By John Cuthbertson CA

“In this world nothing can be said to be certain, except death and taxes,” Benjamin Franklin wrote in a letter in 1789. But taxes are becoming less certain as the pace and volume of reform ramps up. 

New Zealand’s tax system is undergoing reform on a number of levels.

Administration and Inland Revenue systems are modernising as part of the Business Transformation program; the shift from traditional bricks-and-mortar stores to ecommerce is driving thought around who should pay tax and where; and underlying all of this is the Tax Working Group, which has set its sights on what taxation will look like in NZ.

Inland Revenue’s Business Transformation program enters phase three in April this year and will see income tax migrated to the new system, following the migration of the GST, FBT and payday filing platforms in 2018.

NZ tax changes ahead for 2019

So what will change in the tax landscape? Payday filing has been optional for employers since last year, but will become mandatory from 1 April 2019. Inland Revenue will soon be able to communicate directly with taxpayers who claim on investments, to suggest an alternative tax deduction rate where it believes the current rate may be incorrect. In addition, taxpayers who generally receive income from salary/wages, interest and dividends will be able to receive tax refunds automatically.

These developments all affect how taxpayers, employees and businesses interact with the tax system; many taxpayers are likely to find themselves having direct contact with Inland Revenue for the first time. Taxpayers and tax agents will need to ensure information being received from and provided to Inland Revenue is accurate.

Online shopping has seen New Zealand-based businesses increasingly competing with digital-only and overseas suppliers, who do not have a traditional “brick-and-mortar” presence in New Zealand. The most recent Tax Bill proposes new GST rules for overseas suppliers of “low value” goods (those considered to be less than NZ$1000) to New Zealand consumers if the value of supplies exceed or will exceed NZ$60,000 in a 12-month period. These overseas suppliers will be required to register, collect and return GST.

The downside to BEPS legislation

The examination of who pays tax and where is a global concern and is not limited to GST, with income tax and company and financial structuring being scrutinised as part of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018.

While it is important for New Zealand to be aligned with OECD recommendations on base erosion and profit shifting (BEPS), Chartered Accountants Australia and New Zealand (CA ANZ) felt the measures being implemented would go too far. As New Zealand relies on foreign investment to grow its economy, it is not in its best interest to be outside the norms of international tax regimes. 

These rules may also affect businesses that are most unlike Apple, Amazon and Google, and might not think of themselves as multinational entities. Parent company structures and financing need to be carefully considered in light of these rules.

“Many taxpayers are likely to find themselves having direct contact with Inland Revenue for the first time.”

A growing compliance burden?

At the time of writing, the Tax Working Group’s final report is slated for a February 2019 release, and a number of discussion documents are expected to result from this. The Working Group is considering changes for the next decade that could improve the structure, fairness and balance of New Zealand’s tax system.

While discussions around changes to capital gains taxes have been the loudest, such changes require detailed consideration to implement. Other documents on the taxation of business, environmental taxes, or the introduction of a taxpayer advocate service may be released first.

These developments are adding to reporting and compliance concerns, particularly for small businesses and smaller practitioners. CA ANZ has advocated for proposed legislation and remedial changes to consider the impact of compliance costs and burdens for taxpayers and agents. Our members will need to ensure they are aware of their responsibilities under the common reporting standards and anti-money laundering rules.

John Cuthbertson CA is CA ANZ New Zealand’s Tax Leader. He is responsible for engaging with New Zealand’s Inland Revenue Department and Treasury on tax law reform, policy settings and administration.