We accept that there needs to be some penalty regime as penalties play an important role in ensuring that taxpayers, including withholding agents, have an incentive to comply with their tax obligations. However, imposing a penalty on a conveyancing agent that is based on a percentage of the unpaid RLWT would seem unduly harsh. The conveyancing agent is merely an intermediary in the process of collecting RLWT. The penalties may be disproportionate to the level of offending and may vary based on the underlying RLWT rather than the offending conduct. Comment The level of a penalty should be commensurate to the level of offending in order to prevent perverse incentives from arising. In the context of RLWT, there will generally be more pressure on the RLWT agent not to withhold when the amount of RLWT to be withheld is large (for example, $100,000) compared with a small amount (for example, $1,000). This is because there may be more to gain when there are large amounts at stake. The role of a variable penalty is to diminish this effect by introducing an equivalent downside to not fulfilling their obligations. A penalty would generally have a greater effect on incentivising RLWT agents to withhold and pay RLWT when the amount of RLWT is small (for example, the penalty is $200 when the amount of RLWT is $1,000), but will generally not have the same effect when the amount of RLWT is much larger (for example, the same $200 penalty when the amount of RLWT is $100,000). Withholding taxes normally make the withholding agent jointly and severally liable for the amount of withholding tax, which substantially diminishes the incentive not to withhold. This is not a feature of the proposed RLWT, so variable penalties will play a key role in incentivising RLWT agents to correctly withhold when there are large amounts of funds at stake. Recommendation That the submission be declined. No clause Issue: Assistance for RLWT agents Submission (Auckland District Law Society) Will there be dedicated resources within Inland Revenue to provide support to paying agents who are making assessments and require assistance? In addition, there are several problem scenarios that require addressing before the RLWT comes into effect. What happens if there are joint vendors and only one vendor is an offshore person?
No clause Issue: Guidelines for purchaser and purchaser’s agent Submission (Chapman Tripp, PwC) should be clear guidance for people who do their own conveyancing – that is, where the buyer is the RLWT agent. (Chapman Tripp) Communication strategies should be put in place when the RLWT agent is the purchaser’s conveyancing agent or the purchaser themselves as they may not be aware of their obligations. (PwC) Comment Officials understand that land transfers involving no conveyancer or lawyer make up a very minority of all land transfer transactions, so it will be unlikely that the purchaser will be the RLWT agent but it is possible that the RLWT agent will be the purchaser’s conveyancer or lawyer. However, appropriate guidance will be available to people with RLWT obligations and communication strategies will also be put in place. Recommendation That the submission be noted. Issue: Legislating for interim claims Submission (EY, PwC) Statutory clarification is necessary to provide consistency between the Tax Administration Act 1994 and Income Tax Act 2007. We are not aware of any general statutory authority for taxpayers to file their returns on an interim or early basis. (EY) Specific legislation is required to enable a vendor to prepare and file an interim tax return. (PwC) Comment The Tax Administration Act 1994 already provides for special returns in specific circumstances, including returns when the taxpayer no longer has an enduring relationship with New Zealand and will not derive any further income that will be taxed in New Zealand.
The ICA provisions should be amended to expressly recognise RLWT credits and to provide for the timing of such credit for vendors that are ICA companies. Comment New Zealand-resident companies are able to maintain an imputation credit account (ICA). A company has imputation credits for income tax or provisional tax paid. are then attached to dividends paid by the company to reduce the amount of tax payable on those dividends by their shareholders. Given that the proposed RLWT would be paid on account of income tax, amending the ICA provisions to expressly recognise RLWT credits would lead to double counting. Recommendation That the submission be declined. Clauses 38 and 39 Issue: Tax credits Submission (EY) Clarification is required as to the availability of RLWT credits when are a number of look-through-companies, limited partnerships, trustees and nominee legal owners. Comment This is an area that will require further guidance. However, officials’ intent is that the availability of RLWT credits in circumstances when there is not a single owner should follow the procedure for other types of withholding taxes. The treatment of RLWT credits will be clarified in guidance on the RLWT such as the special report and the relevant Tax Information Bulletin item. Further guidance will also be provided to RLWT agents, where appropriate. Recommendation That the submission be noted. Clause 44
whether, at what time or under which conditions, the customer pays. The electronic marketplace authorises the charge when it decides that the customer’s account can be charged for the service. Recommendation The submission be declined. Issue: Excluding click-through entities Submission (PwC) Click-through entities are those where the ultimate purchaser can click-through a link on their webpage to the supplier. The entity does not facilitate the supply of services from the supplier to the purchaser and therefore should not be required to register and return GST on behalf of the supplier. While the proposed definition of electronic marketplace should not capture click-through entities as an “electronic marketplace”, for the avoidance of doubt, we consider it is preferable to specifically exclude them from the definition. This will provide certainty to click-through entities that the proposed rules will not apply to them. Comment Officials agree that the definition of electronic marketplace is not intended to include entities”. This is because the click-through entity does not make the supply in the situation outlined. Officials consider the wording of the definition of electronic marketplace achieves this policy outcome. Recommendation That the submission be declined, subject to officials’ comments. Clauses 48 and 55 Issue: Rules for cross-border supplies of insurance Submission (KPMG) Insurance is a complex area that will require further consideration and the should be carefully reviewed to ensure that they work appropriately in this context.
Submission (Matter raised by officials) Officials like to raise a number of drafting issues: Proposed section 8B(2) refers to two items being “non-contradictory”. However, in the remainder of proposed section 8B the reference is to “non-conflicting” items. Officials consider that an amendment should be made to ensure consistency of the use of the word “non-contradictory”. Officials consider that proposed section 8B(3)(a) should refer to “at least” two items rather than simply “has”, as the supplier may have more than two other non-conflicting items. Proposed section 77(2) allows a non-resident supplier of remote services to choose to express the amount of consideration in money for their supplies in a foreign currency. Officials consider it useful to clarify that the election to do so would be made in the suppliers GST return. Recommendation That the submission be accepted.