Parliament has turned down requests to tone down Inland Revenue Department (IRD) information-gathering powers granted in new tax legislation last December.
The law, which earned the Queen’s stamp of approval on December 7, introduced the new top tax rate of 39 per cent on income over $180,000 while also empowering the IRD to squeeze more information out of trusts (and others) as an anti-avoidance measure.
Revenue Minister David Parker said at the time: “This bill includes powers to collect information from trustees to test compliance and the effective operation of the 39 per cent tax rate and to further understand what trustees do with trust assets and income.
“If trusts are used for the sole purpose of paying a lower tax rate, it is unfair to all those New Zealanders that pay the right amount of tax. If there is evidence of this type of behaviour we will move on it.”
An earlier Attorney-General report found the-then proposed new IRD powers “appeared to be inconsistent with the rights and freedoms contained in the New Zealand Bill of Rights Act”.
“Specifically, he concluded that it was inconsistent with the right to freedom of expression, and the right to be secure against unreasonable search and seizure,” the just-published Finance and Expenditure Committee (FEC) report says.
A last-minute amendment clarified that any IRD information gathered under the extended powers must be used only for tax policy development and “may not subsequently be admissible as evidence in proceedings against the person who provided the information”.
But the Privacy Commissioner told the FEC that the amendment to the legislation “should go further”.
“He believed it should include an express prohibition against using information collected under the… [new] power for any purpose other than the improvement, researching, or reform of the tax system,” the report says. “He also suggested that information collected for this purpose should only be collected or used in a form in which the individual concerned could not be identified.”
However, the FEC concluded that the expanded IRD power “is consistent with the Bill of Rights Act”.
In a dissenting note, the National and Act Party FEC members said the information-gathering powers could still conflict with the Bill of Rights.
“We note our concern with the rushed process which did not allow for full Select Committee scrutiny of these proposals, nor public input on their implications,” the note says. “We are also concerned that the Minister has not acted on the recommendations of the Privacy Commissioner on this matter.”
Briefing documents on the 39 per cent tax rate targeted trusts as the main avoidance risk under the legislation but officials also said individuals could use company structures and portfolio investment entities to escape the new impost, which came into force this financial year.