Extreme tax powers could be used for almost anything

“A person must, when notified by the Commissioner that the person is required to provide information under this section, provide any information that the Commissioner considers relevant for a purpose relating to the development of policy for the improvement or reform of the tax system.”

On 7 December 2020 these words were added into the New Zealand tax legislation, as section 17GB of the Tax Administration Act 1994. If you find the extent of the power concerning, you probably should. Ironically, even the Attorney-General found reason to be concerned with the rules. These rules could potentially be used to collect any information tangentially related to a current or future tax in some way.

In late November 2021, Inland Revenue released some draft guidance explaining the procedures Inland Revenue will follow when issuing section 17GB information requests; unfortunately it doesn’t go so far as to put limitations on what type of information is considered relevant. Some colour can be obtained from the first high-profile use of the power; being the collection of extensive information about all forms of income and assets of over 400 high net worth individuals.

The draft guidance makes a few points which taxpayers should be cognisant of:

• The purposes for which information can be required can be very broad.
• Where a New Zealand resident directly or indirectly controls a non-resident, the New Zealand company will need to provide information about the non-resident if requested.
• It’s not necessary for the information demand to include the policy purpose or an explanation of why the information is being sought.
• While information provided can’t be used as evidence in proceedings against that person; there may be instances where the information obtained using the power is used for other purposes (e.g. if there is a legal obligation to provide the information or disclosure is permitted by law).
• Penalties may follow if an information request is not complied with. The penalties aren’t specified but could include a fine of $25,000 for a first offence or three months imprisonment.

The new information gathering power, is by its nature extremely political. Tax policy direction is set by the Government, so naturally the information being collected will have a direct correlation to what is of interest to the part(ies) making up the Government of the day. To illustrate how broad this power is, below are some examples of information requests which could (hypothetically) be made, based on tax rules proposed by various political parties in New Zealand:

• Taxpayers could be asked to provide grocery shopping invoices in order to ascertain the proportion of groceries purchased which are “basic” items versus “luxury” items if consideration were to be given to removing GST from certain food and drink.
• Taxpayers could be asked to list out all gifts of money since gift duty was repealed in October 2011 to determine what impact this has had on behaviour.
• Taxpayer could be asked to provide details of inheritances; including how an estate has been divided.
• Cannabis consumption could be surveyed in order to establish potential additional tax revenues and laws associated with the legalisation of cannabis.
• All taxpayers could be asked to provide details of all assets owned and debts owning (e.g. the market value of family home net of any mortgages owing) in order to establish what proportion of New Zealand has total wealth in excess of $1million for the purposes of developing a wealth tax.

While this information gathering power may have come from a place of wanting to be able to collect information to help inform tax policy making, ultimately the compulsion factor and the threat of penalties is at odds with a tax system which is based on voluntary compliance. The Government should ask itself why it feels the need to compel information out of people rather than letting those who want to contribute to the tax policy debate continue to do so.

While the draft operational statement is not seeking submissions on the merits of section 17GB of the Tax Administration Act 1994, there is nothing to stop people using this as an opportunity to provide views on the section. Submissions close on 31 January 2022.

For more information please contact your usual Deloitte advisor.

December 2021 Tax Alerts