Another tax year has drawn to a close and some people are perhaps already starting to turn their attention to collecting together the information needed to be able to complete their personal tax return. However, the tax filing obligation for the year ended 31 March 2018 is also likely to draw in a number of new people who may not previously have filed tax returns. Whilst there are a number of reasons why you may begin filing tax returns, there are two categories of taxpayer in particular who may need to begin filing for the first time for the year ended 31 March 2018:
- Those who have been long-standing members of an employer share ownership scheme but didn’t realise they had to declare the value of shares acquired at a discount, and;
- Those who received taxable share ownership events for the first time in the year to 31 March 2018.
So why should these people suddenly fall under the spotlight?
Effective from 1 April 2017 any employer operating a share ownership scheme was required to record all taxable events and report these to Inland Revenue as part of their regular monthly PAYE reporting. This means that, unlike previous years, if employers have been on their game Inland Revenue already knows in advance that you have received some deemed taxable income that, in the majority of cases, will not have had any tax deducted at source. This therefore gives rise to a statutory obligation to file a tax return.
Taxable income arises where the market value of the shares that you acquire is higher at the acquisition date than the amount that you actually pay for the shares.
Generally, Inland Revenue won’t automatically notify you of your filing obligation, and it remains your responsibility under the self-assessment provisions to make your own declaration.
For those people who have been long-standing members of share schemes the obligation has always been there, but is often overlooked. In the past, Inland Revenue detection rates have not been great and, whilst no-one condones non-payment of taxes, it does mean that some people will invariably and inadvertently have overlooked their tax obligations in the past.
Going forward, the expectation arising from additional employer reporting obligations is that Inland Revenue will have greater visibility over this kind of income. If the system works as it should, this means that there will be greater follow up of taxpayers who are not correctly reporting their additional income.
Other factors to consider
In addition to the requirements to pay tax on your share scheme income, remember that the creation of a tax liability can give rise to a requirement to also pay provisional tax as pre-payments for future tax years. The provisional tax regime works on an assumption that, once you have created a tax obligation, you will continue to have similar tax obligations for future years.
Provisional tax obligations need to be carefully managed so as to avoid inadvertently creating interest and penalty exposures if statutory obligations are not met.
Less common, but just as problematic to manage can be the fact that many employee share ownership schemes issue shares in an overseas parent company. Where shares are held in a foreign company this can bring taxpayers into the Foreign Investment Fund (“FIF”) regime. Whilst this may not be a problem initially due to certain concessions in the first year of entry, the FIF regime can be a complex minefield for lay people to have to navigate.
If you need help with your New Zealand tax filing obligations contact TaxBridge Limited for further information.
© TaxBridge Limited 2018
PO Box 502, Whangaparaoa 0943
This publication contains generic information only and TaxBridge Limited is not providing any specific advice. TaxBridge Limited is not responsible for any loss sustained by anyone relying on the contents of this publication. TaxBridge Limited recommends that specific taxation advice is sought for all matters covered by this publication.