KiwiSaver and other ‘locked in’ super schemes could be exempted from mooted monthly investment provider reporting duties put forward by the government earlier this month.
The proposals, part of the ‘Making tax simpler’ program, would require all “payers of investment income” – including portfolio investment entity (PIE) funds – to provide detailed income and personal data on each underlying investor to the Inland Revenue Department (IRD) “on a monthly basis”.
However, the IRD investment income consultation document says it “may be appropriate” for the measure to apply only to ‘unlocked’ PIE funds.
“PIE income that is ‘locked in’, such as income from KiwiSaver funds and complying superannuation funds with withdrawal restrictions, is not included in income calculations for social policy purposes, so such income may not need to be reported as frequently,” the discussion document says.
The reporting proposals – which apply across virtually all investment types including bank deposits, share dividends, Māori authority distributions and royalties, as well as PIEs – are aimed at more closely matching total income of individual New Zealanders with social transfer payments such as Working for Families or child support obligations.
In a statement, Revenue Minister, Michael Woodhouse, said: “It would be much more efficient for Inland Revenue to collect that information direct from the payers and use it to pre-populate the recipients’ tax records.”
While KiwiSaver and other superannuation schemes – which account for about $34 billion and $20 billion respectively – may avoid monthly reporting, the IRD may still require them to file information more regularly than the current annual end-of-year wash-up reports.
The document suggests if ‘locked in’ funds report quarterly or every six months, the IRD could ensure members have selected their correct prescribed investor rate (PIR) – a thorny problem in PIE land.
“Under the PIE tax rules investors have to select their PIR based on their income in the previous two years,” the proposal document says. “Given the difficulties that taxpayers face in working out their income, there is a reasonable chance that taxpayers will be basing their choice of PIR on incorrect calculations of income.”
According to the IRD, the proposed changes may impose “some additional compliance costs” on investment providers but this would be “mitigated by the fact that the payers would not need to seek more information from customers, but rather to report more of the information they already hold”.
However, in a recent tax update, KPMG says the extra, and ongoing, compliance costs of the proposals could hit some investment providers harder than others.
“For non-bank financial institutions, the proposals may not reduce compliance costs, if they have investor reporting requirements, for example, under the Financial
Markets Conduct Act,” the KPMG note, authored by tax partners Rachel Piper and John Cantin, says.
In particular, the introduction of a proposed punitive tax rate of 45 per cent on investment income for individuals who have not provided their IRD numbers could prove problematic.
“For PIEs, incorporating a new 45% non-declaration rate into their tax systems may impose significant costs, based on our previous experience with implementing tax rate changes,” the KPMG note says.
The broad-ranging proposals, which would also see NZ companies having to provide dividend payment information on underlying shareholders rather than the current aggregate data, would “impact hundreds of thousands of New
Zealand savers and investors and potentially every NZ company, interest payer and collective investment vehicle”, KPMG says.
Submissions on the proposals close off on August 19 with enabling legislation due to be introduced next year.