We look ahead and at trends from overseas, and adapt and improve our approach so that the tax and social policies we‘re responsible for meet the needs of all. This year we’ve also continued to develop and implement the Government’s policy priorities such as ensuring fairness in the tax system.
Child support is becoming simpler and fairer
We play a major role in supporting the wellbeing of approximately 175,000 New Zealand children through our administration of the child support scheme. This year, changes to legislation have improved the fairness of the scheme and enables us to move our child support services into new systems and processes later in 2021, which you can read about in 'The year ahead'.
One result of the legislative changes is that we no longer charge incremental penalties and the situations where penalties can be written off have been simplified. The aim is to help prevent customers’ debt compounding as it has in the past and improve compliance.
The new top personal income tax rate
A new 39% marginal tax rate came into effect on 1 April 2021. The new rate is one of the ways the Government aims to share the load for rebuilding from COVID-19 and investing in key areas such as education and health.
We helped develop the legislation that enabled the new rate, provided information to customers and engaged with tax intermediaries and other professionals to ensure they have systems in place for the changes.
We’re using our analytical tools to track customers who we expect to be paying the top rate through their employer information and investment income returns. We are also monitoring business structure changes through the appearance of new trusts or other entities in our systems, especially when these are linked to de-registered self-employed people.
New property requirements
Changes announced this year to residential property tax included an extension of the bright-line test to 10 years, with the exception of new builds, and no longer allowing property owners to claim interest on loans used for residential properties as an expense against their income from those properties. We worked with the Treasury and Te Tūāpapa Kura Kāinga - Ministry of Housing and Urban Development to develop a cohesive package of changes for the Government and clear information for New Zealanders wondering what it means for them.
Providing certainty on taxing cryptoassets
The use of digital currencies is challenging tax agencies across the world. As at March 2021, there were an estimated 4,000 cryptoassets in this fast-evolving sector, and around 15% of New Zealanders own some.
We clarified how New Zealand tax applies to cryptocurrencies by developing updated guidance and publishing several rulings that set out the tax implications when cryptoassets are used as remuneration. We’re also matching our records with other data and working with other jurisdictions to obtain data on New Zealanders operating on offshore cryptoasset exchanges.
Targeted activities for increasing international tax compliance
Inland Revenue has had a busy year progressing international tax compliance activities, as we outline in our case study.
A key focus area has been monitoring the effectiveness of measures to target base erosion and profit shifting by multi-nationals operating in New Zealand. This concerns tax avoidance strategies that exploit gaps and mismatches in tax rules to minimise tax. Our monitoring has focused on 248 organisations, selected on the basis of their high risk to our tax base. We have observed a significant curtailing of aggressive tax planning, including a major reduction in the levels of non-resident associated party debt.
For example, we monitored 37 multinationals with high debt levels and found their non-resident associated party debt fell by $377 million in the 2019 tax year, following a similar decline in 2018.
International review of New Zealand’s regime for anti-money laundering and countering financing of terrorism
Money laundering enables and incentivises offending that affects our communities. In New Zealand, drug offending (particularly the methamphetamine market) is enabled by criminals being able to launder money, which in turn impacts on our health, justice and welfare systems.
The Financial Action Task Force (FATF) reviewed New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) regime this year. It found New Zealand has an effective system, with room to improve in some technical areas such as laws on beneficial ownership of companies and trusts. Other countries, international organisations, and the international financial system pay attention to whether a country is considered effective at combating money laundering and terrorism financing. Not being so can affect free trade agreements and create negative effects in the international financial system, such as increased interest rates.
Inland Revenue plays a significant role here through investigations and prosecutions of tax evasion, international exchanges of information, maintenance of the register of foreign trusts and information sharing with other New Zealand law enforcement agencies.
The FATF’s review of New Zealand is available on their website.