Intermediary rules set for overhaul

By Robyn Walker

Many taxpayers choose not to deal directly with Inland Revenue and instead have an “intermediary” involved to help navigate complex tax rules and obligations. The growing importance of intermediaries, as well as increasing digitalisation and the growing role of non-traditional intermediaries, has led to Inland Revenue releasing an Officials’ Issues Paper “Proposed legislative changes for intermediaries”.  

The issues paper reviews the regulatory framework for tax intermediaries in the Tax Administration Act 1994. Officials consider the current framework no longer reflects market reality, creates inappropriate regulatory signals, and can act as a barrier to efficient digital participation. Inland Revenue has a noble objective to modernise intermediary regulation to support digital delivery, create flexible frameworks and responses, reduce compliance costs, and protect system integrity.

The paper identifies three related issues:

1. Digital services providers are not recognised in legislation despite operating within the system
2. Existing categories force new entrants into ill-fitting classifications, often tax agent status, with standards for entry and ongoing participation uneven across categories
3. Inland Revenue’s systems and operational practices have developed around outdated legislative constructs and can hamper the efficient operation of the tax system.

To solve these issues, there will need to be a combination of both legislative and operational reform.

From a policy perspective, the issues paper is seeking feedback on a range of proposals including:

New digital services providers category

Officials propose a distinct category for digital services providers. Digital services providers may be helping taxpayers comply with their obligations but may also be helping customers to access social policy entitlements. A new category would recognise intermediaries whose primary role is providing software or digital business services that generate tax-relevant data, without forcing them into the traditional tax agent model. The proposal aims to provide clearer regulatory settings (including around confidentiality, data security, data transmission and privacy), more appropriate access to Inland Revenue systems, and standards proportionate to their role.

Importantly, this proposal does not open Inland Revenue up to having to adapt its systems (at the cost of the taxpayer) to any digital services provider, rather there needs to be an assessment of whether admitting a new digital services provider would create “net costs” to the tax system. That is, if there are costs to Inland Revenue there also needs to be commensurate benefits, such as lower costs for taxpayers or better revenue collection for the Government.

New data consumers category

A separate category could be created for entities that primarily consume Inland Revenue held data, rather than acting on behalf of taxpayers to meet obligations. This option is more forward looking to allow innovation but hypothetical examples cited in the paper include intermediaries creating an ability to check if a customer is GST registered, validating income information for approving loans or eligibility for council rate discounts.

Replacement of the 10 client rule

The paper proposes removing the long-standing rule that requires tax agents and bookkeepers with more than 10 clients to register. The requirement for 10 clients is viewed as a weak indicator of the quality of advice or service provided. This would be replaced with a requirement for membership of an approved professional body such as ATAINZ, CPA Australia, CAANZ, ICNZB, NZQBA. Officials consider this a more robust and modern proxy for competence and accountability.

It is acknowledged that there are many existing tax agents and bookkeepers who are not currently a member of a professional body, therefore feedback is sought on what would be a reasonable transition period before the new rules apply. Inland Revenue would also need to consider what additional systems or processes will be required to ensure it is able to validate membership with the approved professional bodies.

New bookkeepers category

Officials propose formal recognition of bookkeepers as a distinct intermediary category. This responds to concerns that bookkeepers are currently either unregulated or inappropriately captured by the tax agent rules, despite different roles, risk profiles, and client interactions.

Introduction of a tax crediting agent model

The issues paper notes that a significant proportion of taxpayers, including sole traders, landlords, and small businesses, derive income that is not subject to withholding tax at source. These taxpayers are required to estimate their annual income tax liability and make provisional tax payments. Provisional tax rules have long been a bugbear of many small businesses and accordingly the issues paper considers whether Digital Services Providers may be able to provide a solution.

The issues paper outlines a potential model under which approved intermediaries could act as tax crediting agents for taxpayers earning income with no tax withheld at source. This would allow intermediaries to calculate anticipated tax liabilities and provide payment instructions, with the taxpayer remaining responsible for making payment. If payments match reporting, the tax paid would be recognised as tax credits. Having tax credit status for these types of payments would mean that taxpayers could fall below the current entry point into the provisional tax rules.

The framework is focused on income tax, but Officials are open to views as to whether it could be extended to other tax types or obligations (e.g. student loans).

The paper discusses approval criteria, conditional recognition of tax credits, reporting requirements, and integrity risks.

Next steps and process

The issues paper is a consultation document, not a final policy position, and no decisions have been made by the Government. Submissions are invited on all proposals, with the closing date for submissions being 12 June 2026. The issues paper signals that, if progressed, simpler changes could be included in a tax bill later this year, with more complex reforms deferred to a later bill (and work undertaken on the corresponding operational reform required within Inland Revenue).

For more information contact your usual Deloitte advisor.