Taxation (Canterbury Earthquake Measures) Bill

I note that Mr Ryall is the Minister in the chair. Having no problem with that at all, I would assume, given the non-partisan nature of the Taxation (Canterbury Earthquake Measures) Bill, that his officials will have provided him with some advice that he will be able to offer us in good faith on a number of critical questions. I ask the Minister to indicate whether that is a possibility.

💬 Hon Tony Ryall: I can’t see why not.

I thank the Minister. Excellent; that is wonderful. That is brilliant; I am glad we have that on the record. Issues that a number of colleagues raised, and that I particularly raised, were in respect of the purposes of the bill where it creates taxation exemptions for businesses donating trade stock to people affected by the earthquakes.

The question I ask the Minister is simple. We have heard examples in the first reading and the second reading of large-scale and small-scale businesses that have done just that—donated, in the heat of the quake, as it were, goods and services. We are seeking advice on the technical requirements that will be needed to ensure that these businesses meet the requirements of this legislation and can gain the exemption, and on whether there is any unintended consequence. For instance, as a result of the quake records provision may not have been maintained, and adequate records might not have been put in place and cannot be retrievable now because, to be blunt, businesses just gave on request. They did not seek any assistance in respect of tax liability, and I suspect most of them did not even give any consideration to whether there would be a liability. It was simply an act of generosity.

The second issue is the number of employees or businesses that may well be affected by this and will be able to participate in this, and, again, I ask what sort of requirements will be placed on them. Thirdly, and more important, colleagues have raised the issue that there are a number of legal events: 4 September, 22 February, Boxing Day prior to that, and—I have tried to find it in the short time we have had—I believe, a fourth recognised official quake that event happened some weeks ago. Regardless of that, we know there are three official events, but only two of them are mentioned and recognised within the legislation itself, even though there is a future-proofing provision that allows for future disasters or scenarios.

The Commissioner of Inland Revenue can activate these provisions in the future if the disaster meets the requirements, and we think that is a very good thing. But at least one official earthquake event is not recognised in the bill. People could be subject to the same difficulties from that unrecognised event and they are not catered for in this legislation. If the lack of this provision is an oversight—again, we do not say that with any malice—Labour Opposition members would be well prepared to facilitate an amendment to deal with that if it was deemed appropriate. If it has been catered for, then we seek some assurance on that point.

Equally, we would want to know the level of administrative red tape that businesses may have to go through to meet the requirements of this legislation, and if a business cannot produce appropriate records of stock that was handed out because of the nature of the disaster, we want to know whether there is flexibility within the legislation, or a discretion within the Inland Revenue Department, to deal with that issue. Again, one cannot think of everything, but an unintended consequence may occur with some businesses or some entities that donated goods, money, or services without any sort of acknowledgment that there may have been a liability and without any anticipation that Parliament might deal with it and provide some sort of exemption.

The other issue is around promotion, if there is any, and what sort of materials will be provided to businesses, employees, and others who may be affected and who may be able to take advantage of this to assist them in terms of dealing with the legislation when it comes into force. As has been mentioned, there was a large amount of generosity out there. This legislation, given that it is future-proofed, presumably has the ability to facilitate further generosity for future events. If that is the case, then we will support that. So there are a number of questions, and I am sure colleagues will have others. If the Minister is in a position to provide us with some advice, we would appreciate it.

I am just taking a very short call on the Taxation (Canterbury Earthquake Measures) Bill. I have a couple of questions. Normally what happens with tax bills is that they go to the Finance and Expenditure Committee. We have talked about the very good reason why this bill is not going the Finance and Expenditure Committee, but the reason I mention that is that at select committees, as members will be well aware, members have a chance to talk to officials about why certain things have been drafted and are there, or why they are not. In this circumstance I just have a couple of questions.

If we look at clause 4 in Part 1, which inserts new section CZ 23 into the Income Tax Act, we see that it is an amendment to the Income Tax Act 2007. Section CZ 23(1)(f) states that income is exempt if it “is available to another employee, who is not an associated person of the employer”—I understand that—“and is or was immediately before a Canterbury earthquake in full-time employment with the employer, if the employee is an associated person of the employer;”. I suppose I am asking how the Inland Revenue Department will police this provision, or how it will confirm that, in fact, something that was given to one employee was open to all employees. It might be a very easy test; I am not very sure about that. I suppose I am asking for a bit of clarification that this provision will not be so onerous that a lot of business owners will just throw up their hands and say: “Goodness me, we wanted a bit of light relief. That is why we went to the Inland Revenue Department.” The fiscal cost of this is only $3 million, so in the scheme of things it is not much. But we do not want to have legislation that is pretty onerous.

The other point I would like to raise is with regard to section CZ 23(2)(b), to do with the extent of the income exemption. It states that it is to be “less than or equal to $3,200 in total, if the income is in a form other than accommodation.” I may be wrong here—totally wrong—but I suspect what will happen is that once this legislation is passed, a lot of businesses will try to get hold of a copy of it, because they will want to know the status of what they have given, or the status of their requirements in terms of their provision to the Inland Revenue Department. They will look at this legislation and say: “Oh, shivers, ‘other than accommodation’—well, what does that mean? And ‘less than … $3,200’. Oh, shivers, how am I going to account for this?”.

I suppose that where I am coming to is that this is a very small bill, and I wonder whether it would be practical—and it is a question; it is not a suggestion—maybe to have somewhere in the back a definition of “accommodation”. Again, I am not sure how many employers have provided accommodation to their employees, or how many employers have actually offered goods to the value of $3,200 or even maybe of over that amount. So I really just seek clarification of a lot of this, because one of the purposes of this legislation is to provide a level of clarification for businesses that have donated to the people of Christchurch. It is very important; we all know this. It is very important that tax legislation is easy to understand. I suspect that this legislation may be accessed by more people than those who would usually access tax legislation, but I could be wrong about that. We could go through this bill, if we were really going to draw this debate out, and pick all these things out, but as I mentioned, I am just a little concerned that there may be room to expand on some of the definitions in this bill. Thank you very much.

I have just a couple of very brief queries on the Taxation (Canterbury Earthquake Measures) Bill for the Minister of Health, and, via him, the officials. It relates to this issue. During the course of the aftermath of the quake I have observed goods being donated by businesses. I welcome that, I think the response of business has been overwhelming and generous. But I have noted that sometimes the stock donated has been out of date. I was aware of one hub in my community, in Shirley, that received crates and crates of cheese that was out of date. I am wondering whether there might be situations in which claims are made for special taxation treatment of materials donated that were out of date.

Similarly, everybody will be well aware that supermarkets and wholesalers suffered enormous damage in the quake. There would be more dented tins in Christchurch on 22 February than in a lifetime elsewhere. Again, it is the same question: if those tins are covered by insurance, is there any potential for a double-dip to be going on?

Finally, I have bought wine from a local retailer in my electorate. The bottles have dented caps, they are sticky, and on occasion there are even slight slivers of glass on the edge of the bottle or on the label. Again, I wonder whether insurance claims are being made and special tax treatment is being sought. I would like an official to answer that. Thank you.

I know we have a commitment from the Minister in the chair, the Minister of Health, to answer our questions. I appreciate that offer. I have one question in relation to the number of people who are likely to be affected by the Taxation (Canterbury Earthquake Measures) Bill, and whether people will be getting reversals of actions that they have already taken between 4 September and now. Will they have already paid some tax liability and now receive a refund; if so, how will that process work? I just want to get a bit of a feel of how many people we might be talking about, how many organisations we might be talking about, and what sort of process they will have to go through in order to access the benefits of the legislation. I am looking hopefully at the officials, who are busy writing some advice for the Minister, who unfortunately is not the Minister responsible for this legislation. The Minister of Revenue has been detained on very important matters of public business no doubt, and is unable to join us tonight.

The second question I want to ask is whether any consideration was given during the preparation of this bill to the terrible situation that our early childhood education centres have found themselves in. The Minister of Education has recently announced that the operations grants for our compulsory education in schools are to be maintained at the pre - 22 February level until the end of the calendar year. That is an absolute delight for our schools, which were really wondering how they would be able to fund-raise in order to meet the deficit, when they have quite traumatised children who need additional support, not less support. That was a really welcome announcement by the Minister. But nothing at all has been given to early childhood education centres, which are in exactly the same position as schools. They are even worse affected than schools, because both their staff as well as their comparable operations grants come from their daily attendance records. They are paid by the number of pupils, the number of students, who attend early childhood centres every day. Once a few families leave the suburb or leave the town, those numbers drop. We do not know quite when people will come back to Canterbury, if they will at all. The insecurity for early childhood centres is also really problematic. During the preparation of this package of support for Cantabrians, I wonder whether any consideration was given to that; if not, would the Minister give a commitment to pass that matter on to the Minister of Education for her consideration at the earliest possible opportunity?

The final question I want to ask is one that I will also answer for the Minister. It is not because I do not think he knows the answer, but because I received a commitment last evening from the Hon Peter Dunne to answer the question when I asked it, so that we would have it on the public record that this was in fact the case in relation to this legislation and the employment subsidy. The concern I raised with Peter Dunne last night, when I read the legislation, was whether the tax exemption applied to the employment support subsidy. It might sound odd, but if it did it would be very problematic if it was not counted as income. I do not need to go into the details unless the Minister would like me to share them with members, in which case I am happy to do that. I checked with the Minister on whether an employment support subsidy would be counted as a gift to a Cantabrian, and therefore be exempt from income tax. I had my fingers crossed that he would come back to me and say no, and I was very pleased when he did that. The employment support subsidy is treated as income. It covers loss of wages, and it is subject to PAYE. I am happy with that, but I want it to be put on the record that the Minister gave me that advice, so that there can be no confusion as to the status of the subsidy.

Those are is all the outstanding questions that I have, and I look forward to the Minister’s responses.

I will respond to a number of questions that have been asked. There is no firm indication of the number of businesses or people who are likely to benefit from these changes. The amendment has come because of a number of concerns that have been raised with the Government, and we do not have any specifics that we can put our finger on regarding the exact number of people who will be affected.

The Taxation (Canterbury Earthquake Measures) Bill, of course, is not unusual in this sort of environment. Members will recall that during the Rangitīkei floods specific legislation went through the House by leave that provided some tax flexibility around some administrative issues. However, officials advise that for the Canterbury earthquakes, which are extraordinary events, more specific responses are required because of the breadth of issues that have been raised to be dealt with. The bill represents those responses. The depreciation amendments referred to earlier are also part of the response, and the third responsive issue is the Order in Council stuff that happened at that time.

A number of accounting-related questions were raised, some of which took me back to Accounting 101 at Massey University, for which incidentally I got an A+, but it was all downhill from there. In terms of periods of relief, any trading stock donated between 4 September last year and 31 March this year will be covered. The redundancy provision finishes on 30 September 2011—that is all redundancies, not just earthquake-related redundancies. The Working for Families provision will be at the discretion of the Commissioner of Inland Revenue. There is no evidence that employer welfare contributions were needed for any of the so-called aftershocks, but for the two major earthquakes, which significantly damaged businesses and affected employees, we are providing for employer welfare contributions in the 8 weeks after each of the two main events to be exempt, which makes a lot of sense.

The GST questions have been raised. GST is payable by businesses on their sales income. If the goods have been given away, then there is no GST liability, and the usual business systems will be involved. The Income Tax Act 2007 requires that trading stock on hand at the end of the year be added back. That is because trading stock is a deductible when it is purchased, so therefore it has to be put back in over the top line. These proposals mean that no special accounting requirements are necessary. All businesses with trading stock have to file a return.

On the question of compliance costs, clearly the trading stock provision will not create any issues, the redundancy provision is pretty straightforward, and, in terms of the Working for Families discretion, Working for Families always has some compliance cost, and the extra cost will be pretty small. On the employer welfare proposals, logically there will be compliance cost implications because of the detail that is required, but the officials do not think there will be any great specific burden. The relief, of course, is voluntary for employers who are suffering these costs, and there is a benefit for them in incurring those costs in order to make a claim.

The question was put that the following amendment in the name of the Hon Ruth Dyson to clause 4 be agreed to:

to insert in section CZ 23(1)(b) and in section CZ 24(1)(b) “or 26 December 2010” after “2010”.

Amendment not agreed to.

Parts 1 and 2 and clauses 1 and 2 agreed to.

Bill reported without amendment.

Report adopted.

Third Reading