Simplifying filing requirements for individuals

New 2012 legislation implements changes but enables the two returns of income forms for individuals, the IR 3 and the PTS, to continue being used.

The Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, as introduced, contained three proposals to simplify the income tax filing requirements for individuals. These were:

  • Amalgamating the two main income tax return forms for individuals: the income statement, also known as the personal tax summary (PTS) and the IR 3 form. The bill achieved this by removing the requirement for the Commissioner to issue PTSs to certain taxpayers
  • Requiring individuals who are not required to file a tax return, but who choose to do so anyway, to file tax returns for the previous four tax years, in addition to the year in which they have chosen to file.
  • De-coupling the requirement for individuals to file an income tax return (usually a PTS) merely because they receive Working for Families tax credits.

The bill as enacted has been amended, to remove the proposal that would have had the effect of amalgamating the two main tax return forms for individuals. This proposal was removed to allow Inland Revenue to implement this suite of proposals in a way that is less resource- and system-reliant. The result is that the two returns of income forms for individuals, the IR 3 and the PTS, will continue to be used.

New section 33AA of the Tax Administration Act - annual tax return not required

Sections RC 3 and YA 1 (definition of non-filing taxpayer of the Income Tax Act 2007); sections 3 (definition of tax position), 22(3), 33, 33AA, 33A, 33C, 33D, 38, 43, 80A, 80B, 80C, 80D and 80F of the Tax Administration Act 1994; section 81 of the Child Support Act 1991

Section 33A of the Tax Administration Act 1994 (annual returns of income not required) has been replaced with new section 33AA (exceptions to the requirement for return of income).

Background

As part of drafting the amendments to give effect to the proposed amalgamation of the two main income tax return forms, section 33A of the Tax Administration Act was rewritten. New section 33AA is based on the premise that section 33 of the Tax Administration Act requires that all taxpayers must file, and the new section clearly identifies the individuals that are not required to file an income tax return. This includes not being issued or being required to request a PTS.

Key features

Section 33A has been replaced by new section 33AA of the Tax Administration Act. A number of consequential amendments have been made to the Income Tax Act 2007, the Tax Administration Act 1994 and the Child Support Act 1991 to reflect the reference to, and the structure of, this new section.

The criteria for determining whether an individual has to file a return of income or not, as set out in section 33AA(1), (2) and (3) has not changed. The new provisions set out the criteria in a more logical manner.

Detailed analysis

In general terms, section 33AA(1), (2) and (3) of the Tax Administration Act provides that an individual is not required to file a return of income, be issued with a PTS, or be required to request a PTS for a tax year if the person:

  1. Derives assessable income of the following types:
    • Income from employment that is subject to PAYE;
    • Interest or dividends that is subject to resident withholding tax (RWT);
    • A taxable Māori authority distribution; or
    • A personal service rehabilitation payment.
  • and
  1. Derives a total of $200 or less of a type of income not referred to in (a) above (for example, a dividend received from an Australian listed company).
    and
  2. In relation to the types of income listed in (a) above, includes a total of $200 or less of an amount of income that has not been withheld at the correct withholding rate, the obligation to withhold PAYE has not been met, or the income is subject to a flat withholding rate such as employment as an election day worker (17.5% rate).
    and
  3. Derives no income from employment that is subject to a special tax code.
    and
  4. Has total income of $200 or less from schedular payments or derives no income from schedular payments other than an amount that is treated as expenditure incurred in deriving a schedular payment under section RD 8(3) of the Income Tax Act 2007.
    and
  5. Has a total income of $200 or less or derives no beneficiary income.
    and
  6. Derives no income from providing personal services to an ACC claimant or meets the requirements of section 33C (that is tax was withheld at the correct rate from the provision of such services - taxable income $14,000 or less and tax withheld at 10.5% from the personal service rehabilitation payment).
    and
  7. Is at all times a New Zealand resident or a non-resident deriving only non-resident passive income.
    and
  8. Is not a provisional taxpayer (that is a person liable to pay provisional tax under section RC 3 of the Income Tax Act 2007).
    and
  9. Is a cash basis holder (that is a person who is not required to use a spreading method to calculate the income and expenditure under a financial arrangement).
    and
  10. Has no tax loss (including tax loss carried forward from an earlier tax year) other than a tax loss component under section LE 2 of the Income Tax Act (that is a tax loss resulting from excess imputation being converted to a tax loss component).1
    and
  11. Has not carried forward to the tax year excess imputation tax credits (that is imputation credits that have not been used to satisfy the person's tax liability for that year).
    and
  12. At no time holds a resident withholding tax exemption certificate.
    and
  13. The Commissioner does not require the person to file a special return under section 44 of the Tax Administration Act or the Commissioner does not consider that the person should file a return of income.
Example 1

Jo earns a salary of $50,000 a year which has had PAYE deducted by her employer at M tax code. In addition, Jo derives $100 of interest that had RWT deducted at the 17.5% rate. Jo is not required to file a return of income or be issued with a PTS because she:

  • received only income from employment that is subject to the PAYE rules and she has met the obligations under the PAYE rules (used the correct tax code); and
  • received interest income under $200, despite an incorrect RWT rate, which should have been 30% as the annual gross was over $48,000 and not more than $70,000.

Jo may request a PTS.

Example 2

Joe has two jobs. He earns a salary of $48,000 a year which has had PAYE deducted by his employer at M tax code. Also he works part-time at the local video shop and earns $15,000 a year which has had PAYE deducted by his employer at the S tax code. Joe is required to file a return of income (and will be issued a PTS by Commissioner or is required to request one) because he received more than $200 of secondary income employment that was not withheld at the 30% rate (it was withheld at the 17.5% tax rate).

New section 33D of the Tax Administration Act ensures that a non-resident seasonal worker is not required to file a return of income or be issued with an income statement from the Commissioner. A non-resident seasonal worker is a non-resident person employed under the recognised seasonal employer policy published by the Ministry of Business, Innovation and Employment (Department of Labour) under section 13A of the Immigration Act 1987.

Application date

The amendments apply from the 2016-17 income year, unless an Order in Council is made so that the amendments apply from an earlier income year.

Requiring an individual who elects to file to also file across the previous four years

Sections 33AA, 120B and 139B of the Tax Administration Act 1994

New section 33AA of the Tax Administration Act 1994 requires an individual who is not required to file a return of income (including a PTS) but chooses to file to also file returns for the previous four tax years, if no return has been filed for those years.

Background

Currently, taxpayers who are not required to file a tax return, or be issued one by the Commissioner, can choose to file. This allows taxpayers to "cherry pick" the years in which they are due a refund as a result of, say, over-deducted PAYE. In such cases, taxpayers choose not to file in years when they have a tax liability (terminal tax) following an under-deduction of PAYE.

This concern is addressed by requiring these taxpayers to also file for the previous four tax years, resulting in greater fairness across the tax system.

Key features

Section 33AA(4) of the Tax Administration Act requires a person who is not required to file a return of income for a tax year because they satisfy the requirement of section 33AA(1) of that Act, but chooses to file a return of income (PTS), to file returns of income for the each of the five tax years immediately preceding the tax year in which the taxpayer decides to file a tax return.

This requirement will be phased in. For the 2016-17 tax year, the requirement only applies to the current year return. Past tax year returns will be subject to the current rule, which is that there is no requirement to file back-year returns unless the person chooses to do so. For the 2017-18 tax year, a person will need to file returns for both the 2017-18 and 2016-17 tax years. An additional year will be included each year until this requirement is fully in place by the 2020-21 tax year.

Example 1

Joe is a salary and wage earner who has not filed a tax return (PTS) for the tax years 2016-17 to 2019-20 as he meets the requirements of section 33AA(1) of the Tax Administration Act. On 15 August 2021 Joe requests a PTS for the 2020-21 tax year as he is due a refund. Under this rule, Joe is required to file PTSs for the four proceeding tax years; 2016-17, 2017-18, 2018-19 and 2019-20.

Example 2

Joe is a salary and wage earner who has not filed a tax return (PTS) for the tax years 2016-17 to 2020-21 as he meets the requirements of section 33AA(1) of the Tax Administration Act. On 15 August 2021 Joe requests a PTS for the 2018-19 tax year as he realises he is due a refund. Under this rule, Joe is required to file PTSs for the additional following tax years; 2016-17, 2017-18, 2019-20 and 2020-21.

Where section 33AA(4) of the Tax Administration Act applies, new section 33AA(5) allows any tax refunds and any terminal tax arising in respect of each tax year to be offset against each other. It treats the period to which the returns are required to be filed under subsection (4) to be treated as a single period. The resulting amount, if tax is payable, is due either on the date specified in a notice or 60 days after the notice, whichever is the earliest.

Example 3

Joe is a salary and wage earner who has not filed a tax return (PTS) for the tax years 2016-17 to 2020-21 as he meets the requirements of section 33AA(1) of the Tax Administration Act. On 15 August 2021 Joe requests a PTS for the 2020-21 as he is due a refund. Under the four-year rule, Joe is required to file a PTS for the following tax years; 2016-17, 2017-18, 2018-19 and 2019-20. For these returns, Joe is due tax refunds and has tax to pay (terminal tax) as follows:

  • 2016-17 $30 tax refund
  • 2017-18 ($20) tax to pay
  • 2018-19 ($25) tax to pay
  • 2019-20 ($30) tax to pay
  • 2020-21 $120 tax refund.

Joe will receive an overall tax refund of $75 ($150 - $75).

If Joe had ended up overall with tax being payable, the tax due would be payable on the later of:

  • the day specified in the notice; or
  • 60 days after the date of the notice.

New subsection 33AA(6) of the Tax Administration Act ensures that a person who is subject to the filing requirements of section 33AA(4) is not liable or entitled to use-of-money interest or late filing penalties. Use-of-money interest does not apply in respect of tax returns for the period from the due date for the payment of tax for the return to the date the return was received by Inland Revenue.

Application date

The amendments apply from the 2016-17 income year, unless an Order in Council is made so that the amendments apply from an earlier income year.

Removing the requirement to file a tax return for taxpayers who receive Working for Families tax credits

Sections 33AA and 41 of the Tax Administration Act 1994

New section 33AA of the Tax Administration Act 1994 which replaces section 33A does not specify that a taxpayer who receives Working for Families tax credits (WFF tax credits) is required to file a return of income. Such a person will only be required to file a return of income if required by another tax law to do so, not merely because they receive these credits. This will also apply to the WFF tax credit recipient's spouse or civil union or de facto partner. They will still be required to file the necessary information such as family scheme income and family details to claim their WFF tax credit entitlements.

Background

Currently, section 33A of the Tax Administration Act specifies that a taxpayer who receives WFF tax credits is required to file a return of income or receive a personal tax summary (PTS). This requirement also extends to a recipient's spouse or civil union partner or de facto partner. Requiring this group of taxpayers to assess their annual income tax liability merely because they receive WFF tax credits is unnecessary.

Key features

New section 33AA of the Tax Administration Act which replaces section 33A removes the requirement for taxpayers who receive WFF tax credits to file a return of income or receive a PTS. This applies also to the recipient's spouse or civil union or de facto partner. The person will only be required to file a return of income if they are required by another tax law to do so or if they are not required but choose to do so. New section 33AA(4) applies to those are not required to file but who choose to do so.

Section 41 of the Tax Administration Act which deals with annual returns by persons who receive WFF tax credits has been amended. Subsection (4) has been replaced by a new provision which sets out the information that a person must provide to the Commissioner for WFF tax credit purposes. A person must furnish a return for the tax year, providing:

  • details of each WFF tax credit paid to the person;
  • information relevant to calculate the person's family scheme income for the tax year; and
  • any other information required by the Commissioner.

Application date

The amendments apply from the 2016-17 income year, unless an Order in Council is made so that the amendments apply from an earlier income year.

Amendment to filing requirements in the Tax Administration Act

Section 33A(1)(b)(via) of the Tax Administration Act 1994

Section 33A(1)(b)(via) of the Tax Administration Act 1994 has been repealed. This subparagraph meant that an individual whose annual income was more than $70,000 had to file a return of income if they received more than $200 of dividends. The provision was originally inserted because the top personal tax rate was higher than the RWT rate on dividends (which is 33%). The misalignment of the top personal tax rate and the rate of RWT on dividends meant there was a possibility for taxpayers on higher personal tax rates to have insufficient tax withheld if they earned more than $200 of dividends. With the change in personal tax rates, and the resulting alignment of the top personal rate and the RWT rate on dividends, this legislative provision is no longer necessary.

Repealing section 33A(1)(b)(via) means that shareholders do not have to file a return of income simply because they receive more than $200 of dividends and their annual income is more than $70,000.

Application date

The amendment applies from the date of Royal assent, being 2 November 2012.


1 Since the 2005-06 tax year, excess imputation credits for individuals have been carried forward and not converted to a tax loss.