 2017:

  • There will be no use of money interest (UOMI) charged so long as you pay your tax on the third tax instalment date (7 May if a March balance date) and your total tax bill is less than $60,000. Commencement 2017-2018 year.
  • A company can make tax payments on behalf of its shareholder employees from 1 April 2017
  • Removal of the 1% monthly incremental late payment penalty from income tax, GST, and working for families tax credit overpayments from late payments
  • Tax debts will be reported to approved credit reporting agencies based on thresholds and prescribed criteria.

In addition, Information will be able to be shared with the Registrar of Companies for the purposes of enforcing certain serious offences against the Companies Act 1993. From 1 April 2018 paying provisional tax can be made based on your actual income calculated in your accounting software package (like Xero). This means you can pay more regularly and in keeping with your actual income flows.

Foreign Trusts

The proposed changes follow the Government’s April 2016 Inquiry into Foreign Trust Disclosure Rules which was set up to examine and make recommendations regarding disclosure rules and other related matters to ensure that New Zealand’s reputation is maintained.New information disclosure rules are proposed for foreign trusts with a New Zealand-resident trustee. These include requirements for the trust to register with Inland Revenue, file annual returns and pay registration and filing fees. In addition, the register of foreign trusts would be shared with certain New Zealand government agencies. The resident trustee of the foreign trust would need to comply with the registration and filing obligations in order to qualify for the exemption from tax on foreign-sourced amounts.

Automatic Exchange of Information

Under an agreement that NZ has entered into NZ must comply with certain requirements to exchange information with other countries tax departments.
NZ therefore must require NZ financial institutions:

  • to conduct specified due diligence procedures in relation to their financial accounts to identify those held or (in certain circumstances controlled by non-residents; and
  • to report specified identity (including tax residence) and financial information (such as account balances and interest earned) on those accounts to their local tax administration.

The IRD must then transmit the reported information to applicable countries under tax treaty exchange of information provisions. The exchanged information will be used by the receiving country to verify that its residents have correctly reported their offshore activities and income for tax purposes.

If you have any concerns with this collection and reporting of data either by or to the IRD please contact our Trust and Tax Manager for further information.

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