Snippets: May – July 2019

Tax bounty

Wanting a job that is flexible? Well a tax informant may be the job for you! An increasing number of countries operate reward or bounty systems where informants receive payments for assisting revenue authorities.

The USA initiated a ‘tax bounty’ program in 2006, with a Whistleblowers Office established by the US Inland Revenue Service (IRS). This program has seen the IRS collect billions in additional tax revenue over its lifetime, with one famous case resulting in an award to the Whistleblower in excess of US$100 million. The regime has been codified in the US Internal Revenue Code, with informants receiving between 15% to 30% of the additional tax revenue collected in some instances.

The system is not limited to the USA. Singapore offers a 15% reward on tax recovered, capped at S$100,000, whilst Canada offers 5-15% of the additional tax collected (above a de minimis C$100,000). The Canadian scheme extends to “any individual, no matter where they are in the world”, leading to concern that the programme will turn Canada into a ‘gold mine for tax snoops’. The UK does not have a formal tax bounty regime, however, the public are encouraged to report suspected tax dodgers to its tax evasion hotline, and HMRC have been known to offer informants a reward in some instances where additional tax revenue has been received.

Although New Zealand does not have a tax bounty regime at present, it may be worth Inland Revenue’s consideration. But this could lead to further tax issues – is the reward income of the informant???

Short-stay accommodation

Inland Revenue (IRD) is currently consulting on tax obligations that arise on various forms of residential rental, such as renting out a room within your home, or letting property using a peer-to-peer platform, such as Airbnb or Bookabach.

One of the proposed changes relates to the ‘standard cost’ rules for boarders or home-stay students. Currently, income earned below the threshold of $266 a week for the first two boarders and $218 per week for each subsequent boarder, is tax free and doesn’t need to be included in a tax return. IRD propose to reduce this weekly threshold to $183 per boarder (subject to annual CPI adjustments). Or, taxpayers can elect to return all income and expenses relating to boarders in their tax return, which may be favourable if they incur considerable costs.

A similar rule is also proposed for taxpayers providing short-stay accommodation in their own home (e.g. Airbnb), by setting standard nightly costs for deductions, with income above the standard cost needing to be declared. The suggested thresholds are $50 a night for homeowners, and $45 where the host is renting their home. However, there will be various criteria to use this concession, for example a rental limit of 100 nights per year.

Renting out a property that is also used privately is currently a complex tax area, so changes to simplify the regime are welcome.

GST on low value imported goods

GST is intended to be a broad-based tax applying to goods and services consumed in NZ, however under the current system not all goods and services are captured. Specifically, GST is not currently collected on imported goods worth $400 or less. Historically, it was thought that the administrative cost of collection would outweigh the tax revenue collected, however the import market has grown giving rise to increasing concern NZ suppliers are disadvantaged in comparison to offshore suppliers.

Following in the footsteps of recent Australian law changes, a Bill was introduced into Parliament in December 2018, the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters), that seeks to level the playing field.

The Bill, intended to be effective from 1 October 2019, proposes to apply GST to goods valued at $1,000 or less (excluding tobacco and alcohol) that are delivered to a NZ address from overseas. Offshore suppliers will be required to return NZ GST if their total supplies to NZ exceed $60,000 in a 12-month period.

So what does this mean for NZ consumers? They will likely have to pay GST on low-value goods imported from overseas, while NZ businesses are now on a more level playing field with their overseas competitors.

Anti-Money laundering regulations

Since 2013, financial institutions, such as banks, have had to comply with Anti-Money Laundering regulations. These rules have now been extended to other businesses providing financial services, such as real estate agents, accountants and lawyers.

The regulations are designed to prevent criminals laundering money through legitimate New Zealand businesses and apply in a number of circumstances, predominantly where financial transactions are involved.

The rules require affected businesses to formally identify their customers and understand the true source of funds for every individual they interact with, before they can undertake certain work. This is likely to incur additional costs for affected businesses, but there is no way around it, and the fines for non-compliance outweigh the cost.

The extension of these regulations seek to ensure New Zealand continues to protect and enhance its reputation as a good place to do business and is meeting international standards. However, they may slow down the time it takes to get professional assistance.

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