Simplifying record-keeping requirements for businesses

Sections 22(2) 22(BA), 22(8), 22(9) and 23(1) of the Tax Administration Act 1994

The new legislation introduces amendments to modernise the record-keeping requirements of businesses by making it easier for taxpayers to store records offshore through applications from an Inland Revenue-approved service provider, and by allowing taxpayers who submit returns electronically to store them electronically.

Background

The purpose of the amendments is to make it easier for taxpayers to conduct their tax compliance activities electronically, and to encourage the electronic filing of returns.

Inland Revenue will be able to authorise service providers (for example, a tax agent, accounting payroll provider or a data storage service provider) to keep their clients' records offshore, provided they meet conditions set by the Commissioner of Inland Revenue. The principle for these conditions is that there should be no greater obligation on the service provider than currently exists for the storing of business records in any other format, so long as the Commissioner's access to those records is not unnecessarily compromised.

The administrative criteria will also apply to individuals who apply to keep their own records offshore.

Key features

Generally, taxpayers are required to store their records in New Zealand. As taxpayers are increasingly managing their taxes through payroll or accounting software, the use of offshore data storage for information, records and returns is growing. Previously, the Commissioner could only authorise applications from individual taxpayers to store their records offshore. The amendments now allow a service provider to apply to the Commissioner on behalf of their clients. This will make it easier for taxpayers to store their data offshore if they choose. The Commissioner will also be able to revoke an authorisation, and has the flexibility to authorise the keeping of records in a different form if requested by a taxpayer or a service provider.

Taxpayers will meet their record-keeping obligations under the Tax Administration Act 1994 only if they use Inland Revenue-approved service providers. However the ultimate obligation to comply with tax obligations will always rest with a taxpayer.

A further amendment allows taxpayers to store tax returns electronically that were submitted electronically, thereby removing the requirement to retain a paper copy.

Detailed analysis

How will Inland Revenue protect the privacy of a taxpayer's information when it is stored offshore?

The changes in section 22 relate to a taxpayer satisfying their record-keeping obligations and the Commissioner's discretions, to ensure on-going access to taxpayer records by the Commissioner when required.

Ultimately it is the taxpayer's responsibility to ensure the privacy of their business records, and the security risks associated with storing records offshore is a commercial matter for the taxpayer to consider with their service provider.

Taxpayer information and data held by Inland Revenue is not within the scope of section 22.

Application date

The amendments apply from the date of Royal assent, being 2 November 2012.