In recent years, the American government introduced the Foreign Account Tax Compliance Act ("FATCA") which is designed to reduce tax evasion by Americans who hold bank accounts in other countries. U.S. citizens and tax residents are required to report their worldwide income to the Internal Revenue Service ("IRS") whether they live in the U.S. or not. FATCA requires foreign financial institutions such as NZ banks to report to the IRS on U.S. citizens and tax residents who have accounts held by American citizens and tax residents.
The Organisation for Economic Co-operation and Development ("OECD") subsequently introduced similar measures known as the Automatic Exchange of Financial Account Information ("AEOI").
As a result of both FATCA and AEOI, NZ banks are required to report information about accounts held by foreign tax residents (individuals, companies and trusts) to the Inland Revenue Department ("IRD"). The IRD will exchange that information with tax authorities in the account holders' country of residence.
Due to recent changes to NZ tax laws, NZ banks are now required to pass reporting obligations onto law firms like ours when we earn any interest for you on money that you have with our firm. Accordingly, when we place any of your money onto interest bearing deposit we are required to ask you to provide information to confirm whether you are a non-NZ tax resident.
As a result, before we can place your funds on interest bearing deposit, in order to comply with our obligations, we will ask you to complete a form confirming whether you are a foreign tax resident. The form is not a Cavell Leitch form but has been provided to us for the purpose of identifying foreign tax residents who are investing funds in New Zealand. You will receive the form either with our letter of engagement or when we meet with you.
Please be aware that if you choose not to complete the form, our bank may refuse to place your money on interest bearing deposit. If the bank does accept the funds, we will be obliged to provide it with details about your account who may be obliged to report that information to IRD.
While this seems complicated when you simply wish to place your money on interest bearing deposit, these are the new rules that we, and all other law firms, are required to operate under.
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.