Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill

When I took my first call, I was slightly ahead of time in commenting on the wide range of commencement dates. In effect, there are 15 commencement dates, and I wonder whether the Minister in the chair, the Hon Dr Cullen, would take this opportunity to enlighten tax consultants, petitioners, and small-business people as to how they could comprehend and understand this bill when there are about 15 implementation dates.

When I look at clause 2, “Commencement”, it is interesting to note the schedule of commencement dates, and while I may be ahead of time, I can see that the Government is very much behind time. For example, some of the commencement dates go back to 1994. In the latest Supplementary Order Paper, there are amendments to the commencement dates that go back to 1994. Clause 2(2) on Supplementary Order Paper 169 states: “Section 103 is treated as coming into force on 1 July 1994.” Subclause (3) is treated as coming into force in December 1994. Subclause (4) states: “Section 75 is treated as coming into force on 1 April 1995.”; and subclause (5) states: “Sections 52(1) and 54(1) are treated as coming into force on 26 July 1996.” The references in the clauses refer to 1998 and 1999, and it is only halfway through those 15 implementation dates that I read that something will come into force in the year 2003.

Maybe the Minister should take a call and explain all these complications and reassure taxpayers. Should taxpayers be panicking? Should they worry about the Inland Revenue Department knocking on their doors, wondering what happened 6, 7, or 8 years ago when they might not have filed a tax return correctly? Overall, in this Parliament we treat retrospective legislation very seriously. It is bad enough for most people, who are quite panicky about what the impact of changes to taxation bills might be, but we are now facing a bill that not only includes changes but has 15 implementation dates. Half of those dates date back to before 2003, so how many tax consultants and accountants will have to go back to their clients’ files and make sure they are not caught inadvertently?

Out of courtesy to the public, I think the Minister should take a call to explain why we have a Supplementary Order Paper dated Tuesday, 18 November 2003, when most of the dates we are looking at are between 1994 and 2000. I think catch-up legislation might be necessary, but this bill seems to go back quite a few years. I think business people and tax accountants will be seeking guidance and reassurance from the Government that this bill is not looking to catch people up in these provisions, without them even knowing that quite a few of those provisions have been backdated.

People might think that a taxation bill is a dry piece of legislation, but it has consequences even for small-business people, because a lot of the issues we are looking at relate to GST. The threshold for GST registration is quite low, and we are looking at some of the provisions relating to exempt income to see which part of the income might be subject to tax and which part might not be. But it is complicated, in that one of the sections of the Act I was looking at—for example, the definition of “financial services”—might be backdated to 1994.

To be very brief, I thank the member for her second contribution in the debate as Opposition spokesperson on revenue. Where they are backdated, the great majority of these commencement dates are beneficial to the taxpayer, and are sometimes consequential on other structural changes, so we need to carry the provisions back over the period to ensure that no harm is done. I think the one area where there will be a question is around GST, in relation to some local body purposes where the ruling has changed. In order not to create the risk of a very substantial back-tax liability, the law is being confirmed as it was originally intended to be and understood to be. The Inland Revenue Department itself actually changed its interpretation.

So there is nothing terribly strange about any of these provisions. The bill is not, in the usual sense, retrospective legislation, or, in the vast majority of cases, a matter for concern. The change is beneficial. It will suit tax accountants and lawyers, who will be well aware of these changes as a result of the way the process of consultation occurred. Indeed, one or two of the changes have been made at the request of the tax profession.

I appreciate the Minister of Revenue’s explanation, but what troubles me somewhat over the commencement clause is that, as a member of the Finance and Expenditure Committee, I have checked back over my notes that I took during the hearings, and I find that the committee did not focus particularly on the issue of the commencement dates. What worries me somewhat is that an amendment on Supplementary Order Paper 169—that is, clause 2(5) amending clauses 52(1) and 54(1)—changes one particular aspect with regard to commencement dates. In the bill as introduced, that commencement date of 26 July 1996 applied to clauses 52(2)(i) and 54(2)(i). What I have been trying to check, in haste, is whether the two references in the original bill and the two on the Supplementary Order Paper are identical—whether clauses 52(2)(i) and 54(2)(i) in the bill as introduced are the same as clauses 52(1) and 54(1) mentioned in the amendment on the Supplementary Order Paper. It would seem to me that, in fact, they are not the same, because clause 52(1) is a new provision inserted by the select committee, as distinct from the previous reference to clause 52(2)(i). Whether clause 52(2)(i) was simply an error—

💬 Hon Dr Michael Cullen: It was taken out.

Dr the Hon LOCKWOOD SMITH: But when one looks at—

💬 Hon Dr Michael Cullen: It’s been replaced by clause 52(1).

Dr the Hon LOCKWOOD SMITH: The Minister says it was taken out, but when I look at what was struck out, I cannot see mention of clause 52(2)(i). I see clause 52(2)(ii) but I do not see clause 52(2)(i). Likewise, in the bill as introduced, I do not see clause section 54(2)(i)—

💬 Hon Dr Michael Cullen: If I could help the member. It was 52(2). The committee changed it to 52(1) because of the change to the clause. It’s just a technical change, which does exactly what was previously intended, given the fact the number has now changed on the clause itself.

Dr the Hon LOCKWOOD SMITH: But the thing is, though, the bill that the Committee is working off should show what the select committee did. If the committee struck out clause 52(2)(i), that should be evident on the face of the bill. Yet I cannot see where the committee has done that. I can see where the committee has struck out clause 52(1) and clause 52(2), but the bit of subclause (2) that is struck out is paragraph (ii) not paragraph (i).

💬 Hon Dr Michael Cullen: Because there was no clause 52(2)(i). It was meant to be 52(2).

Dr the Hon LOCKWOOD SMITH: I appreciate the Minister’s explanation. So the bill as introduced was actually wrong in that regard.

💬 Hon Dr Michael Cullen: Yes.

Dr the Hon LOCKWOOD SMITH: OK. I accept the Minister’s explanation that the bill as introduced was actually wrong.

Then we come to the substance of that issue. What is being referred to in those clauses is the branch-equivalent tax account of a company, which is quite complex tax law. I would not mind betting that 99 percent of members do not understand it, and I do not claim—I have to be quite honest here—to understand exactly what this new clause 52(1) does. That provision is being backdated to 26 July 1996. The select committee did not particularly focus on this issue. I want the Minister’s absolute assurance that what is now spelt out in the amended legislation before the Committee, with reference to new clauses 52(1) and 54(1), contains nothing that will, in any way, be negative for a company that falls into the branch-equivalent tax accounting system. The measures are, obviously, retrospective. I accept the Minister’s argument that retrospective measures are normally considered satisfactory if they are favourable for taxpayers, but there are a number of them; we do not often see as many retrospective measures in a taxation bill as there are in this one. It worries me, but I guess I have some comfort in that if there were too much in the bill that was negative, that would have been drawn to the attention of the select committee. The committee did not particularly focus on it, and I want to be absolutely satisfied that none of these retrospective measures, especially those relating to international taxation, are negative in any way at all, because our reputation with international companies is hugely important. We must not be passing retrospective legislation that has negative elements in it.

💬 Hon Dr Michael Cullen: I can assure the member on that.

I need to rule that the amendment put forward by Rod Donald is out of order.

Clause 2 agreed to.

Part 1 Annual Rates of Income Tax for 2003-04