Source: http://taxpolicy.ird.govt.nz/publications/2018-commentary-armtarm-bill/core-aspects
Timestamp: 2018-09-19 05:20:26
Document Index: 483900680

Matched Legal Cases: ['art 3', 'art 3', 'art 4', 'art 9', 'art 4', 'art 4', 'art 9', 'art 9', 'art 9', 'art 9', 'art 5', 'art 7', 'art 7', 'art 7']

Modernising tax administration – Core aspects of the Tax Administration Act | Tax Policy, Inland Revenue
Home › Publications › Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill › Core aspects
Modernising tax administration – Core aspects of the Tax Administration Act
Confidentiality exceptions framework
Penalties for misuse of information
Extending the scope of binding rulings
Commissioner of Inland Revenue’s care and management role
The Tax Administration Act 1994 sets out the rules and processes for collecting and disbursing the revenue and payments administered by Inland Revenue. It plays a significant role in ensuring the right incentives are in place to influence compliance with tax laws. The efficiency and effectiveness of tax administration rules and processes is critical to maintaining fairness in the tax system.
Inland Revenue’s Business Transformation programme provides an opportunity to step back and review the core settings in the Tax Administration Act 1994 to ensure they are continuing to operate in the most efficient and effective manner. The work to review and modernise these settings focuses on the core dimensions of the Tax Administration Act 1994, namely the roles of the Commissioner, taxpayers and intermediaries (such as tax agents), as well as the rules around information collection, use and disclosure. These core aspects of the Tax Administration Act 1994 have been the subject of two Government discussion documents, Making Tax Simpler – Towards a new Tax Administration Act (November 2015) and Making Tax Simpler – Proposals for modernising the Tax Administration Act (December 2016).
Making Tax Simpler – Towards a new Tax Administration Act provided a high level view of the future framework for tax administration focusing on the core concepts and roles set out in the Act as they relate to the “right from the start” concept and Inland Revenue’s new compliance model both of which aim to ensure a faster, more efficient yet flexible tax system. Through the development of Making Tax Simpler – Towards a new Tax Administration Act it became clear that the issues were wide-ranging and complex, and would require further detailed discussion. This would also provide the opportunity to take public submissions into account when developing detailed proposals.
Two key themes that emerged from public submissions on Making Tax Simpler – Towards a new Tax Administration Act were that:
while there is a need for the Commissioner to have some flexibility in the application of the law, this should not be at the expense of transparency in her decision-making; and
the need for greater information-sharing within government was understood but this should not be detrimental to taxpayers’ rights to privacy and confidentiality.
A second document, Making Tax Simpler – Proposals for modernising the Tax Administration Act, was released in December 2016. This document detailed legislative proposals for a wider application of the Commissioner’s care and management function and more relevant information-sharing and confidentiality rules. It also outlined measures to provide taxpayers with better tools to ensure the correctness of their tax affairs and to allow a greater range of intermediaries to interact with Inland Revenue’s systems.
Following the proposals set out in the second discussion document, the proposed legislative changes in this Bill are grouped into four key areas:
Collection, use and disclosure of information – in particular, modernising the rules around confidentiality and information-sharing.
In keeping with the “right from the start” framework, allowing greater taxpayer access to binding rulings with a new short process rulings system and improving the process for taxpayers to deal with minor errors.
Permitting a wider group of intermediaries to have access to new services provided by Business Transformation.
Subject to clear safeguards in keeping with the rule of law, allowing the Commissioner some flexibility under care and management responsibilities to respond to obvious legislative anomalies.
Following the receipt of submissions, further consultation was carried out with representatives from key stakeholder groups Chartered Accountants Australia and New Zealand, the New Zealand Law Society and the Corporate Taxpayers Group. This further consultation, together with the submissions received on both discussion documents, informed the final policy recommendations for the proposed amendments.
The merits of the proposed changes are analysed in the regulatory impact assessments, available at http://taxpolicy.ird.govt.nz/publications/2018-ria-armtarm-bill/overview:
Making Tax Simpler: Proposals for modernising the Tax Administration Act – collection, use and disclosure of information;
Making Tax Simpler: Proposals for modernising the Tax Administration Act – rulings, amendments and tax intermediaries; and
Making Tax Simpler: Proposals for modernising the Tax Administration Act – flexibility for dealing with legislative anomalies.
Each area is covered in more detail in the following sections of this commentary.
Information is critical to Inland Revenue’s ability to deliver services. Much of that information is provided by taxpayers. This may be information about themselves (such as in an individual or business income tax return) or about other taxpayers (such as in an employer monthly schedule). Inland Revenue can enforce the provision of information that is not received through regular channels, and has significant powers to do so, but the use of these powers is the exception rather than the rule.
Inland Revenue’s information collection powers are long-established, and generally work well. There is an established standard that where the Commissioner is using compulsory powers, this is only for information considered “necessary or relevant” to the Commissioner’s functions. This gives an assurance that Inland Revenue will only use its powers to obtain information that is needed. This Bill proposes to rewrite the information collection provisions in order to make them clearer and more navigable, however, there are no proposed changes of substance with the exception of two areas:
The introduction of a regulation-making power to govern the repeat collection of third-party datasets. This will provide a more efficient and transparent process for this type of collection, as distinct from the current ad hoc collection of such information using existing powers.
Clarifying explicitly in the legislation that information collected for one Inland Revenue purpose can be used for the department’s other functions.
For taxpayers to be comfortable providing their information, they need to feel the information requested is reasonable and is treated appropriately by Inland Revenue. Currently, this assurance is given by what is often referred to as the “tax secrecy” rule, set out in section 81 of the Tax Administration Act 1994 – which essentially states that information provided to Inland Revenue will only be used for revenue purposes. Rules about the confidentiality of tax (and taxpayer) information are common across revenue agencies internationally.
For most public sector agencies the primary rules governing collection, use and disclosure of information are set out in the Privacy Act 1993 and the Official Information Act 1982. However, for Inland Revenue, the Tax Administration Act 1994 provides the primary rules.
The confidentiality of tax information is important for three key reasons:
It is seen as a balance for Inland Revenue’s information gathering powers. Revenue agencies are generally granted wide information-gathering powers so they can ensure that taxpayers are meeting their obligations.
Confidentiality has traditionally been considered necessary to promote compliance – taxpayers will be more willing to provide information to Inland Revenue if they are assured it will go no further.
Taxpayer privacy has also more recently been referred to by the Courts – and the right of taxpayers to have their affairs kept confidential is also recognised in section 6 of the Tax Administration Act 1994 in defining the integrity of the tax system.
“Tax secrecy”, or at least the part that relates to the confidentiality of a taxpayer’s individual affairs, is seen as a critical component of the integrity of the tax system, as reflected in the definition of integrity in section 6 of the Tax Administration Act 1994.
However, the current rules can lead to tensions, particularly between:
confidentiality and wider government objectives, including the more efficient operation of government and the provision of services that can be achieved through increased cross-government information sharing; and
confidentiality and the Official Information Act 1982 principle of open access to information held by government.
Inland Revenue already shares considerable amounts of information with other agencies. The aim of the proposed amendments is to modernise and clarify the rules, to better provide for confidentiality and sharing in the future, and more clearly balance the trade-offs inherent in decision about whether information should be shared. The key proposed amendments relating to confidentiality comprise:
Narrowing the confidentiality rule from its current coverage of all matters relating to the Inland Revenue Acts, to more clearly target information about taxpayers.
Providing a clearer exceptions framework, grouping the exceptions into categories and improving the navigability of the legislation.
Introducing a more flexible regulatory framework for information sharing to assist with the provision of public service (building on existing rules).
Allowing Inland Revenue to enter into agreements for information-sharing without need for regulations where the sharing will be done with customer consent. Again this is linked to information-sharing for public service provision.
The next six commentary items (Information collection, Information use, Confidentiality, Confidentiality exceptions framework, Information sharing, Penalties for misuse for information) improve the framework by which Inland Revenue can collect, use and disclose information.
(Clauses 15, 99 and 102)
The proposed amendments modernise the existing information collection provisions by updating the language and removing some existing repetition. These amendments do not represent a policy change with the exception of one aspect, detailed further below. A transitional provision is included to make clear there is no policy change intended by the rewrite of these provisions.
One policy change is included in the proposed amendments – introducing a new regulation-making power for repeat collection of certain data. This builds on the existing power to collect information on an ad hoc basis by providing for regulations to be made where bulk data is considered necessary or relevant on a regular basis, providing greater clarity and transparency in these situations.
As part of the modernisation of the Tax Administration Act 1994, provisions governing the collection use and disclosure of information are proposed to be brought together in a new subpart 3A and rewritten in a more modern, navigable style. Overarching purpose and principle sections have also been added to improve navigability and clarity. These new purpose and principle sections do not represent any policy change, rather they draw together the purpose and principles already contained in the existing provisions.
One new provision is included within the proposed changes – introducing a regulation-making power where information is to be sought on a regular, repeating basis, as distinct from using existing powers to collect information on an ad hoc basis.
Inland Revenue’s existing powers to collect information generally work well and no significant change is proposed. Broadly, Inland Revenue has the ability to collect information to carry out its various functions and, where necessary, to compel the provision of information that is considered “necessary or relevant”. This is a long-established standard and gives the assurance that Inland Revenue will only use its information-gathering powers to obtain information that is needed.
The current rules, while currently generally working well, were designed for a time when information was stored and exchanged in paper format. The rules, however, continue to work well in most situations where information is collected on a one-off or ad hoc basis. This applies equally to individual taxpayer data and wider datasets comprising information about many taxpayers.
As the digitisation of the economy increases, so too does the availability and usefulness of large datasets. Data matching is becoming increasingly common in both the public and private sector. In the tax context, the use of large datasets for compliance and educative work has been part of the toolkit for revenue agencies around the world for some time. Such data is used for a range of purposes, including education, targeted publicity and support, targeting compliance work to high risk cases, pre-populating returns, and tailoring service approaches.
In New Zealand, the existing information-gathering powers in the Tax Administration Act 1994 have been recognised by the Courts as enabling the collection of large datasets. However, it is proposed to provide more specific rules for situations when such information is required on a regular, repeating basis. This will provide greater transparency about those situations where data is being routinely and regularly collected. The proposed new provision is a clarification for specific circumstances and therefore does not affect the existing information collection powers set out in the Tax Administration Act 1994.
Clause 15 inserts a proposed new subpart 3A into the Tax Administration Act 1994, containing provisions relating to collection, use and disclosure of revenue information. This, combined with clause 102 inserting a proposed new schedule 7, would replace the existing sections 16–21 and Part 4 of the Act.
Proposed new section 16 sets out the purpose of the subpart, which is to:
provide the Commissioner with the necessary powers to carry out her duties and collect all the taxes under the Inland Revenue Acts;
enable the Commissioner to collect revenue information, including accessing property, removing, retaining, copying and reviewing documents;
require the production of documents or access to information;
set out the Commissioner’s powers in relation to documents;
provide a regulation-making power for regular collection of bulk data (new);
describe how revenue information may be used (new);
protect the confidentiality of sensitive revenue information; and
facilitate efficient and effective government administration and law enforcement through permitted disclosures of sensitive revenue information for certain purposes.
Proposed new section 16B then sets out the principles upon which the subpart is based, in particular:
the purposes for collecting revenue information;
that accessing property or documents may occur only where it is necessary or relevant;
that revenue information must be protected with appropriate security safeguards; and
that sensitive revenue information may not be disclosed otherwise than in accordance with the permitted disclosure rules set out in the subpart and proposed new schedule 8.
A number of key terms are set out in proposed new section 16C. These distinguish between “revenue information” and “sensitive revenue information” for the purposes of the subpart, and linked to the new confidentiality rule. “Revenue officer” and “revenue law” are also both defined, being modernised drafting of concepts from the existing legislation.
Proposed new sections 17–17K then set out, in rewritten format, the information collection rules currently contained in sections 16–19 and 21 of the Act. This is a drafting improvement rather than a policy change. Proposed new section 227F is included to make clear that there is no change of meaning with regard to these sections.
New regulation-making power for datasets
Proposed new section 17L inserts a new regulation-making power into the Tax Administration Act 1994. This would enable regulations to be made by Order in Council, authorising the collection, on a regular basis, of bulk data, where that collection is necessary or relevant for revenue purposes. A regulation would specify:
The proposed provision has a number of safeguards built in. Before recommending regulations the Minister of Revenue must be satisfied that:
a consultation process has been undertaken with those the Commissioner considers it is reasonable to consult, including consultation with the Privacy Commissioner. Consultation would include provision of draft regulations and an explanation of why they are considered necessary and how the proposed use of the information is consistent with the Inland Revenue Acts.
The proposed amendment provides an express clarification that information gathered for one revenue purpose can be used for any other revenue purpose.
The proposed amendments will come into force on the date of enactment
Inland Revenue has a very broad range of functions. In many cases interactions with a customer may be for a particular purpose, or in relation to a particular product type, for example personal income tax or Working for Families tax credits. However, the information obtained may also be relevant for other purposes, for example the customer’s student loan or child support accounts. Customers, both personal and business, have a range of different interactions with Inland Revenue and therefore information can be relevant for a range of purposes linked to Inland Revenue’s various functions.
The Tax Administration Act 1994 charges the Commissioner of Inland Revenue with the care and management of the taxes and with other conferred functions. The care and management responsibility encompasses the requirement that the Commissioner carry out her functions in a way that makes the most efficient use of her resources. This requirement, coupled with the overarching requirement to protect the integrity of the tax system, suggests that the Commissioner should be able to make the most efficient use of information at her disposal in order to fulfil her various functions and responsibilities.
To make it clear that information gathered for the purpose of one revenue function is also able to be used for any of Inland Revenue’s other functions, the proposed amendment includes this principle in proposed new section 17M. A similar approach is taken in the equivalent United Kingdom legislation which expressly provides that “information acquired by the Revenue and Customs in connection with a function may be used by them in connection with any other function”.[7]
The principle that information obtained under the Tax Administration Act 1994 or any other Inland Revenue Act can be used for any revenue purpose includes reuse of information and use of the information in permitted disclosures pursuant to Inland Revenue’s various information sharing provisions.
Proposed amendments to the current “tax secrecy” rule more clearly focus on the core information to be protected, namely information that identifies, or relates to, taxpayers. It is also proposed to modernise and restructure the confidentiality rules to improve the clarity and navigability of the legislation.
Under the proposed amendment the confidentiality rule is reframed from covering all matters relating to revenue legislation, to being clearly focused on information about, or relating to, taxpayers.
In order to administer the tax system and associated social policy products, Inland Revenue collects and holds information on virtually all New Zealanders, as well as most corporate and other entities, such as trusts and partnerships. This is information that taxpayers are compelled to provide to Inland Revenue, and therefore it must be treated with care.
While the Privacy Act 1993 provides a framework for the collection, use and disclosure of personal information, much of the information held by Inland Revenue is non-personal, and no equivalent legislative framework exists. Given the breadth of the information Inland Revenue holds, and the sensitivity of some of this information, specific rules about confidentiality for Inland Revenue must be retained.
A key issue with the current rules about tax information is the difference between Inland Revenue and other government agencies in relation to official information. The Official Information Act 1982, which defines “official information” as including any information held by a department, provides a presumption of availability of information – that official information will be available to requestors unless there is a good reason for it to be withheld.
In contrast, the starting point of the rule relating to tax information is that Inland Revenue officers must maintain the secrecy of “all matters relating” to the Inland Revenue Acts. While the precise limits of the rule are not clear, it is apparent that this rule is not limited to information about taxpayers.
The breadth of the current rule means that a wide range of information, including information relating to procurement, analysis and statistics, information technology, finance and planning, policy development and even publicly available information is subject to the tax secrecy rule, unless a subsequent exception applies. Much of this information would not be considered confidential in the hands of any other agency.
As set out in the introduction to the information section, there are generally three key reasons given for confidentiality of tax information. Each of these reasons has at their core the protection of information about the taxpayers or entities that provide information to Inland Revenue. Each of the concerns – the impact on voluntary compliance, balancing information collection powers and the protection of privacy – is focused on the harm that would result from the disclosure of taxpayer (or entity) information. There does not appear therefore, to be a clear reason for the breadth of the current secrecy rule and the inconsistency this creates for Inland Revenue as compared with other agencies. The broad approach is also inconsistent with that taken in other jurisdictions such as Australia, Canada, the United Kingdom and the United States.
Proposed new section 18 sets out the new confidentiality rule. Rather than “all matters relating to” the Inland Revenue Acts, the new rule would cover “sensitive revenue information”. Sensitive revenue information is defined in proposed new section 16C as information that relates to the affairs of a person or entity that:
identifies or could identify a taxpayer, whether directly or indirectly;
might reasonably be regarded as private, commercially sensitive or otherwise confidential; or
the release of which could result in loss, harm or prejudice to a person to whom or which it relates.
The rule therefore aims to protect information about taxpayers, including where it might be commercially or personally sensitive.
A protection is also proposed to be retained (proposed new subsection 18(3)) for information that, while not specifically about taxpayers, is still highly sensitive and the release of which could adversely affect the integrity of the tax system or prejudice Inland Revenue’s ability to enforce the law. This would include information about matters such as audit or investigative techniques or strategies, compliance information, thresholds, analytical approaches and so on. The release of such information, if not protected, could affect the Crown’s ability to collect revenue.
As with the current tax secrecy rule, proposed new section 18 sets out confidentiality requirements for Inland Revenue officers and for others who have access to Inland Revenue information. Proposed new section 18B sets out a requirement that before accessing information, officers and others must certify (or in the case of officers, complete a declaration) that they will comply with their confidentiality obligations. Previous declarations and certificates would be treated as continuing to be valid under the new rule.
(Clauses 15 and 102)
The proposed amendments restructure the existing exceptions to confidentiality into a clearer framework. Under the proposed new structure the overarching rules would be contained in the main provisions (proposed sections 18C–18J) and the detail of most exceptions set out in proposed new schedule 7.
The proposed amendments set out the categories of exceptions to the proposed new confidentiality rule. The legislation is restructured to contain the main rules within the primary sections and the detail of the exceptions within these categories in proposed new schedule 7. Other than as specifically identified in the following sections of this commentary, the exceptions are merely restating existing rules rather than introducing new ones.
While there has long been a rule of confidentiality applied to tax information, that protection is not absolute. There are a considerable number of exceptions allowing disclosure of information. Over time the number of exceptions has increased which has led to a legislative framework that could be seen to lack clarity and clear unifying principles.
The proposed amendments aim to collect the exceptions into a clearer, more cohesive framework. Broadly the current exceptions can be grouped into four main categories:
disclosures for purposes related to the tax system;
disclosures to the taxpayer or their agent;
disclosures relating to international agreements; and
disclosures to other government agencies for non-tax-related purposes.
The proposed amendments group the existing exceptions as set out above, providing a clearer outline of the categories where exceptions are provided and then setting out the detailed exceptions in a proposed new schedule.
Proposed new sections 18C–18J contain the overarching framework for exceptions to the rule of confidentiality or “permitted disclosures”. Further detailed rules regarding each category of exception are set out in proposed new schedule 7.
The first category of exceptions, set out in proposed new section 18D, relates to disclosures made in carrying tax laws into effect. Further details of each exception are set out in proposed new schedule 7 part A. Proposed new section 18D encompasses the existing exceptions in sections 81(1) (carrying into effect), 81(1B) (disclosures relating to a duty of the Commissioner), 81(1BB) (disclosures in a co-located environment), and 81(3) (disclosures for court proceedings). The exceptions specified in clauses 3 to 13 of proposed new schedule 7 comprise existing exceptions that are also for purposes related to carrying into effect revenue laws.
Proposed new sections 18E and 18F relate to information sharing for public service provision. These provisions provide for such sharing in three ways:
Under an Approved Information Sharing Agreement pursuant to Part 9A of the Privacy Act 1993 (current section 81A).
Under an agreement between agencies where information is to be shared with the consent of the taxpayer to whom it relates (new provision).
Under regulations made under proposed new section 81F – this proposed section is a modified version of the regulation-making power currently contained in section 81BA.
Further detail about each of the proposed information-sharing methods is contained in the next commentary item (Information sharing).
Disclosures to persons or their representatives
Proposed new section 18G authorises disclosures to the taxpayer themselves or their representative(s). Further detail is contained in schedule 7 part B. The relevant clauses in the schedule replicate existing exceptions in section 81(4), specifically 81(4)(j) (statistical information), 81(4)(l) (disclosure to the taxpayer or their representative), 81(4)(lb) (tax pooling intermediaries) and 81(4)(ld) (software packages). Clause 16 brings together and broadens the existing exceptions in 81(4)(lb) and 81(4)(lc) (information regarding tax agents) to include the wider class of representatives covered by the proposed intermediary changes in clause 79 of this Bill (see the commentary item Third party providers and intermediaries on pages 64–68).
This category also contains a proposed new exception for disclosures to digital services providers. New clause 18, schedule 7 would enable customers to use digital services to communicate with Inland Revenue, where the digital service is one that the Commissioner has listed as an accepted provider. This proposed new provision is similar to the existing software clients provision (proposed new clause 17, schedule 7, currently section 81(4)(ld)) in that it permits disclosure to the provider of the service (in that case an accepted software package) as a consequence of a customer using that package or service to communicate with Inland Revenue.
Proposed new section 18H and schedule 7 part C set out specific legislative exceptions involving disclosures to other agencies. The exceptions set out in the schedule mirror those in the current Part 4 of the Act with no changes other than:
minor changes for flow to combine provisions where an exception was contained in both section 81(4) and a subsequent section in Part 4;
minor amendments to the sharing provision with Statistics New Zealand (proposed new schedule 7, clause 21). This exception has been updated to modernise the language, as unlike most other agencies, it is considered appropriate to retain this sharing arrangement in legislation, rather than moving to a regulatory model. Retaining this as a legislative exception reflects the quantity and breadth of information shared, the nature of the sharing (for statistical and research, rather than operational purposes) and the statutory independence of both the Government Statistician and the Commissioner of Inland Revenue;
two proposed new authorisations arising from previously legislated rules. In both cases Parliament has already legislated for the information sharing in other statutes and the proposed amendments insert a parallel authorisation into the Tax Administration Act 1994:
Proposed new schedule 7, clause 24 would enable the Commissioner to disclose information to a government agency or an Anti-Money Laundering and Countering Financing of Terrorism supervisor for the purpose of ensuring compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (see section 140(1) and 140(2)(k), (l) and (v) of that Act).
Proposed new schedule 7, clause 25 would enable the Commissioner to disclose information to the New Zealand Customs Service in relation to a transfer price arrangement for the purpose of assessing the suitability of any such arrangement in relation to the use of provisional values under the Customs and Excise Act 2018 (see section 102(8) of that Act).
Disclosures for international purposes
Proposed new section 18I and schedule 7 part D set out existing exceptions (sections 81(4)(k) and 88) for international disclosures. The exceptions set out in the schedule relate to double taxation agreements and reciprocal arrangements and are unchanged from the current legislation.
Disclosures for risk of harm purposes
Proposed new section 18J contains an exception not currently expressly set out in the Tax Administration Act 1994. The proposed section replicates the disclosure exception set out in the Privacy Act 1993 for situations where there is a serious threat to health and safety. The proposed exception applies to allow disclosure where it is necessary to prevent or lessen a serious threat to public health or public safety, or to the life or health of a person. The degree of how serious threat is, considers takes the event’s likelihood, severity and immanency.
Any disclosure under this exception should only to be made to the person, body or agency which is able to do something to prevent or lessen the threat.
An example given by the Office of the Privacy Commissioner is a situation where a staff member is dealing with a customer who has made comments or threats leading the staff member to think the customer may harm themselves or others. In such a situation, information could be disclosed to Police so they can take appropriate steps to prevent the harm.
Proposed new sections 18E and 18F relate to information sharing for public service provision. These would enable information sharing in three ways:
Under regulations made under proposed new section 18F – this proposed section is a modified version of the regulation-making power currently contained in section 81BA.
The proposed amendments build on Inland Revenue’s existing rules for information sharing authorised by regulation and agreement. They provide for information sharing to be authorised by regulation either:
by way of an approved information sharing agreement under Part 9A of the Privacy Act 1993. This is an existing exception currently set out in section 81A of the Tax Administration Act 1994; or
by way of an Order in Council under proposed new section 18F. This section is an amended version of the current section 81BA. The proposed amendments introduce greater consistency with the Privacy Act framework by extending the provision to enable sharing for the provision of public services, rather than being limited to government agencies.
A new provision is also proposed, allowing the Commissioner to enter into agreements for information sharing, where the consent of the customer will be obtained. These agreements will not require authorisation by order in council. Similar to the regulation-making sharing provisions, this type of sharing is limited to situations where the sharing is to facilitate the provision of public services.
Taxpayers are compelled to provide their information to Inland Revenue for reasons of public good – the administration of the tax system and other social policy provisions. In considering the broader use of data, the Government is essentially balancing private rights (in the privacy or confidentiality of information) against the wider public good of efficient government, upholding the law and ensuring that people receive the correct entitlements at the appropriate time.
Legislation already permits a considerable amount of cross-agency information sharing. However, it might be argued that there is no readily apparent consistent principle to these exceptions. Some are narrow, others broader, and in many cases legislative change has been made for the avoidance of doubt, even for minor changes to information exchanges.
The newer exceptions (in current sections 81A and 81BA) are broader and allow sharing that meets certain conditions to be authorised by order in council. These exceptions allow a greater degree of transparency, as the Order in Council and underlying agreement are generally published. Such arrangements can also provide for public reporting on the information transfers.
The proposed amendments build on these broader regulation-making exceptions, and aim to make information sharing for public service provision more flexible, principled and transparent. Regulatory models allow greater flexibility and timeliness of implementation and amendment of information sharing arrangements. Consideration was given as to whether the new rules should require an order in council or simply be managed by agreements between agencies. Given the importance of taxpayer confidentiality, the regulatory model was considered more appropriate as it will retain Cabinet and Regulations Review Committee oversight of proposed agreements. The one exception to this is agreements for information sharing where the consent of the customer concerned will be obtained prior to sharing – in that case it is proposed that an agreement model (without need for an Order in Council) would be appropriate.
The proposed amendments would provide for information sharing arrangements for the provision of public services to be entered into in three alternative ways:
An approved agreement under Part 9A of the Privacy Act 1993 (proposed section 18E(2)). This replicates an existing provision in the Tax Administration Act 1994 authorising the use of the Privacy Act rules. This provision would generally be used where the information to be exchanged is primarily personal information.
An agreement between agencies under proposed section 18E(3) where consent will be obtained from the customer for the sharing – no Order in Council or regulation is required under this proposed provision. This form of sharing could be used for situations where the agency receiving the information from Inland Revenue is providing services to a customer and, in the course of doing so, the customer consents to their information being obtained from Inland Revenue. This could also be used for optional services such as initiatives to simplify updating contact details across government agencies.
A regulation, made by Order in Council, pursuant to proposed new section 18F, authorising information sharing. This is a proposed update to the regulation-making power currently in section 81BA. This provision would generally be used in situations where the information to be shared was primarily non-personal (entity) information or the Privacy Act 1993 Part 9A rules were otherwise not considered suitable.
Each of the alternatives relates to information sharing for public service provision. This is defined in proposed new section 18E(4) and mirrors the definition in the Privacy Act 1993 with regards to information sharing under Part 9A of that Act. This improves consistency across the rules in the Tax Administration Act 1994 and the Privacy Act 1993, regardless of which mechanism is chosen. A “public service” is defined as a public function or duty that is conferred or imposed on an agency by or under law, or by a policy of the Government. An agency may include a private sector agency if they are delivering a public service as defined. This could include, for example, non-government organisations delivering public services under contract with a government department to also have access to the information if appropriate.
In many cases information sharing is undertaken to improve the services offered by Government to New Zealanders, and the expectation is that those affected would consent to their information being shared. Under the Privacy Act 1993, individuals may authorise their information being shared, as privacy is theirs to waive. In contrast, confidentiality of tax information is an obligation imposed on Inland Revenue officers and the consent of the person to whom the information relates is no defence to breaching the obligation of confidentiality.
In the discussion document Making Tax Simpler – Towards a new Tax Administration Act it was proposed that taxpayers be able to consent to the disclosure of their information to other government agencies. This proposal was supported by most submitters, provided it was limited to within government.
It is important to note that such arrangements do not mean that all information sharing requires consent – non-consented sharing would continue to occur where alternative legislative or regulatory authority exists. It is important that this is clear for customers and might suggest that consented arrangements should generally only be used where there is not also the possibility of non-consented sharing occurring under a different arrangement. Alternatively it should be made very clear to customers the situations in which information-sharing could occur independently of the consented agreement.
Consent agreements under proposed section 18E(3) must set out the conditions for security and use of the information provided under the agreement. The agreement must also stipulate a process to ensure consent is properly obtained and recorded.
Regulations under proposed new 18F
Proposed new section 18F is an updated version of the regulation-making power currently contained in section 81BA. The proposed new provision enables sharing when:
the sharing is intended to improve the ability of the Government to deliver efficient or effective services or to enforce the law (new criterion);
the information is more easily or more efficiently obtained from or verified by Inland Revenue (existing criterion);
it is not unreasonable or impractical to require the Commissioner to deliver the information (existing criterion);
the nature of the sharing is proportionate, taking into account the purpose for which the information is proposed to be shared (new criterion);
the person, entity, or agency receiving the information has adequate protection for the information (modified existing criterion); and
the sharing of the information will not unduly inhibit the future provision of information to the Commissioner (existing criterion).
These proposed amendments restate the existing penalty provisions relating to collection and use of information that apply to persons other than Inland Revenue officers.
Both Inland Revenue officers and persons other than Inland Revenue officers who have access to sensitive revenue information are required to keep that information confidential and only disclose it in accordance with the Tax Administration Act 1994. If a person knowingly breaches their confidentiality obligations they are subject to a penalty of either imprisonment for a maximum of six months or a fine of up to $15,000 or both. The obligation of confidentiality and the penalties are also contained in the current law.
Proposed new sections 143D, 143E and 143EB restate the existing penalties for persons other than revenue officers (for whom the penalty applies under section 143C). The provisions are a modernisation of the current rules to ensure they continue to clearly apply to all persons given access to sensitive Inland Revenue information, and do not represent a policy change.
A key objective in modernising the tax administration system is to make tax compliance simpler, especially for the small businesses sector. The objective can at least in part be met by adopting the OECD’s “right from the start” framework which suggests a more proactive rather than merely reactive approach to tax administration. One goal under the “right from the start” framework is first time accuracy so that the need to make subsequent adjustments to a return is reduced.
The ability for a wider range of taxpayers to obtain reliable advice from Inland Revenue on their tax positions will assist in the goal of first time accuracy. Therefore, the Bill proposes to extend the ability to obtain private binding rulings to a wider range of taxpayers who are in practice excluded from this because of the complexity of the process and the fees charged for obtaining a binding ruling.
While the focus of the modernised tax administration is based on the right from the start concept, there will still be situations when the taxpayer or the Commissioner will seek to amend or correct an assessment. The current process for amendment is complicated and does not align with taxpayers’ accounting processes for dealing with minor errors. Having to adopt a different process for tax purposes for minor errors imposes compliance costs. The Bill will provide a larger and more certain threshold for making adjustments in a current return rather than the return in which the error arose combined with a new materiality threshold.
The next three commentary items (Short process rulings, Extending the scope of binding rulings, and Amending assessments) improve the ability of Inland Revenue to help taxpayers get their tax obligations right from the start.
(Clauses 61 and 272–276)
The Bill extends the ability to obtain private binding rulings to a wider range of taxpayers by simplifying the requirements for applying for a binding ruling and by allowing Inland Revenue to reduce the fees for smaller entities and/or transactions.
a person with annual gross income below a prescribed level ($5,000,000) and a tax question involving tax below a prescribed level ($1,000,000) can apply for an abbreviated ruling;
removal of the requirements in applying for a binding ruling to state the taxation laws and the propositions of law for which the ruling is sought; and
the application and hourly rate fees for private binding rulings will be lower for short process rulings at rates determined and published by the Commissioner.
The binding rulings system is a fee-based service provided by Inland Revenue and governed by Part 5A of the Tax Administration Act 1994. There are a number of different types of binding ruling, most commonly private and public rulings and, once issued, the Commissioner (but not the taxpayer) is bound by their outcome. The Bill’s proposals concern private binding rulings.
The binding rulings system is intended to provide certainty to taxpayers usually on commercial arrangements they have either entered into or are contemplating.
The main problem that the Bill seeks to address is that, in practice, rulings are generally only available to large taxpayers as SME taxpayers are priced-out because of the advisor costs and the fees involved.
The fees charged for rulings are determined on a cost-recovery basis but the overall cost can be reduced at Inland Revenue’s discretion. Since the introduction of the regime in the mid-1990s these have involved an application fee of $280 (plus GST if any) for the costs of receiving and reviewing the ruling application and a fee of $140 (plus GST if any) per hour spent by Inland Revenue in research and analysis. In the year ended 30 June 2017, the average fee charged was $11,200 which reflects that most of the rulings issued are for large taxpayers involved in large, complex transactions.
The Government discussion document Making Tax Simpler – Proposals for modernising the Tax Administration Act contained proposals to make binding rulings easier to obtain, especially for SMEs, by simplifying the process for applying for a ruling and reducing the fees.
Submissions on the discussion document welcomed these changes although views differed about how much the simpler rulings regime would be used and it is therefore difficult to estimate the likely level of use in advance.
It is proposed in the Bill (clause 61), proposed sections 91EK–91ET, that the Tax Administration Act 1994 be amended to allow a person to apply for a short process ruling if:
their annual gross income for the tax year before that in which the application is made is $5,000,000 or less; and
the person is seeking the ruling on a matter concerning a tax (other than provisional tax), duty, or levy that is expected to amount to less than $1,000,000.
Application for and issue of short process ruling
The application must be in a form prescribed by the Commissioner and must:
identify the person applying for the ruling;
describe the circumstances on which the ruling is sought;
disclose all relevant facts and documents; and
state the general tax outcome in relation to which the ruling is sought.
These requirements are much simpler than those currently required in ruling applications as they do not, for example, require the applicant to set out the taxation laws and the propositions of law for which the ruling is sought.
Other requirements for obtaining a binding ruling or obligations on Inland Revenue when considering or issuing a short process ruling largely mirror the current rules for private rulings. These include:
an exclusion from ruling on an issue that is the subject of a dispute under the tax disputes process;
the ability for Inland Revenue to provide conditions on which the ruling is based;
the content that the ruling must include and the period or tax year for which the ruling applies;
a requirement that Inland Revenue provide the applicant with a reasonable opportunity to be consulted if the content of the proposed ruling differs from that for which the application is made; and
the ability for Inland Revenue not to apply a ruling if there has been a material omission or misrepresentation in the application.
Clauses 272–276 amend the Tax Administration (Binding Rulings) Regulations 1999 by providing that, for a short process ruling, an application fee and further fees are payable at rates that are lower than the current rates – $280 and $140 per hour, plus GST if any, – as determined and published by the Commissioner.
As it is difficult to accurately estimate the level of demand for short process rulings it is preferable to allow the Commissioner to set the lower rates than to prescribe them in the regulations. In this way, the lower rates can be set and adjusted once the levels of demand for short process rulings, and the time taken by Inland Revenue to prepare the rulings, are more established.
Currently Inland Revenue will provide an applicant with an estimate of the cost of a ruling and this is expected to continue if required for short process rulings.
(Clauses 54–60 and 64–67)
Consistent with the “right-from-the-start” framework, greater up-front certainty will also be available for taxpayers through proposals in the Bill to extend the scope of matters that can be ruled on – both under the current binding rulings processes and for short form rulings. These extensions include:
removing the prohibition on ruling on a taxpayer’s purpose under certain provisions;
allowing more factual questions, such as a person’s residence status, to also be able to be ruled on; and
expanding the ability to rule on financial arrangements.
Aligned to these expansions will be clarifications on the role of conditions and assumptions in the rulings processes.
allowing rulings to be made on a taxpayer’s purpose in certain circumstances, such as whether the taxpayer has the purpose of selling a property when they acquire it;
allowing more factual questions not involving “arrangements”, such as whether a person is a New Zealand resident, to be ruled on;
allowing the Commissioner to rule on a financial arrangement question for which she can currently only issue a determination; and
clarifying the difference between an assumption and a condition and when a ruling ceases to apply because a condition or assumption is breached.
As noted earlier, the binding rulings system is currently more accessible to larger or more sophisticated taxpayers with more complex transactions. This can be attributed to the costs of the system, including both the complexity of the application process and the fees involved. However, the system was also to some extent designed with complex transactions in mind which is why it is restricted to “arrangements” and largely legal rather than more fact-based questions.
Under the “right-from-the-start” framework it is appropriate that a wider range of matters should be able to be ruled on, in order to provide more up-front certainty for taxpayers.
Section 91C sets out a broad range of matters on which the Commissioner may issue any form of binding ruling (public, product or private). Section 91C also contains a limited number of exclusions. A private ruling can only be made, however, for a taxpayer and an “arrangement” which precludes applications for rulings on matters that are about the taxpayer’s status such as their residence status or the taxpayer’s purpose such as their intent when land is disposed of. Clause 55, proposed section 91CB, will allow these sorts of rulings – whether regular or short process – to be made.
Proposed section 91CB(1) contains a comprehensive list of matters on which a private ruling and a short process ruling can be made, including whether a person is:
resident in New Zealand or has a permanent establishment in New Zealand;
an income-earning trustee or society or institution for charitable purposes;
a look-through company;
a portfolio investment company;
In the same way as proposed section 91CB(1) but for things rather than persons, proposed section 91CB(2) allows the Commissioner to rule on whether an item of property is trading stock or revenue account property.
Proposed section 91CB(3) allows the Commissioner to rule on a person’s intention with regards to disposing of personal property or land or with regards to making taxable supplies under certain GST provisions.
Proposed section 91CB(4) reiterates that an “arrangement” is not required for a ruling to be made under any of these new provisions.
Proposed section 91CC allows the Commissioner to make binding rulings on these matters relating to financial arrangements:
whether an amount is solely attributable to an excepted financial arrangement;
the use of certain spreading methods; and
the value of certain property or services.
Clauses 54, 56–60 and 62–67 contain some further clarifications to the binding rulings legislation including:
that the date a private ruling ceases to apply is the date the event (misrepresentation, material omission or incorrectness) that causes cessation occurs unless the ruling expressly provides otherwise; and
the term “assumption” is in most places replaced with the term “condition” as this is more reflective of practice.
It is proposed to replace the current criteria that determine whether an error can be included in a later tax return with a combination of a monetary threshold and a materiality threshold.
Taxpayers would have the option of including an error in a subsequent return if the amount of the error is equal to or less than both $10,000 and two percent of the taxpayer’s taxable income or GST output tax liability. The current $1,000 threshold would be retained but apply without qualification as to the type of error involved.
The Bill repeals and replaces section 113A relating to the correction of minor errors in subsequent returns so that:
taxpayers can include an error in a subsequent return if the total amount of errors for the relevant return are equal to or less than $10,000 and two percent of the taxpayer’s taxable income or GST output tax liability; and
taxpayers can automatically include an error in a subsequent return if the total errors for the return (including a fringe benefit tax as well as an income tax or GST error) are equal to or less than the current threshold of $1,000.
There are several key reasons why the tax system requires taxpayers to make adjustments to the original assessment or return in which the error arose:
The tax collected by the government includes the time value of money as well as core tax payments which is why use-of-money interest usually applies to underpayments of tax.
It is fairer to taxpayers who get their assessments/returns right from the start.
It is more transparent for Inland Revenue allowing for valuable information about the types of errors being made by taxpayers to be obtained.
However, the reasons for requiring amendments to be made to the original assessment are not so relevant when the error is minor. In those cases, the compliance costs can outweigh the benefits of requiring taxpayers to amend the original assessment.
The proposal to extend and simplify the process for minor errors will provide better alignment with taxpayers’ accounting processes and will also complement the simplified process under Inland Revenue’s new computer system (START).
Clause 73 repeals and replaces section 113A of the Tax Administration Act 1994. Currently, if a person has made one or more errors in an assessment for an income tax, FBT or GST return and:
the error was caused by a clear mistake, simple oversight or mistaken understanding; and
for a single return the resultant total discrepancy in the assessment is $1,000 or less;
the error can be corrected in the next return following discovery of the error.
Proposed new section 113A allows taxpayers to make an adjustment in a later return to an income tax or GST return if the total errors in the original return are equal to or less than $10,000 and two percent of the taxpayer’s taxable income or output tax liability. It retains the current $1,000 total discrepancy amount, but now makes this automatically available – as the requirement that the error be caused by a clear mistake, simple oversight or mistaken understanding is removed.
(Clauses 5(36), 5(59), 14, 36, 79 and 213(27))
The amendments clarify the types of third party service providers (in addition to tax agents) that Inland Revenue may offer “special” or extended service offerings to in order to assist with their clients’ tax and social policy obligations, or with claiming entitlements to social policy assistance administered by Inland Revenue. The Bill does this by setting out the eligibility requirements that a person must satisfy in order to be approved by Inland Revenue as a “representative”.
The amendments would also allow Inland Revenue to withhold approval or disallow a person as a representative or nominated person when this action is necessary to protect the integrity of the tax system.
Proposed new section 124D sets out that a person is eligible to be a representative if they:
have signed authorities to act for 10 or more other persons in relation to their tax affairs, or in relation to their entitlements and obligations arising under social policy that is administered by Inland Revenue; and
are in a business, occupation or employment in which they act on behalf of others in relation to their tax affairs or social policy entitlements and obligations; or
are carrying on a professional public practice dealing in matters relating to tax and social policy assistance; or
are in a business, occupation or employment in which they provide budget advisory services to other persons or claim entitlements to social policy assistance on behalf of other persons.
Inland Revenue must approve the person as a representative if it considers that the person meets the above requirements and that approving the person as a representative would not adversely affect the integrity of the tax system.
Proposed section 124G provides Inland Revenue with the ability to revoke approval if it considers that the person does not meet the relevant eligibility requirements, or that continuing to allow the person to act as a representative for others would adversely affect the integrity of the tax system. Similarly, Inland Revenue may disallow a person’s status as another’s nominated person where continuing to allow the person to be a nominated person would adversely affect the integrity of the tax system.
As part of Inland Revenue’s modernisation programme, Inland Revenue intends to offer more online services to tax agents as well as to other third party providers of tax services. A concern is protecting the revenue base and the integrity of the tax system against any potential risks arising from providers’ use of these services.
Inland Revenue currently provides a range of services specifically for tax agents, including a dedicated phone service and the E-File software package which allows tax agents to file their clients’ tax returns electronically.
The statutory definition of a “tax agent” is used to determine who can access these services. This means that other tax service providers (such as those who only file GST returns and employer monthly schedules for their clients, or who provide budget advice and assist with tax return preparation and claiming social policy entitlements) are not at present given access these services, even though it would be desirable in many cases to do so.
These providers can still look after their clients’ tax and social policy affairs as “nominated persons” (with similar access to the client through Inland Revenue’s online services, including return filing), but without the services specifically for tax agents.
Restricting additional services to persons who are listed as tax agents is not required by law, but is an administrative decision that has been made by the Commissioner of Inland Revenue. The Commissioner can offer these services as widely or narrowly as she considers appropriate. However, it is not clear that Inland Revenue can revoke a nominated person’s access to these services after such access has been granted, even if the nominated person had previously been removed from the list of tax agents or had criminal convictions for fraud.
This is because a person who is nominated by a taxpayer to act on their behalf is the agent of the taxpayer under common law. Therefore, even if Inland Revenue has reasonable tax integrity concerns about allowing a person to act for other taxpayers, Inland Revenue can neither refuse to deal with that person nor disallow their access as a taxpayer’s nominated person because it is up to the taxpayer whether the nominated person should act (or continue to act) on their behalf.
The amendments would allow Inland Revenue to withhold approval, or disallow a person as a representative or nominated person when the action is necessary to protect the integrity of the tax system.
Clause 79 of the Bill inserts new Part 7B into the Tax Administration Act 1994. Proposed Part 7B sets out the classes of persons who may:
apply to the Commissioner of Inland Revenue to be listed or approved as a provider of services to other persons in relation to their tax affairs or their entitlements and obligations arising under social policy administered by Inland Revenue (tax agents, representatives, PAYE intermediaries, tax pooling intermediaries and approved AIM providers);
be nominated by a person to act on their behalf in relation to their tax affairs or social policy entitlements and obligations (nominated persons); or
notify the Commissioner of their intermediary status in relation to certain tax types (RWT proxies).
These classes do not exhaustively cover the types of persons who may provide tax advice or other tax compliance services. These classes instead focus on the categories of providers that:
prepare and file tax returns on behalf of other persons;
manage tax payments for other persons, such as tax pooling and PAYE intermediaries;
are the approved providers of a particular tax compliance service which requires them to hold or have access to the information of taxpayers using their service;
manage a person’s correspondence with Inland Revenue in relation to their tax obligations, or their entitlements and obligations arising under social policy administered by Inland Revenue, such as Student Loans; and/or
otherwise have access to Inland Revenue’s online services on behalf of other persons.
The amendments are not intended to restrict a person’s ability to appoint an agent to only the classes listed in proposed section 124B.
For example, a tax advisor (who is not the tax agent, representative or nominated person of the applicant) may prepare and submit a binding ruling application for a taxpayer. The tax advisor would not be required to become a tax agent, representative or nominated person in order to be able to discuss the details of the arrangement covered by the ruling or other relevant matters with Inland Revenue on behalf of the applicant.
Existing provisions for various third party providers
In addition to the proposed new sections for representatives and nominated persons (sections 124D and 124F), the Bill re-numbers or re-drafts a number of existing sections in the Tax Administration Act 1994 so that these provisions come within new Part 7B:
Sections 15C to 15M, dealing with PAYE intermediaries and listed PAYE intermediaries, are re-numbered as sections 124H to 124R.
Section 15N, dealing with RWT proxies, is re-numbered as section 124ZF.
Sections 15O to 15T, dealing with tax pooling intermediaries, are re-numbered as sections 124S to 124X.
Sections 15U to 15Z, dealing with approved AIM providers, are re-numbered as sections 124Y to 124ZE.
Section 34B, dealing with tax agents, is re-drafted as proposed sections 124C, 124E and 124G, where section 124E also deals with representatives and section 124G deals with the Commissioner’s ability to remove a person’s status, or to refuse to approve or allow a person as a tax agent, representative or nominated person.
Information requirements for tax agents and representatives if non-natural persons
Proposed section 124E sets out that if a person who is applying to be a representative or tax agent is not a natural person, they must provide Inland Revenue with the names of the following:
for an entity that is a body corporate other than a closely-held company, each person who has the duties of tax manager, chief financial officer, chief executive officer, or director;
for a closely-held company, each shareholder;
for a partnership, each partner; or
for an unincorporated body, each member.
This information is also required if it has not previously been provided to Inland Revenue at the time of making the application, or, where the information was previously provided, is no longer accurate. This extends the existing information requirements for tax agents who are non-natural persons to representatives that are not natural persons.
Proposed section 124F sets out that a person may nominate another person to act for them in relation to their tax affairs or social policy entitlements by informing Inland Revenue of the nomination and providing the following information (requested by the IR597 form Elect someone to act on your behalf):
the name of the person making the nomination, along with their contact address and IRD number;
the name, contact address, IRD number, and date of birth of the nominated person;
the relevant tax types or social policy entitlements and obligations in relation to which the nominated person will act on behalf of the person making the nomination; and
the relevant start and end dates, as applicable, between which the nominated person will act in relation to the named tax types and social policy entitlements and obligations.
Where the person making the nomination is not a natural person, there is an additional information requirement for the name and position of a natural person who is associated with or related to the entity, such as an employee.
Commissioner’s ability to refuse or remove tax agents, representatives and nominated persons
Consistent with existing section 34B(7), proposed section 124G(1) requires the Commissioner to refuse to list a person as a tax agent if the Commissioner is satisfied that:
the person does not meet the requirements to be a tax agent (listed in proposed section 124C(3); and/or
listing the person as a tax agent would adversely affect the integrity of the tax system.
Proposed subsection (2) sets out the Commissioner’s discretion to remove a person from the list of tax agents or to disallow a person’s approval as a representative if she considers that the person does not meet the relevant eligibility requirements, or if continuing to allow the person to act on behalf of another person in relation to their tax or social policy affairs would adversely affect the integrity of the tax system.
Similarly, proposed subsection (3) states that the Commissioner may disallow a person’s status as a nominated person if she considers that:
the person is acting in a fee-earning or other professional capacity, or if the person is acting for multiple persons whether in a fee-earning or other capacity; and
continuing to allow the person to act on behalf of another person in relation to their tax or social policy affairs would adversely affect the integrity of the tax system.
However, the proposed discretion to disallow a person’s status as a nominated person is more limited than the Commissioner’s existing discretion to remove a person from the list of tax agents, as well as her proposed discretion to disallow a representative for adversely affecting the integrity of the tax system. The discretion to disallow a person’s status as a nominated person would not apply when the person they are acting for is their spouse, civil union partner, or de facto partner, or a person connected to them within two degrees by either blood relationship or adoption.
Notification of refusal, disallowance or removal from list
Proposed sub-sections 124G(5) and (6) require the Commissioner to notify a person of her refusal to list them as a tax agent, or of the reasons for an exercise of her discretion to disallow the person as a representative or nominated person or to remove them from the list of tax agents. The Commissioner is required to consider any arguments against her refusal (or against the exercise of her discretion) that are provided within 30 days of the notice. However, the Commissioner may extend the stipulated 30-day period to a later date set by her if this is appropriate in the circumstances.
Proposed subsection (7) states that the requirement to notify the person of the reasons for their removal from the tax agent list, or for disallowing their status as a representative or nominated person may be disregarded if the Commissioner considers it necessary in the circumstances to protect the integrity of the tax system.
The Commissioner of Inland Revenue is responsible under the Tax Administration Act 1994 for the care and management of the Inland Revenue Acts. The Commissioner’s care and management responsibility has been interpreted as limited to providing her with administrative flexibility regarding allocating her resources to fulfil her statutory duties. It does not provide her with administrative flexibility when there is a legislative anomaly that does not reflect the clear policy intent of the legislation.
At times, however, both Inland Revenue and taxpayers have a clear understanding of the policy intent of a provision and have applied that intent in practice. If a legal interpretation determines that the legislation does not in fact reflect this outcome because there is an anomaly or gap in the relevant provision, significant compliance and administrative costs can be involved before the situation is rectified.
Consistent with the aim of Inland Revenue’s business transformation of reducing compliance costs through a faster, more efficient tax administration, the Bill proposes some new processes that can be adopted to address these situations where no other option is available. Among other safeguards for taxpayers, the outcomes of these processes are limited to a three year application period and cannot be unfavourable to taxpayers.
The Bill proposes to extend the Commissioner’s care and management role by providing more tools for addressing gaps or inconsistencies in the legislation that do not reflect the clear policy intent of a provision. These are:
an Order in Council process;
a Commissioner determination-making process; or
a Commissioner administrative action process.
The aim of these tools is to allow for such anomalies to be addressed more quickly and thus provide earlier certainty to taxpayers until legislative amendments can be made.
Taxpayers will not be disadvantaged by the proposal as it will include a number of safeguards including limiting the application period of the regulation, determination or administrative action to three years and providing the option for the taxpayer to apply or not apply the measure.
The key features of the amendments are:
they apply to a “legislative anomaly” as defined;
they allow a modification to be made to address the legislative anomaly in the form of either an order-in-council, a Commissioner’s binding determination or a Commissioner’s administrative action;
the Commissioner must be satisfied about the necessity for the modification including its impact on tax integrity and the compliance cost burden on the affected class of taxpayers of not taking the action;
the modification is limited to a three year application period during which Inland Revenue must consider if legislative change is required; and
the taxpayer may choose whether or not to apply the modification.
A key aspect of care and management of the tax system is applying and explaining the law to taxpayers. Generally, tax law can be interpreted in a way that is consistent with the policy intent – the discussion document Making Tax Simpler – Towards a new Tax Administration Act noted that usually adopting a purposive approach to interpreting the relevant provision(s) will result in an interpretation consistent with the policy intent. However, it also noted that there will be occasional cases when this is not possible.
The consultation on this and a second discussion document Making Tax Simpler – Proposals for modernising the Tax Administration Act, have led to a recommended extension to the care and management provision to deal with these occasional situations by allowing for an Order in Council process or Commissioner determination-making or administrative action process all of which would be based on specific criteria and guidelines.
Examples of when the discretion could be used include when a drafting error means that the provision is inconsistent with the intended policy and when a gap in the legislation is discovered that creates uncertainty about whether the legislation is consistent with the policy intent. In these situations the amendments would provide a temporary bridge to allow taxpayers to adopt an approach that is consistent with the intended policy. This would avoid the Commissioner and taxpayers having to commit resources to the unintended outcomes until a law change can be progressed to address the anomaly.
The Commissioner’s discretion would not be able to be used to modify the application of a tax law for a particular taxpayer, but rather limited to groups or classes of taxpayers. This will ensure that the discretion is used to remedy objectively determined legislative anomalies and will prevent it from being used in an arbitrary or inconsistent way.
Proposed section 6C(4) defines a legislative anomaly as an unintended outcome caused by a gap or inconsistency in the legislation that arises in relation to either the purpose or the object of a specific provision/s or by a gap or inconsistency between the legislation and Inland Revenue practice which produces the result that the wording does not sufficiently reflect the purpose of the legislation; and does not materially affect the intended scope or the operation of the legislation.
Proposed section 6C(5) provides that in determining the intended purpose of the legislation regard may be had to extrinsic material that is not part of the legislation itself and primacy is not required to be given to the text of the legislation.
The proposed processes for an interim response to a legislative anomaly (called modifications in the legislation) are set out in proposed section 6C(1). These are:
an Order in Council as recommended by the Minister of Revenue;
a binding determination by the Commissioner of the treatment to be applied; and
an administrative action by the Commissioner either notifying a class of persons of a proposed treatment, an exemption for a class of persons to remove a compliance burden or a declaration of the validity of an established administrative practice.
Before seeking to apply one of these processes, the Commissioner must be satisfied about a range of matters including that the action does not cause any detriment to the tax system, the impact of the action on the public and the relevant class of taxpayer, the cost of complying with the unmodified legislation and whether the issue can be addressed in any other way.
Once the modification is made, proposed section 6F provides that the document relating to the modification must:
include a statement explaining the reason for the modification;
be expressed to apply for a period of not more than three years;
be reviewed by the Commissioner during the three year period to determine if it should be proposed as a legislative amendment; and
be tabled in Inland Revenue’s annual report to Parliament.
Proposed section 6H states that a modification must conform to any relevant determination of a hearing authority and that a person can choose whether to apply a modification.
7 Commissioners of Revenue and Customs Act 2005, section 17.
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