Tax Talk | IR seeks data from rich Kiwis

Inland Revenue is in the process of gathering information on wealth data from rich New Zealanders. Starting in late 2021, there will be an information collection exercise to verify all relevant entities linked to each individual.

Background

Inland Revenue lacks knowledge on economic gains that are outside of the tax system and contribute to wealth accumulation. This was an information gap highlighted by the Tax Working Group in 2019 as it limited their ability to assess taxed and untaxed sources of income and wealth.

Who has been selected

Just over 400 high-wealth individuals, their spouses and dependent family members who are New Zealand tax residents will be in the surveyed group. According to Inland Revenue’s website, high-wealth individuals are considered to either have, or are in control of, wealth in excess of $50m and often have complex tax affairs.

Information to be requested

Questions to be asked by Inland Revenue will include:

• Entities owned/controlled directly or indirectly.
• Details of significant personal net assets (such as real estate and personal items), their costs and acquisition dates.
• Financial information for linked companies and trusts.
• Savings and financial flows.

Annual information required will cover 6 years, from the 2016 to the 2021 tax years.

Privacy and Confidentiality

Inland Revenue is assuring the privacy and confidentiality of the information collected. The enabling legislation also states that the information gathered cannot be used in any enforcement action.

Consequences for Failure to Provide Information

It has been reported in the media that failure to provide information under this project may only result in a $15,000 fine. However, this is not the case. Should a taxpayer refuse to provide information, Inland Revenue could seek a court order requiring the information be provided. If the taxpayer continues to refuse to provide information, then the court could, in addition to a fine, sentence the taxpayer to three months in prison. Should Inland Revenue need to seek a court order, it also seems likely a full audit would shortly follow. We note there is commentary on a possible combined court action against Inland Revenue and it is unclear how far that will get.

Comment

In recent times, there has been an increase in the use of questionnaires and campaign letters by Inland Revenue to selected groups of taxpayers on specific issues.

The amount of information required to be provided is extensive and spans a number of years. This, in addition to pending disclosure rules for trusts, means government will be more aware of ‘gaps’ in income tax legislation and can be expected to more quickly act to close those gaps.

Of concern is the fact Inland Revenue are seeking data on economic income, which is a completely different concept to accounting or taxable income. Any findings could be used to skew the debate on the level of tax paid by high-net-worth individuals. This is often the case where the value of high net worth individual’s investments has gone up significantly resulting in no taxable income or tax paid. As with any debate, in the absence of accurate information tax policy being made based on general assumptions could give rise to a worse outcome.

Baker Tilly Staples Rodway will be assisting any clients who are required to provide information under this project to meet their obligations. If you have any concerns or queries, please contact your Baker Tilly Staples Rodway advisor.