New year, new tax rules

The tax landscape is always changing and 2018 will be no different.

When Parliament resumes it will continue consideration of two tax bills. The Taxation (Neutralising Base Erosion and Profit Sharing) Bill contains amendments designed to prevent multi-nationals structuring around New Zealand tax laws and exploiting mismatches in the cross-border tax treatment of transactions to minimise their New Zealand tax liability. The Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill focuses on the manner and frequency with which Inland Revenue collects information about taxpayers’ employment income and investment income. When enacted, this Bill will affect the frequency and way employers provide details to Inland Revenue of payments made to employees. This Bill will also impose new reporting obligations on payers of interest and dividends.

Of course, the Sir Michael Cullen chaired Tax Working Group will commence its consideration of the tax system in the coming months. Its brief is to consider the overall fairness of the tax system with respect to taxing income versus assets/wealth, the productive economy versus the speculative economy, and different types of taxpayers (individuals, companies and trusts). However, we will not know its final recommendations until February 2019 and any actual changes to tax law will not occur until sometime after that.

One major change that is already enacted and comes into force on 1 April 2018, is the new Accounting Income Method (AIM) for calculating and paying provisional tax. This method is optional and requires a taxpayer to use an Inland Revenue approved accounting software package. The idea behind AIM is that taxpayers pay provisional tax based on their actual income for a year rather than an arbitrary amount based on a previous year’s tax payments.

While simple in principle, the need to adjust accounting income to achieve a figure that is acceptable to Inland Revenue for determining provisional tax obligations can result in added complexity. Inland Revenue is currently undertaking an extensive publicity campaign encouraging taxpayers to adopt AIM. This includes contacting taxpayers directly to arrange visits to discuss the benefits of AIM. While Inland Revenue is actively encouraging taxpayers to adopt AIM, we consider that due to the need and nature of the adjustments required to accounting income it may not be appropriate for many taxpayers. If Inland Revenue contact you and you wish to hear what they have to say about AIM, then take up the offer. However, before adopting AIM we strongly recommend that you first speak to your Findex adviser as it is certainly not suited to all businesses or industries.