You may be aware that the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS/GATCA) requirements have now come into effect
FATCA is a reporting regime that is designed to ensure that American citizens, tax residents and entities meet their tax obligations in respect of income earned overseas. CRS/GATCA is an initiative led by the OECD and provides a global framework for the collection, reporting and exchange of financial account information about people and entities who invest money outside of their tax residence jurisdiction.
FATCA and CRS/GATCA have been incorporated into New Zealand law in recent changes and require New Zealand banks to provide details about accounts held by non-New Zealand tax residents to the Inland Revenue Department (IRD). The IRD will report that information to the relevant tax jurisdiction. Banks are now required to pass that obligation onto law firms like ours when we earn any interest for you on monies that you have in our firm.
How does this affect property transactions?
Occasionally during property transactions the need arises to direct funds to be held on interest bearing deposit (IBD). For instance, if repairs have not been completed by the settlement date, the parties might agree to retain funds until such work is completed so as not to delay settlement. In one recent example both parties agreed that if titles were not issued by settlement date that the settlement funds would be placed on IBD until new titles had issued.
These new obligations mean that before any funds can be placed on IBD, all parties must comply with the new requirements. Under FATCA and CRS/GATCA, all parties that will earn interest through funds placed on IBD are required to complete self-certification forms and provide certain personal information. The purpose of these forms is to establish whether our clients are tax resident in a jurisdiction other than New Zealand. We must pass this information on to our bank. If a party to an agreement refuses to complete these forms when they are required, either our bank will refuse to accept the funds on IBD or we will be required to report the party's details to our bank. The approach to be taken is still finalising the approach that they will take.
Trusts and companies may need to consult with their accountants as these entities have additional information required in their self-certification forms involving more complex and technical questions than the individual forms.
FATCA and CRS/GATCA are still very new regulations. Going forward, reporting requirements may be refined by banks or the IRD, but at this stage anyone who will place funds on IBD with us, will be asked to complete self-certification forms as part of complying with these regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.