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Investment income information reporting changes

December 20, 2019

Inland Revenue (IR) have introduced several significant changes dealing with the way investment income is reported.Payers will be required to provide more detailed investment income information more frequently, and in an electronic format. For most types of investment income, that will mean reporting monthly.

Detail and frequency of investment income information

Currently, Inland Revenue does not receive sufficiently detailed and frequent information about the investment income that taxpayers earn and the tax withheld or paid on that income.

For interest income, IR doesn’t receive information about the income earned and the tax deducted from that income, until after the end of the tax year.

For dividends and interest income that is exempt from RWT, IR doesn’t receive information about the amounts received by recipients at all, unless it is specifically asked for.

Change – From 1 April 2020 more frequent reporting of investment income in an electronic format will be compulsory.Payers of interest will be required to provide interest income information to Inland Revenue by the 20th of the month following the month in which the income was paid.Payers do not need to report payments they make to investors that are exempt from RWT.

Change – From 1 April 2020 companies paying dividends will need to provide details of dividend payments to IR, including names and identifying details of recipients.Reports are due by the 20th of the month following the month in which the dividend was paid to the shareholder. You only need to report for the periods in which a dividend is paid.

Change - For the tax years ending 31 March 2019 and 31 March 2020, payers of interest income subject to RWT and income subject to NRWT (apart from royalties) will need to report the currently required year-end information by 15 May, rather than 31 May.

Change – From 1 April 2020 interest payers that do not need to withhold tax on interest they pay will be required to provide information of the name, contact details and amounts paid to income recipients.This will need to be reported electronically unless an exemption is obtained.This is all due when the annual income tax return is filed.

IRD Numbers

Inland Revenue is not able to attribute income to a taxpayer if they do not have the taxpayer’s IRD number. Data shows that 20% of the end of year interest certificates that IR receives do not include an IRD number. This means that this interest income will not be taken into account for tax and social policy purposes.

Change - From 1 April 2020, a new non-declaration rate (45%) for resident withholding tax (RWT) on interest income will be applicable where the recipient has not provided the interest payer with their IRD Number.

Joint Accounts

Inland Revenue is only provided with one IRD number for a joint bank account. All the income from that account is allocated to the owner whose IRD Number is associated with the account. The joint account owners then may need to file tax returns to correct their tax positions.

Change - The investment income payer informs Inland Revenue that the taxpayers are operating a joint account and provides income and identifying information.IR will split any income received from investments equally across all joint account holders who have provided their IRD numbers to their investment income payer e.g. their bank. If income hasn’t been allocated to your account, this is because your investment income payer does not have your IRD number.

Change - Account holders can correct the allocation via myIR on Inland Revenue’s website or in their income tax return. IR will allocate all future income and credits with this updated split.

Date of birth information

Another problem preventing Inland Revenue from helping taxpayers get it right from the start is that they do not have sufficient information to confirm some taxpayers’ identities. In order to be able to ensure income is allocated to the correct taxpayer, IR needs the taxpayer’s date of birth information in some circumstances

Change - Date of birth for payees is to be provided to Inland Revenue if held by the payer.Date of birth information is already collected by payers as part of “know your customer” processes for anti-money laundering purposes.

Electronic filing

Change - As mentioned, investment income information will be required to be provided electronically from 1 April 2020. There will be a monthly $250 penalty for those who do not provide investment income information electronically each month and who do not have an exemption.

Smaller payers of investment income will be able to file information through myIR using an online form.

The Commissioner of IR can grant an exemption from electronic filing. In considering whether to exercise her discretion, the Commissioner must have regard to:

▪ the capability of the investment income payer relating to the use of computers

▪ the nature and availability of digital services, including their reliability, and

▪ the costs involved with complying if they would be unreasonable in the circumstances.

RWT exemptions

Taxpayers holding certificates of exemption from resident withholding tax (RWT) are entitled to be paid interest and dividends without having any tax deducted by the payer.

Change - Inland Revenue will no longer issue RWT exemption certificates and instead people will need to apply to IR for RWT-exempt status. People who have applied for the status and been accepted will be placed on an electronic register created by Inland Revenue. RWT-exempt people will have to refer entities paying them investment income to this register instead of providing an exemption certificate. Payers will have a legislative obligation to check the RWT status of people to whom they pay investment income.

End of year RWT Certificates

Payers of resident withholding income are currently required to provide end-of-year tax certificates to the recipients of the income – such as year-end interest certificates. These certificates set out the amount of income earned and tax deducted, which recipients can then include in their tax return.

Change – From 1 April 2020 the requirement to issue end of year RWT on interest certificates to recipients of interest income is removed if they have provided their IRD number.

Comment

Payers of interest and dividends will need to understand the impact of these changes, in particular:

  • the non-declaration rate
  • collection of more detailed information about account owners
  • monthly reporting requirements and deduction of RWT
  • RWT exemptions
  • electronic filing
  • review of interest payments where RWT is not currently deducted

If you have any questions or need any assistance with implementing these new rules, please contact your usual Chester Grey advisor.