Changes to the secrecy and information sharing rules
2011 changes to the secrecy and information sharing rules facilitate the sharing of tax information between IR and other government agencies.
Section 81(1) and new section 81BA of the Tax Administration Act 1994
Amendments have been made to the Tax Administration Act 1994 to:
- relax the taxpayer secrecy rules for tax administration purposes; and
- facilitate the sharing of tax information between Inland Revenue and other government agencies.
In June 2010, the discussion document Making Tax Easier, was released for consultation, alongside an online forum seeking feedback on a range of proposals aimed at making the tax system easier and more efficient for taxpayers to interact with. Included were proposals concerning the operation of Inland Revenue's tax secrecy rules.
Inland Revenue is subject to a strict obligation of secrecy in relation to the information it collects and holds. The general rule, contained in section 81 of the Tax Administration Act 1994, requires all employees of Inland Revenue to keep secret all matters that come to their knowledge relating to the Acts administered by Inland Revenue. This is subject to a number of exceptions, for purposes both related, and unrelated, to the administration of the tax system.
The operation of the New Zealand tax system is heavily reliant on taxpayers voluntarily complying with their obligations. For taxpayers to be willing to comply with their obligations, it is critical that they trust Inland Revenue. Appropriate treatment of taxpayer information is an important aspect of building and maintaining this trust.
However, Inland Revenue also needs to be able to disclose information to taxpayers and third parties in certain circumstances, in order to efficiently operate the tax system. There are also certain situations when disclosure, while not directly related to the operation of the tax system, has been considered important enough by Government that a specific exception to the secrecy rule has had to be enacted.
Therefore changes have been made to Inland Revenue's information disclosure rules. First, to relax the taxpayer secrecy rules, to extend the ability of the Commissioner to release taxpayer specific information for the purposes of administering the tax system, subject to certain criteria (section 81(1)) and secondly, in relation to Inland Revenue's ability to share information with other government agencies (new section 81BA).
Section 81(1) of the Tax Administration Act - Disclosures for tax administration purposes
The Act amends the secrecy rule contained in section 81 of the Tax Administration Act 1994 to give the Commissioner of Inland Revenue greater discretion to release taxpayer information for the purpose of administering the tax system more efficiently. The new rule only permits disclosures that are made in the course of the Commissioner's duties - that is, the disclosure must be for the purpose of executing or supporting the execution of a duty of the Commissioner.
In deciding whether to exercise the discretion to release information, the Commissioner must consider his obligation to use best endeavours to protect the integrity of the tax system, the importance of promoting compliance, especially voluntary compliance, the resources available to him, any personal or commercial impact of the communication, and the public availability of the information. Following consideration of these factors, the Commissioner may release information if the communication is considered reasonable, having regard to the purpose of the disclosure and these factors.
A draft standard practice statement has been released for comments, setting out how the new rules will be administered in different situations. (See inside front cover of the Tax Information Bulletin Vol 23, No 8 (October 2011) for the notice.) The statement outlines the process for disclosure and the level at which different types of disclosure are signed off. It also provides examples of situations where disclosure will and will not be permitted under the new rules.
Inland Revenue will in future include information regarding the use of the new secrecy rules in its annual report. This will constitute a brief summary of the use of the provision over the previous year in particular noting any issues or areas of complaints that have arisen.
New section 81BA of the Tax Administration Act - Sharing information with other Government agencies
The Act also introduces changes to facilitate the sharing of tax information between Inland Revenue and other government agencies. This will allow more efficient use of information collected by Inland Revenue and reduce the need for individuals to provide duplicated information to multiple government agencies. The Act allows an Order in Council to be made, authorising the sharing of Inland Revenue information with another government agency.
Inland Revenue can communicate the information if it is already available to Inland Revenue, it is reasonable and practicable for the Commissioner to do so and certain criteria are satisfied. The criteria are:
- the government agency seeking access to the information must have the ability and authority to collect the information in its own right;
- it is either inefficient for the agency seeking access to collect and/or verify the information itself, or there must be compliance benefits to individuals for the information to be shared rather than collected separately;
- an Order in Council is made to specify and authorise the nature, type or class of the information to be shared with another government agency; and
- the Commissioner and the government agency have entered into a memorandum that states the purpose of the communication of the information, the use that may be made of the information, and the arrangements that may be made of the information, and the arrangements for the control, security, subsequent disclosure, and accuracy of the information, including access to it by taxpayers, as well as providing for monitoring arrangements.
The final decision on whether information should be shared with another agency will be made by Cabinet. Before recommending a sharing arrangement to Cabinet the Minister must consult with the Privacy Commissioner, the agencies that may be affected by the proposed order, and any organisations considered by the Minister to represent the interests of those likely to be substantially affected by the proposed information sharing arrangement. Further, the Minister must determine that the information to be shared is not so sensitive that it will unduly inhibit individuals from providing accurate information in the future.
The changes seek to strike an appropriate balance between individuals' privacy rights and a more efficient and effective government service. Several privacy safeguards are built into the legislative framework, such as the requirement that information shared must be information that the requesting agency is authorised and able to collect in its own right. In addition, Inland Revenue and the agency seeking access to the information must enter into a memorandum of understanding, covering a range of specified matters, including safeguards for the information being shared.
The first information sharing arrangement is likely to be with the Ministry of Social Development. Inland Revenue currently has eight information-matching agreements with the Ministry under the current Privacy Act 1993. In several of these matches Inland Revenue is unable to provide information until the Ministry has sent information to Inland Revenue on selected individuals and a match has been found. Inland Revenue is currently unable to, for example, advise the Ministry of cases of benefit overpayment it becomes aware of, unless an information matching request has been generated by the Ministry in respect of the individual concerned.
The Act includes provision for a review of the information sharing framework after five years of operation to consider any impact on the privacy of individuals, the impact on the tax system, and whether any further amendments to the law are necessary.
Section 81(1) and new section 81BA came into force on 29 August 2011.