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Information sheet 3: High-wealth individuals research project (May 2022)

Introduction

Inland Revenue is carrying out research into the economic income and effective tax rates of high-wealth New Zealand households to help us assess the progressivity, and therefore fairness, of the tax system.

You are receiving this information sheet because you are either:

  • one of the high-wealth individuals selected to take part in this project
  • the partner of one of those individuals.

We will also send a copy to your nominated agent if you have advised us of one for this project.

You have been sent earlier versions of this information sheet which explain in more detail some of the background to the project. This version includes key details about the financial information we will request from you shortly.

Project objectives

The goal of the project is to improve the evidence base used to assess the fairness of the tax system. The project will do this by improving our information on the economic income and effective tax rates of high-wealth individuals. The project will not make any policy recommendations, but its analysis will inform future tax policy advice. The project is not related to any existing tax provision. The information collected from individuals in this project will not be used for any compliance or other revenue purposes, and it will be destroyed at the end of the project. A public report is expected to be completed by June 2023.

Methodology

Our methodology will be subject to peer review. A Methodology Advisory Group, made up of 10 subject matter experts from outside Inland Revenue, has been formed to provide input into the methodology. Papers presented to the Methodology Advisory Group can be found on the ECHO (External Collaboration Hub Online) site.

Timeline for financial information collection

On about 9 June you will receive a request for the further financial information we require to estimate the measures of income we intend to use in our report. In most cases we will only ask for information over the period 2016 to 2021 (the main exception will be for information about inheritances and certain other gifts as discussed below). Estimating income measures for 6 years provides a better picture of effective tax rates by smoothing out annual income volatility.

The information we will ask you to provide is information that we either do not hold, as it relates to non-taxable income (such as capital gains or certain trust distributions), or is held in a form that is too aggregated for the project to undertake the analysis. In some cases (such as ownership of residential property or listed shares), we have used public registers to obtain the information we need, and we will therefore only ask for limited information regarding these asset classes.

You will have until 24 August 2022 to respond to this request.

Where we are asking about trusts and you do not have access to the information, we will ask you to provide us with contact details of a person (for example a trustee) who will be able to provide the information. You will be required to do this by 4 July.

For partners, each individual will receive a separate notice requesting the information. You may respond separately or jointly. This approach is being taken to protect each person’s confidential information and privacy.

What financial information is being requested in June 2022?

There will be a guide to help you understand what information you need to provide. In broad outline the questions will be about your own financial affairs, focussing on:

  • the aggregated value of your financial or portfolio investments (such as investments in bonds or equities)
  • the address of your principal family residence
  • any real estate holdings held for you by nominees
  • distributions, sale of ownership interests and capital investment information relating to companies and unincorporated businesses (for non-portfolio holdings)
  • your trust interests and certain financial information relating to those trusts
  • an estimate of your household’s expenditure on goods and services
  • some further questions that seek to better understand the sources of economic income of high wealth New Zealanders (such as significant gifts and inheritances).

Inheritances and gifts are the only category of information which require you to look at periods earlier than 2016 to 2021. These are a component of economic income but are received infrequently, which is why we ask for the information from a longer period. We realise that it may be difficult to provide fully accurate answers, so you are only required to estimate your gifts and inheritances (rounded to the nearest $1 million per decade).

We will not ask you to have your assets or entities independently valued. For the purposes of the project, we will be consistently applying our own valuation methodology.

If we have sufficient information concerning your entities’ financial statements (from tax records) for us to undertake internal valuations of those entities, then we will not be seeking it again from you. However, if we have insufficient internal information on your entities, we may need to seek further information from you. We are currently assessing the completeness of the financial information for entities disclosed by you in the entity collection and will assess whether we need to request further financial information.

If we do, it will be through a secondary targeted information request in July. We would seek information from you in the first instance but may need to request information from the entity in question if you do not have the information.

Is it compulsory to provide information?

It is compulsory for you to provide the information we ask for, as the information is being requested under section 17GB(1) of the Tax Administration Act 1994 (the Act). The consequences for non-compliance with section 17GB are the same as for other information-gathering powers, such as section 17B of the Act.

Information collected under section 17GB(1) has specific statutory protections that prevent the Commissioner of Inland Revenue from using it in proceedings against you. The Commissioner has further decided that the information will not be used for any compliance purposes. Further, the information collected from you for this project will not be retained by us.

While we understand you may not have all the information we ask for, you should try to answer the questions as fully and accurately as possible.

You may ask your authorised tax agent to provide the information on your behalf.

How will privacy and confidentiality be protected?

We will ensure the privacy and confidentiality of all the information we collect is protected, and we will not use your information for other Inland Revenue purposes.

To find out more, see the first and second information sheets about this project (below) and the Privacy Impact Assessment.

Reports and assessments - High-wealth individuals research project

Introduction

Inland Revenue is carrying out research into the effective tax rates of high-wealth New Zealand households. This involves collecting information from a group of high-wealth households.

The information is important to help us assess the fairness of the tax system and will contribute to the development of tax policy.

You are receiving this information sheet because you are either one of the high-wealth individuals selected to take part in this project or you have been identified as the partner of one of the high-wealth individuals. We will also send a copy to your nominated agent for this project.

You have been sent an earlier version of this information sheet. This version includes more detail about the methodology we are using and the information we need from you this year.  

Project objectives

The goal of the project is to improve the evidence base used to assess the fairness of the tax system. The project will do this by improving our information on effective tax rates. It will not make any policy recommendations, but its analysis will inform future tax policy advice.

The project is not related to any existing tax provision. The information collected in this project will not be used for any other purpose, and it will be destroyed at the end of the project.

A public report on the project’s findings is expected to be completed by June 2023. It will not identify any specific individuals, their financial information, or their effective tax rate. 

One reason we are doing this work is because current statistical surveys, such as the Household Economic Survey, are not well suited to collecting information from high-wealth households. As a result, Inland Revenue has decided to collect this important statistical information itself. 

Approach and methodology

The project will compare the amount of tax paid by an individual and their household to three main measures of income. This will allow us to estimate a range of effective tax rates for each household and take different perspectives on how we assess the fairness of New Zealand’s tax system.

Here are the income measures we intend to use. 

  • Taxable income. This uses personal taxable income, as defined in tax law.
  • Gross-cash income. This adds several non-taxed receipts to personal taxable income. The main receipts added in are realised capital gains for sold assets and regular monetary gifts.
  • Economic income. This adds both non-taxed receipts and accrued capital gains to personal taxable income. This measure of income will include accrued capital gains on unsold assets, as well as realised capital gains on sold assets. We will calculate estimates of this measure, both with and without including the ‘imputed rental’ for owner occupied houses. Imputed rental is a concept from economic theory. It is an estimate of the income you would receive if you rented your house and represents the value of (or foregone income from) the homeowner living in their home. 

Economic income is the broadest measure of income we will use. It is not based on legal or tax concepts but seeks to estimate the increase in resources a person has available to them in a given period.

Our methodology will be subject to peer review by, among others, an advisory group formed by the Commissioner. This group is called the Methodology Advisory Group and includes about 10 subject matter experts from outside Inland Revenue. The Methodology Advisory Group does not have decision rights over the methodology, but the views of its members are considered for decisions on the final methodology. More information on the methodology is available on the ECHO site.

The high-wealth individual population

We are collecting information from just under 400 high-wealth households. The group, which includes New Zealand tax residents only, has been identified from tax records and by monitoring public information. Each household is believed to have had a net worth of more than $20 million at some point from 2016 to 2021.

We are measuring income on a household basis. We have defined a household as a high-wealth individual, their partner (if they have one) and any dependent children aged under 18. This may not include everyone living in the house.

Both the individual initially contacted and their partner, if they have one, will receive separate notices to request their information. This approach is intended to protect each partner’s privacy and because people do not always have access to their partner’s financial information. However, partners can choose to provide the information either individually or in a single joint response. You do not have to consult your partner if you are providing an individual response. 

Timelines

Information will be requested in three phases.

November 2021

We asked for information about household members - our research is based on household income.  

Week of 21 February 2022

We will shortly ask you for a list of the entities (including trusts, partnerships, and companies) you have a significant interest in. The high-wealth individuals originally contacted – but not partners – will also be asked for information on entities held by any dependent children in the household. You and your partner can choose to provide the information either individually or in a single joint response. You will have around six weeks to provide this information.

June 2022

You and your partner will each be asked to provide the further financial information we require so we can estimate the measures of income for 2016 to 2021. We may also ask for financial information for entities you have an interest in. You will have around three months to respond to this request.

For each of these phases, the information will be requested under section 17GB of the Tax Administration Act 1994 (the Act). You may ask a tax agent or representative to provide the information on your behalf. Further guidance will be available from Inland Revenue through a dedicated email address. 

What entity-related information is being requested in February 2022?

You are being asked to identify entities such as the companies, partnerships, and trusts that you have a significant interest in. You will be sent a questionnaire, which has a guide explaining the questions.

We are only asking for information about entities with assets or income over a threshold ($1,000,000), and which you have a significant interest in but do not necessarily legally control. For example, in February we will not ask for information about portfolio investments (that is, where your family’s ownership is below 10%) in companies or funds.

The information sought will include information on trusts with which you or your family have certain relationships (such as settlor, appointer and/or beneficiary) and where the trust is over the threshold for assets.

We will ask for information over the period 2016 to 2021. 

What financial information will be requested in June 2022?

In June 2022, you and your partner will each be asked specific questions relating to your own individual income and wealth. You may choose to respond individually or jointly, as a household.

This information will enable us to estimate the economic measures of income. To minimise compliance costs, we will only ask you for information we cannot find somewhere else (for example, in tax records and public databases).

The questions are likely to ask for information such as:

  • financial information relating to companies, unincorporated businesses and trusts you have an interest in
  • the value of your financial assets (such as financial or portfolio investments)
  • real estate that you own.

We will not ask you to have your assets independently valued.

The information we ask for will be for the 2016 to 2021 income years. Collecting several years of information provides more consistency by smoothing out annual volatility. 

Is it compulsory to provide information?

It is compulsory for you to provide the information we ask for in February and June 2022.

For these requests, Inland Revenue is using its power in section 17GB of the Act. This gives us express power to request information we consider relevant to “a purpose relating to the development of policy for the improvement or reform of the tax system”. This is consistent with the Commissioner’s statutory duty to provide advice to government, for which the Commissioner has a long and recognised history.

Information collected under section 17GB has specific statutory protections that prevent the Commissioner of Inland Revenue from using it in proceedings against you. The information you provide us will only be used for the purposes of this project.

The consequences for non-compliance with section 17GB are the same as for other information-gathering powers, such as section 17B of the Act. Ultimately, the courts can be involved to ensure the power can be enforced. We hope this will not be necessary.

While we understand you may not have all the information we ask for, you should try to answer the questions as fully and accurately as possible or use reasonable estimates where you are uncertain. 

How will privacy and confidentiality be protected?

We will ensure the privacy and confidentiality of all the information we collect is protected.

To find out more, see the first information sheet about this project and the Privacy Impact Assessment.

Information sheets - High-wealth individuals research project

Reports and assessments - High-wealth individuals research project

Introduction

Inland Revenue is undertaking research into the effective tax rates of high-wealth New Zealand households. This will involve collecting information from a group of high-wealth households.

This information is important to help us assess the fairness of the tax system. 

Project objectives

The goal of the project is to improve the evidence base on which to assess the fairness of the tax system. The project will do this by improving our information on effective tax rates. The project is not making any policy recommendations, but the analysis will inform future tax policy advice.

The project is not directly related to any existing tax provision. No one's taxable income will be reassessed on the basis of the information they provide. Information collected in this project will only be used for the project.

A public report on the project is expected to be completed by June 2023. It will not identify any specific individuals, their financial information or their effective tax rate.

One reason we are doing this work is that current statistical surveys, such as the Household Economic Survey, are not well suited to collecting information from high-wealth households. As a result, Inland Revenue has decided to collect this important statistical information itself.

Approach

The project will compare the amount of tax an individual, and their household, pays to a number of different measures of income. This will allow us to estimate a range of effective tax rates for each household – enabling us to take different perspectives on how we assess the fairness of New Zealand’s tax system.

Economic income is the broadest measure of income we will use. It is not based on legal concepts but seeks to estimate the increase in resources a person has available to them in a given period. Economic income includes increases in wealth, such as through capital gains, and looks beyond legal or tax concepts of income.

Our methodology will be subject to peer review. More information on the methodology will be published in the future.

The high-wealth individual population

We will collect information from about 400 high-wealth households. The group has been identified by monitoring public information. Households in the population are believed to have a net worth exceeding $20 million.

We will measure income on a household basis, where a household is defined as a lead person, (domestic) partner and dependent children aged under 18 (where relevant). This may not include all individuals living in your house.

Similar research carried out overseas collects information from households. This is also the approach taken by Stats NZ when collecting information for its Household Economic Survey.

Timelines

Information will be requested in 3 phases.

November 2021

We will ask you for details of your household members. We require this information because our research is based on household income.

January 2022

We will give you a list of entities and business undertakings (such as trusts and companies) that Inland Revenue believes you have an interest in. We will ask you to verify your interest in these entities and provide details of any additional entities you have an interest in. Your partner will be asked to undertake the same exercise. You will also be asked to provide information about the entities your dependent children have an interest in. You will have around 6 weeks to complete this exercise.

May 2022

You and your partner will be asked to provide any further financial information required to estimate the measures of income. Financial information for entities that you have an interest in will also be sought. You will have around three months to respond to this request.

For each of these phases, the information will be sought under section 17GB of the Tax Administration Act 1994 (the Act). You may ask your authorised tax agent to provide the information on your behalf.

What financial information will be requested in May 2022?

In May 2022, you and your partner, if any, will each be asked questions about your respective finances. You will also be asked the same questions for your dependent children.

These questions will enable us to estimate the economic measures of income. To minimise compliance costs, we will only ask you for information we cannot otherwise obtain (for example, through tax records and public databases).

The questions are likely to cover matters such as: financial information relating to companies, unincorporated businesses and trusts you have an interest in; the value of your financial assets (such as financial or portfolio investments); and your savings. We will also seek information relating to foreign holdings. We will not be asking you to undertake independent valuations of your assets.

Information will be required for the 2016–2021 income years. Collecting several years of information provides more consistency by smoothing out annual volatility.

We understand that some information we seek may not be available to you. You should use your best endeavours to answer the questions posed as accurately and as fully as possible.

Is it compulsory to provide information?

It will be compulsory for you to provide the information requested in November, January and May.

For these requests, Inland Revenue will be using its newly enacted power in section 17GB of the Act. This gives us express power to request information we consider relevant to “a purpose relating to the development of policy for the improvement or reform of the tax system”. This is consistent with the Commissioner’s statutory duty to provide advice to government, for which the Commissioner has a long and recognised history.

Information collected under section 17GB has specific statutory protections that prevent the Commissioner of Inland Revenue from using it in proceedings against you.

The consequences for non-compliance with section 17GB are the same as for other information-gathering powers, such as section 17B of the Act. Ultimately, the courts can be involved to ensure the power can be enforced. Inland Revenue hopes this will not be necessary.

How will privacy and confidentiality be protected?

Inland Revenue is committed to preserving the privacy and confidentiality of all information collected.

Our processes for protecting individuals’ personal information will follow the principles of the Privacy Act 2020, as well as our own confidentiality requirements. This project has been discussed with the Office of the Privacy Commissioner, and a Privacy Impact Assessment is being prepared (which we will publish) that will contain more detail on how your information will be treated.

We will seek information separately from you and your partner, if any, to preserve privacy (unless your partner directs otherwise). Information will not be shared with other members of your household without consent.

Once we have combined the collected information with information we already hold, any identifiable information about you will be removed (that is, the data will be anonymised). The information will not be published in a form that could identify you, your partner or associated entities.

Will Inland Revenue share identifiable information with other agencies?

Inland Revenue will only share identifiable information with other agencies in very unusual circumstances in accordance with the law.

If we received a request to exchange information under a tax treaty that related to any information provided for this project, the New Zealand competent authority would approach the persons concerned directly to collect the information. This would ensure that the most reliable information is made available and provide taxpayers with the opportunity to challenge any such request.

In exceptional circumstances, such as serious crime or national security, we may disclose information collected to other New Zealand agencies. There may also be rare occasions where we are legally required to disclose information (such as for a commission of inquiry).

How can you assure me the information will not be used for compliance purposes?

Information we collect in the November, January and May requests will only be used for this project (except for the limited circumstances noted above).

The information you provide (other than contact details) will be collected and transferred to a database separate from Inland Revenue’s START system. The information will not form part of your tax records. Financial information you provide will only be accessible by a small number of people on the project who are on an approved person list. Access to the data will be monitored and can be audited.

The information will not be available to staff working in compliance and investigation areas. Staff working on the project will not share individualised information with any staff not working on the project.

Information will only be retained as long as it is required for the project. We will destroy the raw data once the report is published in 2023.

Last updated: 01 Jun 2022
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