Investment Income Reporting

Tuesday, 27 August 2019 by Alex McAndrew

From 1 April 2020 the way in which Interest and Withholding Tax is reported to the IRD is changing, through an IRD process known as Investment Income Reporting (IIR). Whilst this has been available since April 2019, it has been optional. From April 2020 it will become mandatory for all institutions paying interest where Withholding Tax is applicable.

New functionality has been added to support these changes, and will be available from version 3.02.01 of finPOWER Connect.

IIR within finPOWER Connect comes in the form of a new Report, and a new File Export process. This adds the ability to export up to three file types, one for each supported Withholding Tax Type.

  • Resident Withholding Tax
  • Non-Resident Withholding Tax
  • Approved Issuer Levy

This new functionality is only available if licensed for Deposit Accounts.

Overview

Prior to IIR, Finance Companies paying interest to investors were required to file an annual report, which detailed gross interest paid to the investor, and total Withholding Tax deducted. This is supported in finPOWER Connect via the generation and export of Tax Certificates. The changes made mandatory from 1 April 2020 mean that instead of reporting annually, Finance Companies must report these figures monthly and via either a bulk file upload or API. Initially, finPOWER Connect will only support the bulk file upload however the API may be considered in the future.

Once a Finance Company starts using IIR, Tax Certificates will become obsolete and will no longer be required. It is likely that the option to generate and export Tax Certificates for NZ will be removed entirely in a future release of finPOWER Connect, sometime after 1 April 2020.

Prior to 1 April 2020, Finance Companies may use IIR at their discretion; after this date it will be compulsory.

An IIR export is linked to a Tax Period. Therefore it is imperative that Finance Companies close Tax Periods each calendar month.

Reporting

A new Report is available in the Report Explorer for Deposit Accounts; "Investment Income Report".

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This report can be run in two ways:

  1. Using a Tax Period
    • This allows you to report on previously finalised Tax Periods.
    • This method will match an IIR export.
  2. Using an Entity and Date To combination.
    • This allows you to report on a Tax Period not yet finalised.
    • This is useful to review exceptions before closing a Tax Period.
    • This is only indicative, as there is still a possibility that additional transactions will be written before the Tax Period is finalised.

The report is flexible, allowing the User to include / exclude certain columns and only include specific Withholding Tax types. Additionally there is flexibility to include / exclude valid and / or exception items for a more specific set of results.

Exceptions

The primary benefit of the report is to identify exceptions prior to committing the Tax Period. An account will be flagged as an exception if it meets one or more of the following criteria for the Tax Period:

  • Total Gross Interest is negative.
  • Total Withholding Tax is negative.
  • Total Gross Interest is less than total Withholding Tax.
  • The "Main Account Owner", i.e. the first "Owner" Client in the Account Clients grid, does not have at least one of the following:
    • Address
    • Phone Number
    • Email Address

If an Account has been flagged with an exception, the check box in the "Export" column will be unchecked (indicating that the record cannot be exported), and the exception detail will be listed in the "Message" column.

The IRD currently does not support exception records being included in their automated processes. Therefore it is recommended that any exception which cannot be corrected in finPOWER Connect prior to export is manually provided to the IRD and handled on a case-by-case basis.

It is recommended that exceptions are dealt with prior to the closure of the Tax Period. This is in case additional Account Transactions need to be written to rectify the problems which can then also be included in the Tax Period. Once a Tax Period is closed Transactions can no longer be written to it, instead it will be included in the next month's Tax Period.

File Export Process

A new process is available in the "Process" menu, "Investment Income Report Export" which allows for the export of the three Withholding Tax types.

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A Tax Period must be finalised before an IIR file export is run.

Files are named by Withholding Tax Type and Tax Period Id. E.g. NRWT_M.20190731.csv is the "Non-Resident Withholding Tax" file for Tax Period "M.20190731".

Monthly Processing

Generally, the following process should be followed to satisfy IIR obligations.

  1. Run the "Investment Income Report".
    • Run by Entity (i.e. no Tax Period at this stage) to the date the Tax Period is going to be closed at.
  2. Review any exceptions the report identifies, and correct where possible.
  3. Close the Tax Period using the existing process.
    • Once closed, you will be prompted open the IIR Export wizard (step 4).
  4. Run the "Investment Income Report Export" process under the Process menu for the newly closed Tax Period.
    • If there are any further exceptions encountered during the export, the User will be prompted to run the report again.
  5. The exported files should then be uploaded to IRD.

Tax Periods are linked to Entities; therefore, the above steps will need to be repeated for each Entity in the database.