In a statement made on August 30th Peter Dunne, Revenue Minister of New Zealand, said that there are currently several inconsistencies and issues within the national social assistance system. According to the Minister, some individuals are able to restructure their financial affairs, in order to unfairly receive monetary assistance from the Government, like Working for Families, student allowances and community services cards.

Peter Dunne announced that the Government has released Social Assistance Integrity: Defining Family Income, a public issues paper which seeks feedback on the potential solution to the perceived unfairness. The man suggestion consists of a revamp to the definition of income, when evaluating welfare applications. Specifically, income from trusts, some fringe benefits, passive income of children such as interest or dividends over NZD 1 000 a year, and income of non-resident spouses are being suggested as potential changes.

It has been proposed within the paper that some of the changes be instated as early as April 1st 2011. Any suggestions brought forward from the consultations will be instated through the Supplementary Order Paper to the Taxation (GST and Remedial Matters) Bill, which is currently in front of parliament.

The paper can be found on the Inland Revenue Department website, and all submissions are required to be submitted before September 24th 2010.

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After a round of public consultations, the New Zealand Government intends to instate several changes to the national student loan system. On August 27th Peter Dunne, Revenue Minister of New Zealand, announced that a bill had been tabled in Parliament with the alterations, saying “Student Loan Scheme Bill paves the way for borrowers to communicate with Inland Revenue online and vice versa, and is part of a package of reforms to simplify the way Inland Revenue administers student loans.”

The bill aims to reduce the number of physical letters and correspondences sent to loan-holders and migrate Studylink to an up-to-date electronic filing system. According to Peter Dunne, the change will be of great benefit to overseas-based borrowers. The bill also removes the currently enforced end-of-year assessments for salary earners whose incomes are over the pay-period repayment thresholds. If the changes are passed, the Inland Revenue Department (IRD) will assume that loan repayment deductions correct and final, and minor end-of-period discrepancies will be ignored.

The penalty payment rules applicable to student loans will also be changed, “so an individual’s debt does not quickly become insurmountable.” Currently, the compounding monthly late payment penalty is set at 1.5 percent, an equivalent to 19.56 percent as an annual interest. Under the bill, the late payment interest will be charged only on overdue amounts, and be levied at the Government’s base interest rate with a 4 percent penalty margin. Borrowers who enter into installment payment plans will be subject to a rate of 2 percent.

If passed, the bill will come into effect in April 2012.

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Couples with children could be given the option of working fewer or more flexible hours, if a new legislation passes through Parliament. On the 16th of August the Taxation (Income-sharing Tax Credit) Bill was tabled in Parliament. The bill proposes that a couple with dependent children be able to choose to be taxed on an equal share of their combined incomes, and receive an end of year tax credit on any tax benefits calculated. Explaining the benefits, Peter Dunne, Revenue Minister of New Zealand, said, “Because income tax rates rise according to the amount earned, many families could ultimately end up paying less tax if, for example, one parent works fulltime and the other chooses to remain home to care for their children.”

Peter Dunne has proposed the income sharing system before, in his role as the leader of UnitedFuture party. He claims that the scheme would empower families and parents who choose to stay at home to provide fulltime care to children.

Some doubt has already thrown on the proposal, as it could potentially breach the New Zealand Bill of Rights Act. Those opposing income sharing have claimed that it discriminates against solo parents. Petr Dunne has accepted the view, but maintains that solo parents have access to a selection of fiscal support mechanisms like childcare subsidies, the minimum family tax credit, the childcare rebate and the domestic purposes benefit.

If the Bill passes through all stages of Parliament approval and legal ratification the credit will apply from the tax year beginning 1 April 2012.

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Tackling current imbalances in the New Zealand economy will not be a short-term task, and will require “relentless” long-term focus and policy reform. The analysis and the Government’s future policy outlook was released on August 11th, in a speech to the New Zealand Council for Infrastructure Development, by Bill English, Finance Minister of New Zealand.

The international credit environment is too constrained for New Zealand to readily address economic imbalances, and the recovery will be based on stable growth of earnings sectors, like exports. Attention also needs to be paid by individuals, businesses and the Government to repaying the country’s overwhelming levels of debt.

In an attempt to achieve sustainable economic growth the Government’s policy decisions will revolve around six key factors: strengthening the tax system, providing more efficient public services, reforming economic regulations, raising national education and skill levels, increasing business innovation, and investing in productive infrastructure projects. According to Bill English, for the last 18 months the Government has been working to prepare new policies in line with the six new focuses, which are scheduled to be released in September.

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New Zealand’s unemployment rate rose to 6.8 percent during the June quarter, compared to a level of 6 percent in the prior quarter. The latest figure represents a 19 000 person increase in national unemployment, bringing the total to approximately 159 000. The statistics were released government’s Household Labour Force Survey, released on August 5th.

Last month Alan Bollard, Governor of the New Zealand Reserve Bank, predicted an unemployment rate figure of only 6 percent. National economists believe that the Governor’s recent decision to raise New Zealand’s Official Cash Rate (OCR) was based on the more optimistic prediction. Explaining the unexpected rise, Statistics New Zealand released a statement saying ,”This rise in unemployment follows an unseasonal drop recorded in the March 2010 quarter and indicates a period of volatility in the labour market.”

Opposition party leaders have already struck out at the National Party, claiming that the unemployment rate is a direct result of the Government’s poor economic policies. Phil Goff, Labour Party leader, said “Kiwis have had enough of gimmicks like the Jobs Summit and the cycleway – they want action from the government to get them back into work.”

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Ian David Penny and Gary John Hooper’s application to appeal to take their “company structure” tax evasion case to the Supreme Court was approved on August 2nd. The action revolves around alleged tax evasion committed by the medical professionals through a controversial company structure which was claimed, by the Inland Revenue Department (IRD), to amount to non-payment of their fair market salaries, for the purpose of reducing income tax liabilities.

In June 2010, the New Zealand Court of Appeal agreed with the IRD that the doctors used corporate and family trust structures to greatly downplay their taxable incomes, by paying themselves salaries well below the “market rate”. The IRD claims that Ian David Penny saved a cumulative NZD 102 000 in personal income tax payments through the structure. Gary John Cooper was alleged to have lowered his payments by NZD 65 000.

The case is scheduled to be heard by the Supreme Court in early 2011. Meanwhile the IRD commented on the development, saying that it welcomes the opportunity to hear the Court’s clarification of the Income Tax Act 1994, but until then will continue to apply the laws as set out by the Court of Appeal.

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The High Commission in London has confirmed that the Governments of New Zealand and the Isle of Man have appropriately completed their legal ratification processes regarding the Tax Information Exchange Agreement (TIEA) and Double Taxation Agreement (DTA) signed by the countries. With the stipulated one year waiting period over, as outlined in the agreements, the DTA and TIEA came into force on July 27th.

Under the new TIEA, the Governments of both countries will be able to request taxation and bank information on taxpayers in cases of suspected tax evasion or investigations. The agreement is aimed at greatly reducing instances of tax evasion between the two countries, and counts towards the Organization of Economic Cooperation and Development’s (OECD) standards of international tax transparency.

The DTA eliminates the occurrence of double taxation on incomes earned in either country, by allocating taxation rights to Governments, on a pre-determined set of taxpayer incomes. The DTA also addresses transfer pricing adjustments on transactions carried out by cooperation operating between the nations.

The Isle of Man Government stated that the now-effective agreement shows the country’s dedication to upholding internationally agreed standards on taxation and cooperation, along with the principles of transparency and effective exchange of information in tax matters.

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New Zealand has continued down a path of a relatively healthy economic recovery in recent months, despite a small slowdown in selected growth figures. On July 29th Allan Bollard, Governor of the Reserve Bank, revealed that the current conditions are adequate to warrant a slight withdrawal of stimulus policy and a 25 basis point increase the Official Cash Rate (OCR). The rate will now be 3.0 percent.

New Zealand’s near and medium-term forecasts for GDP growth remain strong, riding the confidence of the manufacturing industry and the forestry sector’s resilient growth. Business investment is also expected to pick up over the medium-term, with a great positive impact on national growth. However, the Reserve Bank has revealed that domestic demand is marginally lower than during the previous OCR adjustment, with public spending and household credit showing dampened growth. Additionally, business investment is below previous forecasts.

Despite the handful of decreased growth predictions, Alan Bollard maintains that the latest OCR increase is justified. Even at its adjusted level, the OCR is still very supportive of economic growth, although the pace and extent of future rate movements will need to be reexamined. The Reserve Bank Governor did note that with the new OCR and the Government’s upcoming GST rate increase, national inflation could temporarily climb above 3 percent. However, the effect is expected to be short term, and the Treasury will monitor its effects closely to ascertain the complete economic impact.

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The New Zealand Rewrite Advisory Panel (RAP) requires public comment legislations surrounding the taxation of beneficiary income of trusts and the issue of Available Subscribed Capital on corporate reorganizations. The request was raised by Peter Dunne, Revenue Minister of New Zealand, late last week.

The two issues are the initial cases that will be investigated by the RAP its new role as a consulting independent body to the Government on remedial tax issues. The RAP was originally created to investigate unintended changes arising during the rewrite of the Income Tax Act 1994. The role was eventually expanded to encompass recommending actions to deal with remedial tax law issues arising from rule changes of other Acts. In March 2010, the RAP was instructed to investigate and recommend clarifying actions on any issue raised by the Revenue Minister. Summarizing the new role of the RAP, the Minister said that the Panel’s work will be “…invaluable in providing quick responses to particular remedial questions that do not involve policy change and are not being dealt with by the tax policy work programme.”

Public comment on the capital of companies being reorganized and beneficiary income of trusts must be submitted to the RAP before September 3rd. All submitted issues will be examined by the Panel, who will forward the problem’s details along with recommended-action report to the IRD.

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Throughout the previous financial year, the Inland Revenue Department (IRD) and 29 520 New Zealand businesses have made installment-payment agreements for NZD 546 million worth of unpaid taxes. A similar negative effect on tax payments is expected to continue throughout the current fiscal year, according to the IRD’s latest annual Compliance Focus report, released on July 23rd.

Bob Russell, Commissioner for Inland Revenue, stated that the IRD anticipated the current number of businesses requiring tax payment arrangements, due to the economic downturn. Many of the suffering businesses have not previously experienced a serious economic recession, and are subsequently unaware of the tax laws surrounding businesses losses. However, Bob Russell added that in the IRD’s experience, some of the businesses claiming to be in financial difficulty are actually artificially inflating their losses or understating their reported incomes. Subsequently, the IRD is intending to increase its compliance monitoring measures, and pay closer scrutiny to payment arrangement applications.

The IRD will soon endeavor to educate business owners regarding tax filing, calculation and declaration mistakes commonly seen among struggling companies, such as mismatches between losses brought forward and losses available. Additionally, businesses with significant or suspicious tax loses will undergo additional investigations.

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