The New Zealand Inland Revenue Department (IRD) has announced that it has launched a new initiative to determine the ideal national structure of the child support system, including the formulas used to determine payments, penalties and debt rules. The proposed changes are outlined in a Government paper Support Children, released on September 2nd.

Announcing the need for a change in the child support system, Peter Dunne, Revenue Minister of New Zealand, said “The reality is that family life in New Zealand has changed considerably in the 18 years since the current scheme was introduced.” He added that families’ financial situations are now more complicated then when the child support laws were introduced, requiring an update. He added that it is more common to see separated parents to take greater involvement in children’s upbringing, further adding to the antiquity of the present laws.

Peter Dunne said that ultimately it would be better that systems were instated for separating parents that would place child support as a last resort and not a first option. However, when the child support scheme is required, Peter Dunne said that he wants to see “a situation where paying parents are more likely to comply with their obligations voluntarily.”

The discussion documents can be found on the IRD’s website.

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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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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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Speaking at a meeting of Grey Power Bay of Plenty on July 9th, Peter Dunne, Revenue Minister and associate Health Minister of New Zealand, stated that he is currently planning to release a proposal for “a tax rebate for health insurance premium payments for over 65s.”

According to Peter Dunne, many elderly New Zealanders have taken out health insurance in the past, but are now struggling under the the financial burden of escalating insurance premiums. The tax rebates would ensure that elderly taxpayers will continue to receive continued levels of access to elective surgery in New Zealand, by subsidizing the price increases. The Minister stated that he plans to reveal the exact details of the tax rebate later this year, and put a proposal in front of the Government before 2011.

The Minister also proposed instating a “warrant of fitness” health-check system for elderly tax payers. Although he added that since the latest Budget, the increased levels health-services funding have provided greater levels of accessibility to elective surgeries in New Zealand. The Governments current levels of cooperation with the health sector are also aiding the elderly in attaining required medical attention.

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On June 10th Peter Dunne, Revenue Minister of New Zealand, released a statement revealing the Government’s intentions of abolishing Gift Duty Taxes. According to Peter Dunne, the Government has been investigating the issue for several months and “a strong case has emerged” for the complete repealing of the Gift Duty Tax rules.

According to Peter Dunne’s statement, Gift Duty was initially introduced to prevent individuals circumventing Estate Duty taxes. Estate Duties were subsequently abolished in 1992, although Gift Duty Taxes were retained. The Government’s latest decision to lower the trustee tax rate will serve a similar purpose in avoiding motivation to minimize tax obligations through gifting to trusts, making the measure unnecessary.

Peter Dunne revealed that the Government is currently holding consultations with various departments concerning a few remaining issues with the abolishment of Gift Duty Tax. Specifically, the issues of the undermining of creditor interest and unfair access to social assistance need to be addressed before the abolition is carried out.

Peter Dunne summarized the passage of the repeal of Gift Duties, saying “There will be further consultations over the next few months, and if gift duty is to be repealed, I intend to include it in a tax bill to be introduced in November this year.”

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On May 12th the New Zealand Government announced the signing of an Order in Council for the DTA between New Zealand and Singapore. The signing of the Order officially incorporates the agreement into national legislation. According to Peter Dunne, New Zealand Revenue Minister, the DTA will come into effect when the equivalent legal ratification process is carried out by the Government of Singapore.

The new agreement is intended to replace the DTA signed by Singapore and New Zealand in 1973. The DTA will lower withholding rates on dividends, royalties and interest. As the bi-lateral agreement will be updated to modern standards it will also serve to increase the levels of protection and certainty for cross-border business. The DTA will also conform to the international recognized standards of taxation transparency and information sharing, as set out by the Organization for Economic Cooperation and Development.

Singapore currently holds 61 Comprehensive Double Taxation Agreements, 7 limited taxation treaties, and 17 signed but un-ratified DTAs. New Zealand holds 35 ratified DTAs, and an additional 15 Tax Information Exchange Agreements.

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On April 14th Peter Dunne, New Zealand Revenue Minister, announced the release of Allowing a zero percent tax rate for non-residents investing in a PIE, an official New Zealand Government Issues Paper. The release of the paper is spurned by the International Fund Services Development Group (IFSDG), which was formed in April 2010 to advise the New Zealand Government on the changes required to create an international fund-service sector in New Zealand. According to Craig Stobo, Chair of the IFSDG, verified the need for the issues paper, explaining that an anomaly currently exists in the New Zealand tax system whereby a non-resident investing in foreign assets through a PIE would be taxed as a resident. The situation is seen as a strong disincentive for non-residents to utilize New Zealand as a financial services hub.

Two solutions for the situation have been outlined within the issues paper. The first proposes the adaptation of a PIE system for both resident and non-resident investors, with non-residents subjected to a zero percent portfolio investment rate (PIR). The second option proposes the creation of a look-through global investment option where a PIE will have resident and non-resident investors with New Zealand and offshore sourced income and apply different PIRs for each situation.

Both methods are expected to decrease national tax revenues by NZD 10 million annually. Although, according to Peter Dunne and Craig Stobo, the changes are a necessary step for the creation of a financial services hub in New Zealand, which is expected to create up to 5000 new jobs and tax revenues of NZD 250 million per year.

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On March 29th Peter Dunne, New Zealand Revenue Minister, announced that the New Zealand Government and the Hong Kong Government expect to start negotiations on a DTA in October. The agreement aims to eliminate instances of double taxation on incomes earned by individuals and businesses entities while operating in the corresponding nation. The DTA will also feature measures to increase taxation transparency between the two nations, and comply with the Organization for Economic Cooperation and Development’s (OECD) international standards on tax information exchange.

Peter Dunne commented on the upcoming negotiation, saying, “I welcome Hong Kong’s change of stance on information exchange matters, which has made the double tax agreement negotiations possible.” Hong Kong has recently signed three similar bi-lateral agreements with Indonesia, the Netherlands, and Brunei, with several more negotiations underway.

The DTA announcement was accompanied by the signing of a Closer Economic Partnership (CEP) agreement between Hong Kong and New Zealand. According to Peter Dunne, Hong Kong is currently New Zealand’s ninth biggest export recipient, and provides significant foreign investment into the country.

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