Source: Radio New Zealand
Taxpayers who have debt for the 2023 and 2024 tax years are being given another option to avoid paying penalties to Inland Revenue.
As part of an amendment to the Taxation Bill, a pilot programme is being launched that will allow people with tax debt to settle it via tax pooling, if they meet eligibility criteria.
They will have until 1 October this year to enter an arrangement with a tax pooling provider, and then must settle the debt by 1 October 2027.
Tax pooling allows people to smooth out their tax payments and borrow from those who have overpaid their tax as required.
Tax Traders co-founder Nicola Taylor said the programme would be a big help to people with tax debt.
“There’s $1.2 billion in income tax debt across the two tax periods that this amendment is focused on. Tax debt is not about not wanting to comply. It’s actually usually about cash flow and timing.”
Inland Revenue has been chasing overdue tax hard in recent years.
If people had a tax bill they should approach a tax pooling provider with their debt, Taylor said.
“What they won’t be hit with is the late payment penalties and the use of money interest that they would have been hit with otherwise.
“Let’s say a taxpayer has a $10,000 unpaid income tax bill… by the legislation and using Tax Traders, you’ll be able to save about $800 of late payment penalties and use of money interest that otherwise you’d be hit with. And you know, $800 is not nothing.
“And the core tax gets paid … I think IRD’s been really sensitive and empathetic here and also very innovative. So I think we should, you know, I think there’s much to applaud IRD for taking this approach.”
The amendment also removes a tax issue that affects infrastructure investment.
Thin capitalisation rules stop multinational companies from allocating an excessive proportion of their debt to to New Zealand to affect the tax they have to pay.
But they can interfere in situations where there is a large amount of debt associated with an infrastructure project and some interest deductions can be denied even when the debt level is not normally considered excessive.
The Corporate Taxpayers Group told the government this was sometimes stopping foreign investment in New Zealand projects.
The new rules provide an exemption from the thin capitalisation rules for investments in qualifying infrastructure assets to the extent they are funded by limited-recourse third-party debt.
Deloitte partner Robyn Walker said it was likely that transport infrastructure, water, energy and telecommunications might be included in the projects that could opt into the rules.
Corporate Taxpayers Group chair John Payne said it was pleasing to see the rules progressing.
“We regularly see that tax rules can be an impediment to investment in important infrastructure, and these amendments help clear a barrier and that is why the Corporate Taxpayers Group has been involved in consultation on these rules.”
Revenue Minister Simon Watts RNZ / Mark Papalii
Revenue Minister SImon Watts said the change removed a barrier to make it easier to access capital and talent.
“New Zealand’s thin capitalisation rules limit the amount of tax-deductible debt that foreign investors can put into New Zealand investments. These rules prevent income being shifted offshore and protect our tax base.
“However, there is a risk that these rules can unduly disincentivise investment, particularly in capital-intensive infrastructure projects that are typically funded by large amounts of debt.
“The government is making changes to ensure that rules strike a balance between protecting the tax base while not discouraging investment in infrastructure.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
