Thousands may have US tax to pay
Unsuspecting Kiwis could have their private details passed on to United States tax authorities without their knowledge after a new deal between the two nations came into effect this week.
The Foreign Account Tax Compliance Act (Fatca) is part of US authorities’ push to combat tax evasion.
The long arm of the law is expected to affect thousands of New Zealanders, some of whom are oblivious to their US tax obligations.
Fatca was passed in the US in 2010. Since then about 50 countries had struck agreements with the US, allowing it to have bank account tax information on US persons living overseas.
Assistant director of financial risk management at accounting firm KPMG Michael Wright said under the new law New Zealand banks had to hand over the details of new and existing customers with $50,000 or more in their account that they thought were US persons to IRD.
IRD would then pass the details on to IRS, the US tax authority, Wright said.
There was a “very real risk” of banks passing on details of customers who were not US persons because they had a US address or phone number attached to their account, he said.
Those affected could include high-profile New Zealanders in entertainment, sport and business who earned a US income.
The agreement would cover the 30,000 US residents living in New Zealand as well as people with parents who were US citizens, people with green cards, and US tax residents.
“It’s a really wide-ranging regime,” Wright said.
Someone becomes a US tax resident when they are issued a US tax number, known as an ITIN, in order to earn a US income.
This will mean New Zealand authors whose e-books were being sold on Amazon and other US sites were considered US tax residents once they had an ITIN.
Scott Maka, the author of a recently released novella about missing Malaysian Airlines flight MH370, said US tax laws were already a pain for him.
Maka said he was selling his novella through more than a dozen websites and the US-based websites caused him tax issues.
Until authors selling their books on Amazon were able to provide the site with an ITIN, Amazon was required to take 30 per cent withholding tax off all US royalties, he said.
Getting an ITIN was difficult, slow and costly, he said.
Once someone had an ITIN they were able to claim back what the site held on to for tax but they also became a US tax resident, and would be covered by Fatca.
“I do worry quite a lot about privacy, especially with the US’s recent record on snooping, but on the other hand I can understand countries sharing tax information about their citizens if it helps to curb tax evasion,” Maka said.
Under US tax law anyone who is US tax citizen must file a tax return every year.
If they were found to be withholding tax they would have to pay the tax owed as well as penalties for not filing a return.
Kiwis considered to be US persons could be fined as much as $10,000 for not filing annual tax returns, with ignorance no defence.
A US expat living in Auckland said she had not heard anything about Fatca.
Jackie, who did not want her surname made public, said she had not earned any US income in a while so she had not filed a tax return.
The 25 year old, who had lived in New Zealand for more than three years, said she now planned to be more careful about filing annual US tax returns.
“[Fatca] does worry me, it’s more people having my information which is not usually a good thing.”
Jackie said she shared a bank account with her partner, who was a New Zealand citizen.
The pair were worried his account information could also be shared with US tax authorities because Jackie was a US citizen, she said.
Wright said under the new law banks did not have to notify or educate customers about the possibility of the financial institution handing over their details.
While there would probably be something in the terms and conditions for new customers it was likely to be buried, he said.
New Zealand banks had not spoken out publically against Fatca, but the financial institutions were caught in the middle, Wright said.
“They’ve not got anything out of this and it’s costing them money to do this.”