Extraordinarily broad, intrusive power – Law Society warns tax changes headed for court

Days after the Government rushed through a law change giving Inland Revenue greater information-gathering powers, the New Zealand Law Society warned that the moves could breach the Bill of Rights and were likely headed to court.

In a scathing letter to David Parker – written to the Labour MP in his capacity as both Revenue Minister and Attorney-General – the society said it had “serious concerns” about laws passed under urgency in December, with no consultation.

The information-gathering powers are now being used as the basis for demanding information from a group of wealthy New Zealanders about their assets, on the grounds of research, possibly to be used for future tax policy.

“The new information-gathering provisions are potentially far-reaching, and have rule of law, Bill of Rights and privacy implications,” NZLS vice-president Arti Chand wrote to Parker on December 23.

The Government’s approach ignored a generally agreed framework for developing tax policy which had been in place since 1995, she said.

“We can see no justification for these provisions being enacted under urgency and without proper supporting information about the compliance impact on taxpayers.”

In recent days, lawyers have been pitching advice to wealthy New Zealanders targeted by IRD as part of its high net wealth project, ahead of a possible legal challenge.

The IRD has told more than 400 New Zealanders that it will require them to give details of their wealth using the new powers passed quietly in December.

Labour campaigned on a new top tax rate of 39c in the dollar for taxable income over $180,000 a year, but did not flag its plans to broaden IRD’s information-gathering powers.

Beyond the normal request for information relevant to assessing tax liability, the changes give the IRD powers to demand “any information that the Commissioner [of the IRD] considers relevant for a purpose relating to the development of policy”.

The legislation was tabled in Parliament on December 1 and had been through the entire process the following day.

While the Government has said the change represents a clarification of the IRD’s powers, some of those targeted say they consider it an invasion into their private affairs.

The Law Society, which has a regulatory function to assist in law reform, described the changes as “an extraordinarily broad, intrusive power” which, if justified, should have been subject to “full and public scrutiny”.

The way the Government passed the legislation was “highly undesirable and may well result in litigation” and undermined the trust between the society and with Chartered Accountants Australia New Zealand.

Chand’s letter was the second she had written to Parker in a month, criticising the Government’s approach to tax reform.

On December 8, she wrote congratulating Parker on his appointment, but also complaining that tax reforms were often being released confidentially at short notice to a limited group of stakeholders, meaning few people were contributing to those reforms.

“This seems to be emerging as a new standard approach to tax law development, resulting in law that is less effective and workable, and increasing the need for subsequent remedial reforms,” Chand wrote.

Parker responded to the two Law Society letters with a one-page response, sent about two months later, which did not respond to many of the points raised.

“The Government will sometimes decide to progress legislative changes within a short timeframe with no or limited opportunity for external input.”

In a statement, Parker dismissed the Law Society’s criticisms. “We disagreed,” he said.

“It is arguable that the Commissioner [of the IRD] already had the information gathering powers, but the law change made in December 2020 removed the ambiguity in that regard.”

Parker did not address questions of why the change needed to be made immediately and without consultation.

The information IRD is demanding from wealthy taxpayers would be used to fill gaps in IRD’s knowledge.

“Many New Zealanders would be surprised to know that while their income is known by the IRD every pay day…that the economic income of the very wealthiest has not been available to the IRD – even confidentially.”

Parker said, adding that international studies showed many surveys were “ineffective for measuring the economic incomes of the very wealthy, particularly the top 1 per cent, because of the complexity of their affairs.”

Former Deputy Prime Minister Winston Peters said passing legislation under such urgency “would only be justified by circumstances of crisis and unavoidable urgency, neither of which exist here”.

Labour appeared to be flexing its muscles as a majority in Parliament.

“This is deliberate,” Peters said. “[Labour is saying] we’ve got the reins now and we’re going to ram it through while we’ve got the chance.”

Inland Revenue has said it will release its research into high net worth Kiwis in July 2023, which some tax agents have linked to the likely date of the next general election. Peters agreed.

“There’s an old saying, if your plan is to rob Peter to pay Paul, you’re always going to be able to rely on the support of Paul. It’s a political agenda, not sound tax policy.”

Inland Revenue said this week that about half of the individuals targeted had not provided details of their nominated tax agent.

Mike Shaw, a partner at advisory firm Oliver Shaw, said it appeared that IRD had not yet worked out exactly what type of information it would request so it was not clear why it had started contacting those affected. Oliver Shaw has a number of clients targeted by the survey.

“IRD has commenced a project into the tax rate of high net wealth taxpayers, but it has not decided how it will work out that tax rate including what taxes are included and what is economic income,” Shaw said.

“As a consequence, IRD has not decided what information it will be collecting.”

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