Bank account requirement makes it tougher to pay tax in NZ: expert

A change to our tax rules aimed at foreign property investors is likely to affect many people, a tax expert says.

A bill poised to be passed by Parliament this week may increase the red tape for anyone based overseas doing taxable business with this country.

The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill creates a way of collecting the “brightline tax,” a tax imposed late last year on sellers of houses within the first two years of ownership. It was aimed at curbing property speculation.

But it also upholds another law passed late last year which makes it impossible for a person based overseas to get an IRD number without getting a New Zealand bank account first.

KPMG tax partner John Cantin said the bill defined “offshore persons” broadly, so many other taxpayers were affected – including non-residents, trusts and businesses with some foreign control, and seasonal workers.

“From employees who move, for people who are paying director’s fees, to people who have to register for GST who can’t. It’s a little chicken and egg,” Cantin said.

Many people did not need a bank account to do business here but wanted to meet their tax obligations, he said.

“There are people who want to do business with New Zealand and finding that in order to get registered they need to have a bank account … and they are finding it difficult.”

Cantin said the bill has since been tweaked to allow some leeway for “offshore persons,” if they were GST-registered or had gone through anti-money laundering checks some other way.

But “I’d expect problems to still be arising.”

Identity checks are believed to be the reason why the IRD has made bank accounts mandatory for overseas tax payers, because banks must comply with stiff international anti-money laundering rules.

Asked whether last year’s property speculation-linked laws was really aimed at cracking down on money laundering, experts said that was part but not all of it.

Professor Struan Scott, a property and banking law expert with Otago University, said: “It is a hurdle. I don’t think any system is completely foolproof but it definitely put an impediment on it”.

But tax consultant Robin Oliver, a former IRD deputy commissioner , was convinced the laws were aimed at making tax evasion easier to police.

Some people believed that Auckland house prices were being driven up by Chinese buyers who were prepared to invest at a low rate of return, he said.

If they were using the houses like short-term bank accounts, they were liable for tax.

“If we want tax people, we have to know who they are.”