What is investment income reporting?

By Viola Trnski & Robyn Walker 

While New Zealand was in the midst of the first COVID-19 lockdown the investment income reporting rules took effect on 1 April 2020. As a consequence of people being focused on other things, these rules may have slipped the attention of some taxpayers, as such this article provides a reminder of the requirements that apply to anyone who pays out investment income or royalties to non-residents.

What is investment income?

Investment income, for the purposes of this article, refers to any passive income paid where tax is withheld. This includes interest, dividends, PIE income, taxable Māori authority distributions, and royalties paid to non-residents. While Approved Issuer Levy (AIL) is not a withholding tax, details of AIL payments must also be provided. For completeness, we also address income payers not required to withhold tax. 

Any person (i.e. business or organisation) who makes a payment of investment income (Payer) is required to provide certain information to Inland Revenue.  Payers are responsible for collecting, and reporting, information of persons who derive or receive a payment of investment income (Recipient).

What are the Rules...and why do we have them?

The investment income reporting rules (Rules) took effect on 1 April 2020 and require more detailed and frequent information to be reported on investment income and allow Inland Revenue to:

1. Pre-populate returns;
2. Proactively adjust tax rates; and 
3. Ensure taxpayers meet their tax obligations accurately throughout the year  (and correct that rate if required).

Similarly, the withholding tax, NRWT and AIL reporting requirements allow Inland Revenue to determine whether the tax treatment applied is appropriate – and if not, adjust. A 15 May reporting deadline provides time for Inland Revenue to pre-populate tax returns and personal tax summaries. 

Correcting errors

If you make an error when reporting investment income information, Inland Revenue has summarised the options to rectify this. Depending on the error, it can be corrected in a future return, or it may require a previous return to be amended.For errors made in the same tax year, errors can be corrected in a future return by the next reporting date.

The original return will need to be amended if the error relates to:

• Using the incorrect IRD number;
• Missing or incorrect income information;
• Using the wrong tax type (not rate – e.g. if AIL was deducted instead of NRWT); or
• Relates to a tax year earlier than the previous year.

An amendment to the original return is also required if the error exceeds the greater of $2,000 or 5% of withholding liability for RWT or NRWT. 

If you do not deduct enough tax from a payment due to an error, this can be corrected by reducing a later payment to the payee, recovering an amount from the payee, or adjusting the amount of a non-cash dividend that is subject to tax, as long as the amount doesn’t exceed the greater of $2,000 or the 5% threshold detailed above. 

If you withhold too much tax, you can pay the excess amount to the payee before 20 April after the end of the tax year, if you have not provided the payee a withholding tax certificate or dividend statement. Include the refund amount in the next return for the same payee to Inland Revenue. If you do not pay the refund by 20 April you need to advise Inland Revenue. 

Filing the investment income return

Depending on the volume of transactions, investment income returns can be filed in one of three ways:

1. myIR (if less than 2,000 lines per filing instance);
2. CSV file upload; or
3. Gateway services (automated submission from the payer to Inland Revenue).

If you have any questions, please contact your usual Deloitte advisor.