Under the proposed change, wage and salary earners will not be required to request a Personal Tax Summary (PTS) or file a tax return – as they currently do – in order to get a refund from the IRD.
Not mentioned in the Minister’s media statement is that the change will also mean automatic tax to pay where a taxpayer hasn’t paid enough. The government is acutely aware of taxpayers being able to work out whether they have paid enough tax or not before requesting a PTS, and so being able to cherry-pick tax refunds.
The system will work by the IRD making available to a taxpayer at the end of the year a pre-populated account that sets out the wage/salary and passive investment income (eg. interest, dividends) the taxpayer has received during the year. The IRD will have details of this information having received it directly from the employer and investments entities.
If the IRD is satisfied that the information is complete and represents all the taxpayer’s income, or where a taxpayer confirms this to be the case, the IRD will automatically calculate the refund or amount of tax to pay without the taxpayer needing to provide additional information.
If a taxpayer has more than $200 of other types of income, or the IRD suspects they have, they will be required to provide details to the IRD either electronically or manually. The tax assessment will occur when the taxpayer has confirmed the information is complete, or when IRD is satisfied the information is complete.
Taxpayers will be able to provide the IRD with details of deductions and tax credits, including credits for donations so this can be factored into the IRD’s calculation of income.
These changes will apply in respect of the tax year ended 31 March, 2019 and future years.
Other key changes included in the Bill include:
Correct tax rates – The IRD will proactively notify taxpayers and their investment providers of their correct or optimal tax rates and codes where their current ones are wrong or not suitable.
Donation tax credits –Taxpayers will be able to submit donation receipts electronically to IRD during the year and have the refund issued without the need to submit a tax credit claim request.
Correcting tax errors – Errors from previous tax return periods will be able to be corrected in subsequent years’ income tax and GST returns where the total error is less than both $10,000 and two percent of the taxpayer’s taxable income or GST output liability.
IRD advice – A simplified and cheaper binding ruling system for smaller taxpayers seeking IRD’s written view and advice on their tax positions.
The Bill also includes enhancements to KiwiSaver based on the Retirement Commissioner’s recommendations from the last review in December 2016.
The Bill proposes that over 65-year-olds will be able to join KiwiSaver; they are currently not permitted to. The benefit is that it would give over 65s access to KiwiSaver as a provider of low-cost managed funds.
Further, six percent and 10 percent employee KiwiSaver contribution rates will be added to the existing three, four and eight percent rates. These will give members more flexibility to self-select a contribution rate more aligned with their financial circumstances and the retirement savings outcomes they want to achieve.
As well, the maximum five-year contribution holiday that members can elect to take will be reduced to a maximum period of one year. The rationale being that a period of five years is often a lot longer than necessary for a member’s financial position to improve to the point where they could resume KiwiSaver contributions. A five-year holiday can have a significant impact on a member’s long-term savings.
Overall the proposed changes in the Bill are taxpayer-friendly and further support the gradual move by the government to a more modern and simplified tax system.
The comments in this article are of a general nature and should not be relied on for specific cases, where readers should seek professional advice.