By David Hargreaves
A maximum penalty of a $25,000 fine (or $50,000 if it's a repeat) can be levelled against people breaching the new rules requiring disclosure of IRD numbers when buying a house.
The Government announced the new rules in the lead-up to the Budget in an effort to help take some steam out of the over-heating Auckland property market.
Legislation around the new rules was introduced into Parliament this week. In conjunction with this, regulatory impact statements prepared by the Inland Revenue Department after the proposals had already been publicly announced by the Government, were also released. The rules are intended to apply from October 1, which will also be the start date for new Reserve Bank restrictions.
The IRD statements show that the IRD was opposed to the Government's plan that the buying of main/principal homes be exempt from the rule to disclose an IRD number.
It wanted this new rule to instead to apply to all purchases, believing the exemption would make the rules more complicated and also, that it (the IRD) might not in the case of exemptions be told about regular buyers and sellers of main homes (who would theoretically be liable to pay tax) as well as those who subsequently change the usage of their house.
The IRD also thought the exemption rule could be unfair on the likes of people who inherit a house and who might be required to disclose their information despite not having a tax liability.
Additionally, the IRD was also opposed to the Government's new requirement for overseas buyers to have a New Zealand bank account when buying a house (and that this would be needed to get an IRD number). The IRD considered the latter would not be necessary as it would effectively be covered off by the [yet to be progressed] next phase of the anti-money laundering rules.
The IRD also said it was not apparent that, for individuals, the general anti-money laundering (AML) checks that a New Zealand financial institution would carry out would yield significantly more information than Inland Revenue collects as part of the current IRD number application process
The Government has, however, drawn the legislation up as per its original announcement.
The other big part of the Government's proposals, the plan to tax people on proceeds of house sales conducted within two years of buying the property, is being dealt with separately and a discussion paper on it will be released later in the month.
The legislation introduced into the House this week is The Taxation (Land Information and Offshore Persons Information) Bill, which will make amendments to the Land Transfer Act and the Tax Administration Act.
The specific part in the legislation regarding penalties for those breaking the new rules (which will be incorporated into the Land Transfer Act) is as follows:
"(1) A person commits an offence if the person gives a tax statement to a certifier or the chief executive in accordance with section 156B(2) or (3) or section 25 156D that, to the person’s knowledge or with intent to deceive, contains false or misleading tax information. (2) A person who commits an offence under subsection (1) is liable,— (a) the first time the person is convicted, to a fine not exceeding $25,000; and 30 (b) on every other occasion the person is convicted, to a fine not exceeding $50,000."
In the regulatory impact statements the IRD concedes that while the Income Tax Act 2007 contains provisions that impose income tax on certain property transactions, such as on land bought with the intention of disposal and land acquired for the purposes of a business dealing in land, the Act creates these obligations, "the Government is concerned that compliance with these provisions is relatively low".
Further, the IRD said, Government considers that "compliance by non-residents might be particularly low".
"This may come about as a result of ignorance of the tax rules. However, it is recognised that enforcing tax rules on non-residents is very difficult, especially those with only limited involvement with New Zealand. The fact that Inland Revenue does not have the data involving certain transactions means that the scope of the problem is not able to be quantified."