Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill

I want to go straight to the Minister of Revenue’s amendments in Supplementary Order Paper 129 that pertain to GST and bodies corporate with reference to clauses 248 to 251 of the bill. It is worth just recalling the context for this. I think it was 19 October when we first debated this, and I raised with the Minister of Revenue a major problem that he and his department had overlooked in respect of issues concerning GST on those small businesses that own premises in a building by way of a unit title interest in a body corporate.

In essence, without rehearsing those arguments again, what was amazing about that—I know the Minister put in a Supplementary Order Paper after I wrote to him on the 20th and provided him with my amendment, and they are very similar, but I have got to raise two points. One is that I think the department—or, certainly, the Minister—knew about this problem for a very, very long time. That is the advice I have. This had the potential to inflict a high degree of cost in terms of retrospectivity on small businesses throughout the country.

The Minister, after I wrote to him on the 20th providing him with an amendment, has submitted one of his own, and, as I say, I have put on record that in large parts it does meet the mark in terms of remedying this. What it appears to provide is a look-through rule—which is what was committed to by the Government, the Minister, and, essentially, the department prior to this bill’s introduction, but then they changed their minds. What it appears to do is provide the look-through rule, but only for supplies made on or before 26 February 2015, the date the bill was introduced.

My amendment applies to supplies before 1 April 2016, by which time the bill will have been enacted, and people—that is, the businesses concerned: those individuals—will be able to make decisions as to whether they register or not based on the new, clearer law. Because the Minister’s Supplementary Order Paper provides the date of 26 February 2015, it means that those small businesses that have incurred costs through an unregistered body corporate from 27 February on are still denied refunds and will still be double taxed under GST.

The question is: why would you want to do that? The Minister of Revenue, the Hon Todd McClay—I have got the dates, and I can re-rehearse them again, of course—announced in June 2014 the Government’s intention to change the law. The Government gave a series of commitments. The bill was introduced in February 2015, and, instead of disallowing bodies corporate from registering for GST, the bill then proposed that the registration be generally elective. No look-through rule was provided even though that commitment was made as far back as June 2014.

The question is, why would the Minister change the dates? Presumably, the view is that when the bill was introduced on 26 February people had noticed that there would be no look-through rule as promised by the Minister in June 2014. They could then immediately have the body corporate registered for GST so they could get refunds to GST, which all presupposes that small businesses are extremely conversant with the detail and the technical aspects of GST law. It presupposes that those small businesses understand intricately the process of parliamentary legislation-making. It presupposes that those small businesses will be hanging on to every word of Parliament as this bill is introduced right through and analysing every subtle nuance and every clause within the proposed legislation. That is just bunkum. Small businesses have got a lot more productive things to do. Their eye is on the ball of the small business. They cannot be expected to pick up on every little nuance of Parliament.

So what we proposed in my amendment was that it apply to supplies before 1 April 2016. That gives people time to absorb the changes. It is a transitional provision, and fairness prevails. So although I would say that we will be opposing the Minister’s Supplementary Order Paper 129, we will not be opposing it because we are against it in principle. We are opposing it and supporting my amendment because the Minister has left out a really important chunk, in terms of those dates, that has the ability to greatly disadvantage a whole series of parties and businesses that will still be liable for cost. We think it is inelegant. We think that this should have been brought to the Minister—well, presumably the Minister knew. It should not have taken a letter from me on 20 October—months and months and months after the bill was introduced—for the Minister then to scurry around and go: “Oops, there is a major flaw in the bill.” I am advised by some learned tax historians that we may have made a little bit of history, because I think it has been a very, very long time since an Opposition has actually been able to provide a major amendment to a piece of tax legislation that the Government has been forced to pick up.

But the big question I would like to ask the Minister—and it worries the living daylights I think out of the industry and many practitioners—is, why are these mistakes continually being made? If you go back—and I will not labour the point—to the Peter Dunne carpark tax and the Peter Dunne computer tax, all these sorts of things that were rubbish right out of the Finance and Expenditure Committee when they came through, and they were dealt to, the Government was forced to then back down and say that this is just crazy. But I have got to say this: it is not a political comment. It is not a comment about which political party is in Government, but I know that when we were in Government the quality of advice that Ministers were receiving was, I think, bluntly, world class—absolutely world class. People like Robin Oliver and other people who—apart from David Bennett, who I do not think was employed in the department but no doubt feels he is a guru on tax matters—had been around for years and years and years, and were part of the Inland Revenue Department furniture. A number of these proposals would never find their way to a Minister’s desk, or if they did, you had Ministers whose eyes were on the ball and who would say “No, no, this is crazy. We are not doing it.”

This particular piece of ineptitude had the ability to impact on thousands of small businesses all around the country. I give the Minister his due when we raid—

💬 Andrew Bayly: I think that’s pretty harsh, Clayton.

No, it is a fact though. If the member actually reads it—and I will tell you why it is a fact. It is because his own Minister has amended it. So if he reads his own Minister’s Supplementary Order Paper 129—Ministers are not in the habit of doing things on a whim—it actually remedies a major problem. My point to that member over there is this: it should not have taken an Opposition without an Inland Revenue Department behind it to raise the issue with the Minister. To his credit, he amended it because it was going to provide a major hole and a major impact on small businesses. If the member in the back row had read the bill or maybe even read the Minister’s letter with the explanation, he may know why. He purports to stand up for small businesses.

💬 Chris Bishop: That’s right.

So why did that member and Mr Bishop not pick up on this, an issue that would impact huge cost on those small businesses retrospectively. They are in Government. They have got all the resources, and they blew it and they missed it. Even the Minister himself did not even pick it up. I will give him his due. As I have said often before, he is the guy with the shovel behind the elephant post-Peter Dunne. Peter Dunne was asleep at the wheel, and Mr McClay has had to come in and clean it up. But it is a worry that Opposition members and others—and through the good grace of experts outside this place—have managed to pull this one out for the Government, and managed to write to the Minister and say: “Here is a Supplementary Order Paper. This will fix the problem.”

To the Minister’s credit, he has delivered one back in his own name, but still there is an inequity and a gap because the dates, in my view, are wrong. The 1 April 2016 date, as I understand it, was the one that was promised, the one that was committed to, and the one that will ensure that there is no inequity or an unfairness. As I say, if this is not corrected, what it means is that those small businesses that have incurred costs through unregistered bodies corporate from 27 February on are still going to be denied refunds and will still be double taxed under GST. I do not know what the member, whose name I cannot recall, in the back row thinks of that. Does he think that is a problem for small business? Does he think that is OK? He is a guru. Does he worry about these things? Does it keep him awake at night if he purports to support small business?

We are going to support the bill, but we think there is still an inadequacy in the Minister’s Supplementary Order Paper 129. He has gone 90 percent of the way there but there are still businesses and individuals that are going to be impacted on.

That was a rousing speech from Mr Cosgrove. In fact, he is right on this, and it is a shame that the Government actually does not put up its hand and take on board what he is communicating.

There are a couple of things—not large things—I would like to talk about on this bill. It will not be a long call, but I would like to talk about clause 230 inserting new section 70C. We heard a lot in the Finance and Expenditure Committee about how the Inland Revenue Department (IRD) wants to move to an electronic way of doing business. That is admirable; there is no doubt about that. But it is quite interesting that in statements in return to research and development tax loss credits it says: “A person must file by electronic means,”. I guess we can assume that if someone is picking up research and development tax credits, then they are going to be au fait with the way of the world in the 21st century—i.e., fully electronic—but I wonder whether, at this point in time, what we do is we do not deem that they must file by electronic means. Maybe we just give them a touch up and say they “may” or they “should”, because when we have legislation I always look at words like “must”, “may”, “should”, etc., and they give me an indication of what the legislative intent is. Often if it says “may”, then it gives guidance. If it says “must”, then obviously it prescribes it—this is how it has to be done.

I just wonder whether, at this point in time, we do not say “must” and we should say “may” to give the person an option. It is making an assumption that the person who is pulling down research and development credits is not necessarily dealing with computer software or something high tech. They may still be dealing in the backyard, putting together a really innovative idea for the 22nd century, but they are still on a paper-based system. In this case they must deal with research and development tax credits through an electronic scheme.

What I would really like to talk about, and something that did take a little bit of the select committee’s time, is clause 232B. What this is talking about is officers maintaining secrecy. If we look at clause 232B, what it basically says is that nothing shall prohibit the Commissioner of Inland Revenue to communicate with an officer, employee, or agent of the Callaghan Innovation fund for the purpose of administering subpart MX of the Income Tax Act 2007. The reason this took up a bit of our time is that when we were talking about research and development tax credits we were not too sure about what was defined by research and development and what was not. So the IRD came up with the view that Callaghan Innovation was in fact the organisation that would be the main arbiter on whether or not something constituted research and development. The problem we had with that was that what often happens, or usually happens—in fact, the vast majority of the time—in these cases, is that an organisation comes up with research and development and they are very protective of this. They come up with some new proprietary technology for doing whatever, or they come up with a new patent, and they require the research and development funding to actually commercialise it. But there does exist in New Zealand—and I have seen this happen a number of times, and one particular company in Napier comes to mind—an element of distrust with the Government. Let us be open and honest about this. This is not in any way, shape, or form—in any way, shape, or form—to impinge on the integrity of those with the Callaghan Innovation fund. I do need to make that clear.

💬 Hon Damien O’Connor: They are the puppets.

Well, they do some really good stuff. They are designed to implement the vision of Professor Callaghan, and Professor Callaghan had a vision for how New Zealand should be. He was a very decent bloke.

The other thing also is it does say in clause 232B(2) that nothing shall prohibit the commission from “(w) communicating to an officer, employee, or agent of the department that is, with the authority of the Prime Minister, for the time being responsible for the administration of the Research, Science, and Technology Act 2010,”. Again, I have concerns because I suspect that what will happen is that a number of New Zealand companies that would be eligible for research and development tax credits and eligible for Callaghan Innovation funding will have a very robust discussion around the board table, and they will make a decision that they will not approach the Government because the element of trust that the intellectual property will be protected just does not exist. When we say here that nothing shall prohibit the Commissioner of Inland Revenue from talking to officers of the Callaghan Innovation fund, I think that we open ourselves up again to unintended consequences.

Obviously, what we do not want to do is to create an environment where people do not trust the Callaghan Innovation fund, or they do not seek funding, but also we do not want to create a system where people avoid tax by going to the Callaghan Innovation fund. So I think that what we should have done, and I take some responsibility because I think I was on the select committee for this—I am not too sure. In fact, I do not know whether I was or not; we get a whole lot of these tax bills coming through. I think we actually should have set up a system where it was a lot easier for companies to claim their research and development tax credits and not worry about tax implications, but also to allay their concerns around their intellectual property. Secrecy is maintained by an Act of Parliament, of course. What happens if someone from the Callaghan Innovation fund or the commissioner or anyone breaches the secrecy? They are in very deep trouble. But what we do need to do as a Parliament, I believe, is create a much higher culture of trust in the Government, and I know, at this point in time—as mentioned, talking to one particular company—that does not exist.

I will leave it at that at this point, but there are some other contributions coming. Thank you very much.

I want to make just a brief contribution as well to support my colleague Clayton Cosgrove’s amendment introducing a new clause 254B to deal with the issue, as we have previously discussed, of what happens to those small-business people in particular, who run their businesses essentially via a premises that is a unit title within a body corporate. Most of us will be able to picture the kind of business. I know of one. I used to be a tenant in a building that was a body corporate, down on Lambton Quay. It contains a number of businesses. There is a shoe store in it, there is a key engraver, and a repairer. These are people who are often small-business people whose premises they do not own themselves, but they are the unit title holder within a body corporate.

What this clause of the bill aimed to do was to create some consistency around the rules of GST registering for bodies corporate. There have been a couple of legal cases that have changed the law. It means that there has been an inconsistency in interpretation between how the Inland Revenue Department (IRD) treats bodies corporate in terms of GST and the decisions of the court. We support the principle of that approach. It is important that there is consistency in terms of GST treatment.

What Mr Cosgrove led the Government to do, by writing to it, was to assess how to deal with people in this situation who, looking back on their business expenses, would normally have been able to claim GST input credits on their legitimate business activities—to enable them to do that in the spirit of a transitional part of the law. Both sides of the House are now in agreement that that was a gap that was not brought to the attention of the Finance and Expenditure Committee—it should have been. This process of discussion around the treatment of bodies corporate for GST has been the subject of to-ing and fro-ing between IRD and tax practitioners for some time, so it was of some surprise to members of the select committee to learn afterwards that this gap had suddenly been identified.

💬 Hon Clayton Cosgrove: It was a surprise to the Government.

Well, it was a surprise to the Government, until Mr Cosgrove let it know about it. So we reached the point where, yes, there was an agreement that there was a problem here.

The issue is the date from which the small businesses concerned can continue to make their claims. The Government has proposed, in Supplementary Order Paper 129, a date of 26 February 2016—that you can be claiming on services before that date. Mr Cosgrove has proposed the date of 1 April 2016. My contribution here is to ask the Government what on earth it thinks it is doing, choosing the date of 26 February 2015, because what we have been told is that that date has been chosen because it is the date of the introduction of the bill. Well, quite frankly, you may as well have asked Mr Cosgrove his birth date, and chosen that date as the day, be it any more—

💬 Hon Clayton Cosgrove: I won’t tell it.

Halloween, did you say? Yes, I think it is possibly Halloween. Very appropriate. The date of introduction of a bill is completely irrelevant.

Why does the date of introduction matter? Who knows what is going to happen to a piece of legislation when it is introduced to Parliament? It may be voted up; it may be voted down by Parliament. The date of introduction means nothing whatsoever. Is it some assumption by the Government that it is all-powerful and that the moment that it introduces a bill it effectively becomes law—that everybody reads it and says: “OK, that’s now what the situation will be and we must obey these new tax laws.”?

There is nothing in the process of Parliament that would support using an arbitrary date like the introduction date. I would defy members of the Government to tell me when it has ever occurred that the date of introduction is somehow regarded as the date by which taxpayers must obey a new law. As we are seeing right now, tax bills get significant amendment as they go through the House. Every tax bill since I have been a member of this House has seen significant changes, large Supplementary Order Papers—

💬 Dr David Clark: There’s a correlation there.

That is right. It is all about me, Dr Clark. Every tax bill has seen large Supplementary Order Papers being made.

How can the Government justify choosing this date? If this is actually about being fair to small businesses that are now dealing with a change in process, with different treatment for bodies corporate—to need to make a series of decisions about whether those bodies corporate have registered and what that means—I think the Government needs to reconsider and support Mr Cosgrove’s amendment because it is fairer.

I want to pick up on Mr Robertson’s point, but I just want to express some disappointment. This is a Supplementary Order Paper. Let us be very clear about it. In February of this year—on 26 February—the Government introduced the legislation. The process is that it goes before the Finance and Expenditure Committee. It was referred to the select committee on 11 March. The closing date for submissions was 30 April. The committee received the submissions, heard them, and the bill came back to the House. Throughout that whole period this particular issue relating to GST and bodies corporate was never raised with the committee by officials, was never raised by Government members, and we were never written to by the Minister of Revenue asking us to deal with this. The bill came to the House, and I think it was 19 October when, in a speech that I and other colleagues made, we raised it with the Minister.

That was the first time this issue was raised, and we provided, actually, quite a detailed explanation as to the potential impact on small businesses if this hole was not plugged, if the issue was not dealt with. It took the Minister then over a month, on 17 November, to get back to us. His opening line to me in his letter is: “I refer to your letter of 20 October 2015 and the matters you raised in your speech.”—blah, blah, blah—“I acknowledge your concerns about the historical uncertainties surrounding GST treatment of unit title bodies corporate. I agree that it is desirable to provide greater certainty to GST-registered persons and businesses that tax positions taken during this time will not be routed.” The bill was introduced in February, after a whole series of departmental reports and research and papers to Cabinet, what have you—that was February. It took him until 17 November, when the scales fell from his eyes, to actually realise that this was a problem and to do something about it.

💬 Hon Damien O’Connor: That was quick for him.

That was quick, yeah.

My question is this: how on earth—I say to the Minister in the chair, and, forgive me, the Minister in the chair is not the portfolio Minister, but represents the portfolio Minister, none the less, and I am surprised that the portfolio Minister has not taken a call. He has not taken a call, I think, on these pieces of legislation at any stage this evening. This was a monumental stuff-up—a monumental stuff-up that would have cost small businesses goodness knows how many hundreds of thousands of dollars, or millions of dollars, across the board. We do not know. What I would like to know from the Minister, because it goes to looking at future tax bills, is what confidence do we have that there will not be another hole in another piece of legislation, which maybe Opposition members do not pick up on to dig the Government out of the mire, and it goes through? An explanation, I think, is warranted, because it goes to the credibility and integrity of the Minister of Revenue and, via the Minister of Revenue, to the Inland Revenue Department itself.

Why was this missed? Was it known about? The advice I have from industry is that it was known about for quite a length of time, but nothing was done. If nothing was done, was that because officials were negligent? Was that because the Minister knew about it and did not clear the paper on his desk between February of this year and 17 November? Did he not bother about it? Did he not care about it? Did he not think it was a big issue? Well, he did think it was a big issue when it was raised in this House, and I suspect he went back and went: “Oops, we’ve got a major problem.” Why did it take a month to correct? Why was the Finance and Expenditure Committee not informed of this as we examined the bill? Because this is not just a small Supplementary Order Paper; this is a major one.

As to Mr Robertson’s point, it is fanciful that an arbitrary date of the date of introduction was proposed as the mechanism in the Minister’s Supplementary Order Paper. He does not give any explanation for why. He just says: “Well, date of introduction, so what?”. He does not acknowledge that there will be those who will be impacted by this in terms of being double taxed under GST and denied refunds, unless we adopt the date that I have proposed, which is 1 April 2016. If it is agreed that people are going to be double taxed under GST and denied refunds, could a Government member—or maybe the chair of the select committee, Mr Bennett, who was running the show—tell us whether they are in agreement with that? Are they happy that that inequity will exist? Are they happy that people will be double taxed under GST? This is the party that purports to support small business.

Is the Minister happy with that inequity? Is the Minister going to propose any other amendments to remedy it? We have done most of the work for him; it would be good if he took this point on. Perhaps the Minister in the chair could turn to the officials and ask them that question, because there is no explanation as to why the date of introduction was chosen, apart from, you know, finger in the ear. Maybe the Minister tossed a coin, rolled a few dice, or, I do not know, watched two flies run up a wall—

💬 Grant Robertson: Lotto numbers.

—lotto numbers, horoscope, who knows? But this is a very serious issue because small businesses and others in this situation will be double taxed in respect of GST and will be denied refunds. If the Government is just happy to sit there and go “Tough”, well, that is OK; that is now on record. But I do not see any of the three—I think there are two members of the Finance and Expenditure Committee here. There is Mr Bennett, the chair. No Minister—no Minister—has taken a call to answer any of these questions. It is bad law, it is extremely bad process, and it is extremely bad for the credibility and integrity of the Inland Revenue Department, which, I have got to say, has generally been pretty good—up until a few recent incidents over the last Parliament—in terms of advice. But the Finance and Expenditure Committee got zero advice on this.

Were the officials told by the Minister to provide no advice on this issue? There is a question that could be answered. Why was it missed? Why was it missed through the Cabinet process? Why was it missed through the Finance and Expenditure Committee in terms of advice? Why, when it came back into this House from the Finance and Expenditure Committee, and we were examining it, did the Minister of his own volition not put a Supplementary Order Paper in to correct it? Why did it take a letter from me and pressure from Opposition members to get this thing corrected? There is not politics in this. This is an issue about the quality of advice, the accountability of Ministers, and whether Ministers are up to it—whether they are actually up to it, whether they are reading the papers, whether they are asking the questions. I am also advised that members of industry canvassed this issue with officials, with the department, and with the Minister, and nothing was done, not a thing—not a thing. Thousands of small businesses could be just thrown on the heap and impacted in respect of the GST.

Well, the Minister has provided a partial solution, but it appears that the Government is still prepared to have people double taxed under GST and denied refunds, simply because it plucked a date of February 2015 out of its head and put it in this legislation, saying: “That’s the drop-dead date.” Could the Minister advise us, as she is writing down the list of questions, as to why that is fair, why that is equitable? Is she prepared to revisit this issue and change those dates? If the Minister is not, could she advise us as to why? If she feels it is equitable to have people double taxed and refunds denied, could she provide us with an explanation? Could Mr McClay, the revenue Minister, who is probably hiding under a desk, obviously, because he has not taken a call on this—he is hiding under the desk or under the Table or somewhere, I do not know. He has gone down a burrow somewhere around this Chamber. I would have thought, given that he missed it—he did not punch the ticket—that he would actually be taking a call and explaining this. The courts, of course, do look at these debates, if there is court action around this. They do actually look at these debates in terms of their evidential value.

But it is arrogant for a Minister to say “This is what I want to do. I know there is an inequity inherently in this. I know people will be double taxed under GST.” I wonder whether Mr Scott, the vintner down the back—who normally gets up and has a crack at us and says we are out of touch with small businesses, we do not know what we are talking about, and it is all nanny State and PC—is going to get up and tell us whether he is happy with people being double taxed under GST and businesses being denied their refunds. Oh, there is silence—silence—silence from all those members over there, even the one in the middle. There is silence. They are prepared to do this. They are prepared to see this inequity slide through. It will be interesting to see what the one in the middle does when he goes back to his constituents—whether he goes down a burrow in the electorate when people front up and say: “Hang on. Why I am being dealt to? Why for the guy down the road is it OK for them? They get treated fairly. But because of a date that that member’s party plucked out of nowhere, I’m double taxed and I’m denied my refunds.”

I wonder what Mr Scott’s explanation will be to small businesses. Will he be able to say: “Well, here’s an explanation from the Minister.”? No, because the Minister will not answer any questions. Maybe the member can. Maybe he can whip down the burrow, follow the Minister down there, and change his mind.

I leapt up because the members opposite seemed reluctant, despite the challenge from the Hon Clayton Cosgrove. I must commend him for his work in spotting those changes and picking them up. I guess he is out there actually listening to the businesses, and asking: “What is wrong with this legislation? How could it be improved?”. It is embarrassing that the Government has not picked up on this itself. It is embarrassing that it required a letter from a diligent Opposition member to get this change written into the law. Already my colleagues have suggested that the dates could be changed to make it better still for small businesses.

I want to pick up on a similar theme, actually, because in this bill we see more examples of unnecessary compliance. It is a bill designed to tidy up the tax laws, to make sure that compliance is as simple as possible—that is its usual purpose—that it is there and complete, and that the tax is hard to avoid if it is fairly due. That is why we are making these amendments that are here—the amendments to other Acts, in Part 4. One of the interesting ones is clause 227, where we are removing a completely irrelevant section. This is a section that this Government here, on the benches opposite, put in place in 2011. It has been on the statute book for 4 years—for 4 years. It has required people receiving Working for Families to furnish details to the Inland Revenue Department (IRD) of each family assistance credit paid to them in the tax year.

Why has the Government required that? We learn from the notes that the IRD does not request or require this information at all. So anyone who has been diligent, who has read the law, who has said “I want to be sure that I meet all my obligations.”, will have been filing these details, when it was completely unnecessary or they were not used by the department. This is the kind of thing that is in this law. This unnecessary compliance, because it is information that is not even being used by the department, has been required by law to be collected for the past 4 years. Thank goodness we are getting rid of it now. But those same people who might have been double taxed under GST here may also find themselves required to submit information that the IRD neither needs nor uses. Thank goodness we are cleaning it up, finally, here. This is the kind of law that gets made when there is not attention to detail, when the Minister is not across his portfolio, when he is asleep at the wheel.

We support this kind of change in the legislation. But, you know, we are reminded, in the double GST example that my colleague has brought up, of the child support collection requirements that have been put on small businesses by this Government—that small businesses collect back-owed child support. Again, this is something put on small-business owners that they did not previously have to do, and that introduces potential conflict into the workplace. The child support legislation that was previously passed through this House, introducing a new formula—

The CHAIRPERSON (Lindsay Tisch): Order! [Interruption] Order! Come back to the bill.

The point, which is relevant to this bill, is that it is good that we are tidying up those things that need to be tidied up, but they should not have got in there in the first place. We should not need to be here, debating the removal of unnecessary and irrelevant legislation that was put through this House just 4 years ago.

So for 4 years this information has been confusing. Some people will have complied with it unnecessarily. Likewise, this double GST issue has been going on for goodness knows how long. But the issue had not been spotted until members on this side of the Chamber pointed it out. We must question why the Minister has missed these things up until now. I would like the Minister very much to get to his feet and say why clause 227 has been required now, and not earlier—not requesting or requiring information—and why people will have thought that they had to supply details of every family assistance tax credit paid to them since 2011 and up until now. Why has the Minister not spotted it previously?

So I hope the Minister will leap to his feet shortly, because my voice will not carry for much longer. I think I have made my point, and I am dying to hear the answer. Thank you, Mr Chair, for the opportunity to raise that issue.

The other point I would quickly like to make, though, while my voice holds, is that the family scheme income statements, clause 232, gives options for families to—[Bell rung] Mr Chairman?

The CHAIRPERSON (Lindsay Tisch): Dr David Clark, while your voice holds.

Thank you, Mr Chairman, while my voice holds. It gives an opportunity for families to submit separately their family scheme income statements. To me, exactly when this applies and why it applies—I understand it is to make it simpler. The guidance here says that in some circumstances, especially those with child support arrangements, it can be difficult to identify each spouse’s portion of family scheme income. That is when it is suggested that the statement of family scheme income be submitted separately. That is in the explanatory note, not in the bill itself. The bill itself does not shed much light on the issue, as I read it initially.

It says in new section 80KV(2) set out in clause 232 that a person “must”, within the time required, file the person’s return of income. New section 80KV(3) describes what “must” be done again, but there is a clause that says: “unless that other person gives a statement of their family scheme income”. I want to know how that is coordinated, what the rules around coordinating those separate family scheme income submissions are, and how they were decided. On the surface, at least, it appears a little confusing as to when who takes the lead, and on what. Thank you, Mr Chairperson.

I seek leave to table two documents. One is a letter from the Minister of Revenue, Todd McClay, to me of 17 November 2015 finally outlining his proposed Supplementary Order Paper.

Leave is sought for that purpose. Is there any objection? There is no objection. It can be tabled.

Document, by leave, laid on the Table of the House.

The second one is the letter from me of 20 October 2015 to Mr McClay raising the same issue, with my Supplementary Order Paper attached.

Leave is sought for that purpose. Is there any objection? There is no objection. It can be tabled.

Document, by leave, laid on the Table of the House.

I rise to take a final call on Part 4 of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill and wish to address the Committee on the issue of foreign superannuation. Clauses 71, 75, 96, 133, 145, 213, 256, and 266 admittedly span a couple of parts, but they are related. May I make two preliminary comments. The first is that we commend the objectives that the Government has set out here to make a number of remedial changes that clarify—I think the operative word is “clarify”—aspects of the rules applying to foreign superannuation interests and ensure that the new rules operate as intended.

Members and the Minister will of course know that foreign superannuation has for many years been a bit of a bugbear. Foreign residents who move to New Zealand who have been contributing members to foreign superannuation schemes typically must report those investments to the New Zealand Inland Revenue Department. They forgo their entitlements and they are replaced by New Zealand superannuation, in general. There is a lot of fine print around that, including whether the migrant to New Zealand has been in a tax-based scheme or a contributory scheme, and the tax consequences if their contribution level has been above the minimum. It is around those grey areas that some of these changes are addressed. The second preliminary comment is that it is an absolute honour to be doing some more work in the area of superannuation.

The key features of the proposed changes include, firstly, ensuring that foreign superannuation rules under the foreign investment fund or FIF rules apply to interest acquired when a person was a New Zealand tax resident under domestic law but is not resident in New Zealand under a double tax agreement, as can often happen. Secondly, the changes reintroduce the exclusion from the foreign investment fund rules for interest in registered Australian superannuation schemes acquired while a person was a New Zealand resident.

That provision is a pretty interesting one to reflect upon at this time, when New Zealanders who are resident for most of their lives in Australia and are paying into contributory schemes like Medicare Australia and Medicaid in Australia cannot qualify to draw down the benefits of those schemes. Members on this side of the Chamber have been at some pains to point out the inequity in that. People might have been born in New Zealand, moved to Australia when they were 2 or 3 years old, worked for 40 years, paid into the Australian tax system, and when they get older they get sick and they cannot qualify because there is no process under Australian law for the vast majority of New Zealanders resident in Australia to qualify for permanent residency.

Here in this Part 4 we are reintroducing the exclusion from the foreign investment fund rules for interests in registered Australian schemes acquired while a person was a New Zealand resident. That is, we are making it easier for Australians who were New Zealand residents and had interests in Australian schemes to ensure that they do not miss out on the tax benefits in New Zealand, and that it is fair and equitable for them. Why is the Government not doing more to ensure that New Zealanders who have lived all their lives in Australia but who cannot qualify for permanent residence are treated with an equal degree of fairness in the Australian system?

The third key feature of the foreign superannuation provisions of the bill is to ensure that the schedule method in the foreign superannuation rules applies to lump-sum withdrawals and transfers from a foreign superannuation interest, and the sub-point is if the taxpayer has less than $50,000 of foreign investment fund interest. Let us translate that into English. What that means is that the schedule method, the particular way that the tax rate applies to different levels of investment, applies not only to periodic payments like annuities but also to lump-sum transfers. So if someone has a superannuation scheme, they can elect either to keep paying into it, and when they turn 65 they get an annuity from it, or under certain circumstances they may be able to take a lump-sum investment, but there has been confusion around the margins—

I would like to take the opportunity to respond to, or answer, some of the questions that have been raised by the member Clayton Cosgrove as to why the saving provision in the Supplementary Order Paper 129 does not apply after 26 February 2015. The proposed application date provides greater certainty for taxpayers. The amendment is intended to create certainty in an area where there has been much historical uncertainty.

💬 Grant Robertson: We accepted that.

I am just being very clear. On 26 February 2015, the date of introduction of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, the position for bodies corporate was clearer. The proposed legislation clarified that they could register for GST and claim deductions themselves. A later application date would mean two potentially conflicting sets of rules would apply at the same time. Overlapping rules may involve additional complexity in the legislation and create confusion and additional uncertainty for bodies corporate and their unit holders. A later application date may result in compliance costs for bodies corporate.

Previously, a look-through approach similar to the savings provision was proposed and consulted on. The approach was not supported by submitters, because of the compliance costs associated with applying the approach. If the saving provision was to apply from a later date, bodies corporate may incur additional compliance costs if unit owners wish to change their tax positions and claim deductions on a look-through basis. Submissions supported the proposed approach and the application date. Submitters to the Finance and Expenditure Committee supported the approach taken in the bill and the application of this approach from the date of introduction—26 February 2015. Submitters did not raise concerns that the amendment did not give unregistered bodies corporate enough time to determine whether or not to register. And, finally, there may be fiscal risks if the saving provision applied after 26 February 2015.

The amendment contained in the bill includes special rules, applying from the date of introduction, to ensure that GST is neutral for bodies corporate that decide to register. Applying the savings provision to goods and services acquired after 26 February undermines these rules and may give certain unit owners a tax advantage. This could be perceived as unfair by unit owners unable to gain the same tax advantage. The financial costs of the proposal were budgeted based on this neutrality, so allowing additional deductions to be claimed post - 26 February could create a fiscal risk to the Government, particularly if the application date enabled unit holders to structure their affairs to best take advantage of the provision. I trust that this assists the member.

The Hon Clayton Cosgrove.

Mr Chairman, that is Clayton Cosgrove; I am David Cunliffe. People often confuse us—

The CHAIRPERSON (Lindsay Tisch): I am sorry—my apologies.

—much to my chagrin, I have to say. But there we are.

In terms of transfers between foreign superannuation schemes, under the rules in amended section CF 3 as set out in clause 71 of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, a transfer from one foreign superannuation scheme to another non - Australian foreign superannuation scheme is not taxable income. This is achieved through omission in the current section CF 3(2), which lists the types of foreign superannuation withdrawals that are considered to be income but previously had not listed transfers from one scheme to another. The issue there is that this is trying to close a loophole, a loophole whereby a foreign resident can simply transfer from one scheme to another, stay a step ahead of the good old Inland Revenue Department and its fantastic computer system—

💬 Grant Robertson: Oh yeah, we’ll get to that tomorrow morning.

We are coming to that tomorrow morning, and thereby—

The CHAIRPERSON (Lindsay Tisch): Sorry to interrupt the honourable member. The time has come for me to report progress.

Progress to be reported presently.

House resumed.

The Chairperson reported the Support for Children in Hardship Bill with amendment, and that the Committee had divided it into three bills, progress on the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, no progress on the Radio New Zealand Amendment Bill, no progress on the Weathertight Homes Resolution Services Amendment Bill, and no progress on the Radiation Safety Bill.

Report adopted.

The House adjourned at 9.57 p.m.