New Zealand Automatic Exchange of Financial Account Information in Tax Matters

(If you prefer to read this information in Chinese, please click here)

As you are probably aware, New Zealand is one of the over 100 countries that have agreed to automatically share some financial account information about foreign tax residents using the Common Reporting Standard (CRS).  This exchange of information is globally referred to as Automatic Exchange of Financial Account Information in Tax Matters (AEOI).  The objective of it is to assist in detecting and deterring offshore tax evasion.

In New Zealand, information collected from under the CRS may also be used by the IRD for purposes other than AEOI.  For example, the IRD could potentially use this information to assist it to verify that the correct rates have been used for non-resident withholding tax.

From 1 July 2017, reporting New Zealand financial institutions (NZFIs) must undertake new due diligence procedures for CRS purposes.  These procedures include identifying financial accounts held, or in some cases controlled, by foreign tax residents; collecting prescribed information; and reporting that information annually to the IRD.  From 17 April 2018, NZFIs will be able to submit any CRS reports to the IRD through the IRD’s online system (myIR) for the initial reporting period commencing 1 July 2017 and ending 31 March 2018, and then for annual cycles of 1 April to 31 March.  All CRS reports must be filed with the IRD by no later than 30 June each year.

CRS may have impact on New Zealand residents who have connections with other countries.  To help you reduce some unnecessary tax risks resulting from CRS, we have put together a few check-points for your consideration.  Please take a moment to go through the list below and, if necessary, take actions to update your records with your financial institutions or seek further advice as soon as possible.

1.       Review your tax residency status.  Have you ever lived in other countries?  Do you have various personal, social and economic connections with other countries?  If yes, please check whether you are treated as a tax resident in those countries.  You may need to seek professional advice in the relevant country.

2.       Prior to 30 June 2017, do you hold any personal or entity accounts with New Zealand or overseas banks or financial institutions (e.g. an investment house)?  Do you have signing authority for, control over, or connections of any other kinds with a financial account that is not under your name (e.g. your relative’s bank account) in New Zealand or overseas?  Do you receive (or may receive) beneficiary distribution from a trust’s financial account(s)?  Do you have a related financial account in New Zealand that has a 2% AIL applying to it?  If your answer is yes to any of the above questions, please check whether the information held about you by your various financial institutions are correct.  Particularly, if any of your financial account contains one or more of the following “indicia”, is the information correct?  You may need to contact your financial institutions to obtain the relevant information.

Indicia:
a)       identification of the account holder as a resident of a foreign jurisdiction;

b)      current mailing or residence address (including a post office box) in a foreign jurisdiction;

c)       one or more telephone numbers in a foreign jurisdiction and no telephone number in New Zealand;

d)      standing instructions (other than with respect to a depository account) to transfer funds to an account maintained in a foreign jurisdiction;

e)      currently effective power of attorney or signatory authority granted to a person with an address in a foreign jurisdiction; or

f)        a “hold mail” instruction or “in-care-of” address in a foreign jurisdiction if the Reporting NZFI does not have any other address on file for the account holder

3.       Since 1 July 2017, have you opened a new account with a financial institution in New Zealand or overseas?  If yes, have you completed a “self-certification” with the financial institution, and is all the information included in your self-certification correct?  Again, you may need to contact your financial institutions to obtain the relevant information.

4.       Do you have an New Zealand entity that is a “Financial institution”, which is required by law to register with the IRD and have CRS reporting obligations?  Financial institution generally means a custodial institution, depository institution, specified insurance company, or investment entity (include both “in business” and “managed” investment entities).  Most of these categories require that the entity carry on a specified type of business for customers.  Therefore, they will be very unlikely to apply to your family entities (e.g. a family trust, etc.).  However, if your entity derives most of its income (50% or more) from investing or trading in financial assets over a relevant period and it is managed by a financial institution (e.g. a financial institution corporate trustee or fund manager), then it could be a “managed” investment entity financial institution and thus has CRS registration and reporting obligations.  If you believe that any of your entity falls under this category, please contact your fund manager/investment advisor as soon as possible to check what actions have been undertaken.  Please contact us if further advice is required regarding this point.

5.       Reporting NZFIs will also be required to report to the IRD certain accounts where they have not been able to determine the residency of an account holder.  These are known as “undocumented accounts”.  If an account is undocumented the Reporting NZFI will need to re-apply procedures annually until the account ceases to be undocumented.  Therefore, it is important that you check the tax residency details are correct for all the financial accounts you have connections with.

6.       CRS is an ongoing monitoring process, if you have a change in circumstance, your financial institutions may need to re-assess your account status and report to the relevant tax authority.

7.       As you are aware, New Zealand tax residents’ overseas financial accounts and shares investments are often subject to various New Zealand tax rules, including financial arrangement rules, foreign investment funds rules, etc.  Unless an exemption applies (e.g. the transitional resident exemption), those overseas investments need to be reported to the IRD under the relevant tax rules.  We may have discussed these issues with you when preparing your New Zealand tax returns.  If required, please revisit your tax return documentation.  If you believe that you have any overseas financial accounts/investments that need to be reported to the IRD, but have not yet done so due to omission or other reasons, please discuss with us as soon as possible.  In this situation, it might be necessary to make a voluntary disclosure to the IRD.

Disclaimer:

The above information is a very brief summary of a few key points under the AEOI and CRS laws in New Zealand.  It is for your information only and does not constitute a tax opinion or advice.  If you require advice, please contact us or your tax adviser.  You can also find more information about tax residency, AEOI and CRS through NZ www.ird.govt.nz/international/exchange/crs<http://www.ird.govt.nz/international/exchange/crs> and OECD www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/<http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/>.

The Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill introduced on 13 March 2017

The Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill (248-1) was introduced on 13 March 2017. The Bill is intended to bolster New Zealand’s existing anti-money laundering laws which help to protect businesses and make it harder for criminals to profit from and fund illegal activities.

The Bill proposes amendments to the existing Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act). The Act currently applies to banks, financial institutions, and casinos, and sets out those entities’ core obligations, including:

  • developing a risk assessment and compliance programme
  • undertaking customer due diligence (customer identification and verification)
  • account monitoring, and
  • submitting suspicious transaction reports to the Financial Intelligence Unit of the New Zealand Police.

The Bill extends the obligations to real estate agents, lawyers, accountants, conveyancers, the New Zealand Racing Board, and some high-value dealers. When undertaking certain activities that pose a high risk for money laundering and terrorism financing, these sectors will be required to know who their customers are and on whose behalf they act. The sectors will be required to report large cash transactions, and (other than high-value dealers) will also be required to report suspicious activity, and develop and maintain a risk assessment and compliance programme. High-value dealers will be able, but not required, to report suspicious activities that come to their attention.

The Bill also establishes the Department of Internal Affairs as the relevant anti-money laundering and countering financing of terrorism supervisor for these sectors. Businesses will have a period of time to prepare for the changes. This Bill is intended to be passed by about the middle of 2017. The Government will provide guidance and information to help businesses understand, prepare for and comply with the law. For more information, please visit the Ministry of Justice web page https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cft/aml-cft-amendment-bill/.

 

Overseas income questionnaire

Inland Revenue has produced 3 new publications to assist migrants and New Zealanders who have overseas income, assets or liabilities. The resources are:

• Tax agents’ guide for migrants and returning New Zealanders, IR1069
• Overseas income questionnaire, IR995
• Transitional residency flowchart, IR1028

New Zealand international tax laws are complex and their application may differ from China’s tax laws. These new products will help you understand how the New Zealand tax system works and how they can apply.

IAL has translated the Overseas income questionnaire (IR995) into Chinese here for your reference. If you have answered “yes” to any question in this questionnaire, you should contact a tax advisor to help you with your tax return.

Regular pattern involving disposing of land

“Regular pattern” involving disposing of land

The IRD has recently published a draft ruling regarding “regular pattern” involving disposing of land.

Question

There are exclusions from the land sale rules for your home or residence, but these may not apply if you have a “regular pattern” involving disposing of land.  What is a “regular pattern” for those rules?

 

Answer

  • You will not be able to use the exclusion from the land sale rules for your home or residence if you have a “regular pattern” involving disposal of property that you lived in.  Whether you have a “regular pattern” involving disposing of property that you lived in will depend on the number of similar transactions and the intervals of time between them.  It will be a matter of fact and degree whether you have a regular pattern of such transactions.  There is no hard and fast rule about the number of times or how frequently you can buy and sell, build and sell, or renovate and sell houses that you live in and not be taxed.
  • For there to be a “pattern” there has to be a similarity or likeness between the transactions.  The reason or purpose for each transaction is irrelevant; it is the similarity of the transactions that is important.  For a pattern to be “regular” the transactions must occur at sufficiently uniform or consistent intervals.
  • For a “regular pattern” involving disposal of property that you lived in to prevent you from using the home or residence exclusion, you have to have engaged in the regular pattern independently of and before the transaction in question.  The transaction being considered as potentially subject to tax is not taken into account in deciding if you have a regular pattern of such transactions.
  • There is a cap on how frequently you can use the main home exclusion from the 2-year “bright-line” rule.  You are not able to use that exclusion if you have already used it twice in the two years before the “bright-line” date for land you are selling.  This cap applies even if you do not have a “regular pattern” of acquiring and disposing of residential land.

The draft ruling also provides more detailed explanation and examples regarding the above issues, read on here.  The deadline for comment is 30 May 2016.

Land transfer tax statement

You are now required by law to complete a Land transfer tax statement when you are buying or selling a New Zealand property.  Please see the statement for your reference.  A few notes regarding this statement:

  1. Information in this statement is passed on to the IRD.
  2. Information on this statement can be provided to overseas taxation authorities.
  3. Information in this statement must be retained for 10 years.

When completing this statement, please ensure the information provided is consistent with your other sources (e.g. information provided to the IRD when applying for an IRD number) to avoid any unnecessary confusions.

Non-resident offshore individual IRD No. application

Information regarding non-resident/offshore individual IRD number application

As you are aware, a non-resident/offshore person is now required to have an IRD number in order to buy and sale a New Zealand property.  Below is some information regarding non-resident/offshore individual’s IRD number application:

  1. You are generally required to have the following information for the application:
  • a completed and duly signed ir742 IRD number application – non-resident/offshore individual (IRD ir742 form)
  • a form of photographic identification, such as a passport or an overseas driver’s licence
  • proof of your current or most recent previous address, which may include a utility (eg, electricity or water) statement
  • national identity card or overseas driver’s licence (if not used as photographic identification)
  • proof of your New Zealand bank account confirming Anti-money laundering (AML) checks have been completed. A bank statement showing both deposits and withdrawals or a letter confirming the account has AML verification or that it is active will show this.
  • proof of your taxpayer identification number (TIN) of your most recent tax country/jurisdiction if you have one, eg, personal, national identity, tax or social security number. Provide a copy of a tax statement, ID card or page from your passport that shows this number.
  • proof of your intended activity in New Zealand, see the notes for Question 12 on page 2 of the ir742.
  1. If any of the above documents is in foreign language and has no English translation, the IRD generally require translation to English to be done by the New Zealand Internal Affairs Department.  You can email Internal Affairs at translate@dia.govt.nz, explain what you require and obtain translation pricing and timeframe.
  1. Once you have all the above information, you can email your application to the IRD at offshore@ird.govt.nz.  If your application is urgent, please ensure you state the reason why in your email.  It takes about 10 working days for the IRD to process a normal IRD number application and 2-3 working days for an urgent one.  Please ensure you allow sufficient time for possible delay during the process.

If you need to apply for an IRD number for a non-resident/offshore entity or you are not sure whether your entity is a non-resident/offshore entity, please contact us.  Particularly, if you need to apply for an IRD number for a trust that has an oversea settlor, trustee or beneficiary, please ensure you seek professional advice.

Land with a purpose or intention of disposal

Land acquired for a purpose or with an intention of disposal

On 25 February 2016, Inland Revenue released draft Question We’ve Been Asked PUB00260: “Income tax — land acquired for a purpose or with an intention of disposal” for consultation.

The item is about s CB 6 of the Income Tax Act 2007 (acquisition of land with a purpose or intention of disposal) and discusses when s CB 6 will apply.  The item considers that if land is bought for a purpose or with an intention of selling it, the proceeds of the eventual sale, whenever that occurs, will be income under s CB 6 unless one of two exclusions apply. The exclusions are as follows:

Exclusion 1 — residential land (s CB 6): If the land has a house on it, or you build one, and you occupy the house mainly as a residence, you will not be taxed on the proceeds from selling the property. This also applies if you are a trustee of a trust, and a beneficiary of the trust occupies the house mainly as a residence. Note: This exclusion does not apply if you have a regular pattern of acquiring and disposing of houses, or building and disposing of houses.

Exclusion 2 – business premises (s CB 19): If the land is the premises of a business, and you acquired and occupied the premises or built and occupied the premises mainly to carry on a substantial business from them, you will not be taxed on the proceeds from selling the property. Note: This exclusion cannot be used if you have a regular pattern of acquiring and disposing of, or building and disposing of, premises for businesses.

The item also confirms that the two-year “bright-line” rule is in addition to the other land sale rules that have been in New Zealand’s tax law for many years.  The 2-year rule is aimed at being easy to enforce, by removing the need to determine what a person’s purpose or intention was if they sell residential land within two years of acquiring it.  But if the 2-year rule does not apply, the proceeds from selling land can still be taxed under one of the other land sale rules, including the purpose or intention rule.

Rental property not permanent place of abode

The Court of Appeal has dismissed the Commissioner’s appeal from the High Court’s decision reported asDiamond v C of IR (2014) 26 NZTC. The Court of Appeal rejected the Commissioner’s argument that having a rental property “available” to the taxpayer was sufficient to amount to having a permanent place of abode in New Zealand.  The Court of Appeal noted that the focus was on whether the taxpayer, not members of the taxpayer’s family, had a permanent place of abode in New Zealand. The Court said that the fact that a taxpayer may provide a home for his or her family in circumstances where the taxpayer lives elsewhere would not necessarily be sufficient to establish that the taxpayer had a permanent place of abode in New Zealand.

This judgement will obviously help to reduce the uncertainly when considering whether a person is a New Zealand tax resident.