Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill

I call Stuart Nash.

💬 Hon Ruth Dyson: Oh, very good choice.

Hobson’s choice, I think they call it. I would like to talk about clause 321, which amends section 45(4) of the Goods and Services Tax Act. This is interesting, and it is something I have been talking about for a long time, actually, but it is only a very small part of what I have been talking about for a long time. What section 45(4) does is it allows the Commissioner of Inland Revenue to refund overpaid tax, which is all very well, but after the normal 4-year period. So how tax works at this point in time is if a taxpayer is owed money by the IRD, then they have a 4-year window in which they are allowed to apply for that tax refund. After that 4-year window it drops off, so they can no longer claim it, until this bill.

What this bill actually allows companies to do, or allows the commissioner to do but also allows companies to do, is actually make a claim where an application has been received in the second 4-year period—so between 4 and 8 years—and the overpayment is due to a clear mistake or a simple oversight, and give the money back.

💬 Hon Ruth Dyson: By either party.

Well, by either party, but I am assuming that the IRD probably—and I should give the IRD credit. I am assuming the IRD probably is not going to go to a company after 4 years and say “Sorry, we owe you quite a lot of money in GST.”, keeping in mind that this is only for GST. I would actually like to see this extended beyond GST and to include income tax and, in fact, all types of taxes. I suspect, and I am hoping, that when the Business Transformation IT project comes into play, this sort of legislation we are talking about in clause 321 will actually be null and void because the system, as it is being built, will be able to calculate this.

But the interesting thing is it says that the proposed method also contains a traditional provision that ensures that the commissioner may repay an amount in respect of existing claims, regardless of when this bill is introduced. The thing that concerns me a little bit about this is the word “may”. What that word “may” does versus, say, for example, “must”, is it means there is discretion on behalf of the commissioner and, in this case, she might not actually decide to pay that. I cannot for the life of me comprehend of a situation where, as the bill says, if there is a clear mistake or a simple oversight and that is acknowledged by both parties, the commissioner would not pay this, but I am just not too sure why it is that there is discretion on behalf of the commissioner to determine whether this is paid or not.

There are other words in this section that cause slight concern. For example, under the provision, the commissioner could provide a refund when the application is received, but it is not “must” provide a refund if an application is received. So what the IRD has done with this, I think, is leave a little bit of wiggle room, which I think perhaps skews this clause more towards the favour of the IRD as opposed to the taxpayer.

I am not suggesting that the IRD is going to abuse this in any way, shape, or form, because it has been my experience in dealing with officials all through this legislation, and all the other bills that have come before the Finance and Expenditure Committee, that the IRD actually acts in a very fair way. That old line “Trust me, I’m from the IRD.” is actually unfair to the IRD. But where it leaves discretion on behalf of the commissioner where there has been an agreed mistake or error on behalf of either party, I think that the legislation should probably compel the commissioner to pay back money. Keeping in mind we are, with this clause, overriding a long-established convention that there is a 4-year period within which taxpayers can claim back refunds, I just think that it should be a little bit tighter in that.

In this Part 3 there is actually quite a bit on GST and the changes that the bill makes, because there are some errors. You know, when you get a tax system like GST, there are always some areas that need updating every now and again. There is actually a section 46, though—we are talking about the Tax Administration Act here—where the commissioner does have the right to withhold payments. Again, it does not really make it particularly clear what those rights are, and it should perhaps be just a little bit clearer. I know that there could be any number of circumstances that the commissioner may determine that this just is not right or it does not smell particularly good, but it would be good if it was just a little clearer in that area.

There are a couple of other things that I would like to talk about in Part 3—for example, clause 319. There is a new section inserted, and it is about the consequence of change in a contract for second-hand goods. This is actually quite relevant because we are finding more and more Kiwis are actually sourcing their goods from TradeMe—so, second-hand goods—and what are the consequences of the change in the contract for second-hand goods? For example, in new section 25AB—again, we are talking about the Tax Administration Act here, keeping in mind that Part 3 of this bill as, to be honest, in most bills, is sort of an amendment to other enactments. In these sorts of bills there are always amendments to the Tax Administration Act 1994. The Tax Administration Act actually sets out the rules under which the IRD runs the whole tax system. But in new section 25AB, this section is going to apply “to a supply of secondhand goods to a registered person if—(a) the supply is affected by an event referred to in section 25(1)(a) to (c); [or if] the registered person returns input tax on the supply as a deduction from the amount of output tax for a taxable period [or] the supplier does not provide a tax invoice or debit note …” to the supplier.

The thing about this is it can be quite complicated, and I suppose by its very nature, tax legislation has to be. But I suppose the other thing that concerns me a little bit is when it gets too complicated, then what will happen is that people who should be aware of this sort of legislation actually just have no idea about it. So they do not use it and, in fact, they fall by the wayside. I am not suggesting that this is relevant throughout this legislation at all, but we just need to be slightly aware that this can happen.

There are also amendments to Stamp Duty and Tax—sorry—amendments to Stamp and Cheque Duties Act 1971. So, a bit of a mouthful.

💬 Hon Ruth Dyson: Can you say that again?

Yes, sorry. Let me start that again—thank you. We are talking about clause 328. This is amendments to the Stamp and Cheque Duties Act 1971. It is an interesting one, because I did not actually know we had stamp duty in this country. As for cheque duties, in the days when we all wrote cheques, we all knew there was a little thing down at the bottom that said: “Cheque duty has been paid on this cheque book.”

But there is still an Act. What this talks about is the definition of a registered security. So we are just amending this Act. This talks about a registered security meaning at any time any transaction involving money lent to an approved issuer that is registered by the commissioner under section 86H, or is one class of transactions so registered, or that the transaction involves money lent to an approved issuer that is treated by the commissioner as a registered security. Who knew that the Stamp and Cheque Duties Act 1971 was still around and had quite a relevance to the application to the register of securities? There is quite a lot of new legislation in this—talking about interest payments, and a whole lot of different things.

The other thing that some might be interested in as well is amendments to the Student Loan Scheme Act 2011. What they are doing is they are talking—this Act is dealing with calculating the amount of fringe benefit tax on a facility that a person may use. Again, we are getting pretty technical here, but what I do think is important is that anyone who has a student loan—and there are a number of people out there; we know that—should be aware of this. What I am hoping, and the Minister might be able to help us with this, is that the IRD will do a little more than it normally does, because it normally puts out a tax information bulletin and they are very helpful. What it does is it puts legislation in plain English. What I think would be good is if the amendments to the student loan scheme were sent out in a way so that everyone who has a student loan is aware of the changes—whether or not they affect them. The last thing we want and the last thing that people with a student loan want is to trigger some sort of liability that they just were not aware of. We see a number of these changes in tax legislation, and it is just important to ensure that Kiwis understand their rights.

There are, of course, amendments to the Income Tax Act. This is tax legislation, and there are always small amendments to the Income Tax Act. Apart from, of course, Part 1, which was a massive amendment to the Income Tax Act because it just sets the rules. But we have debated that until we are a blue in the face. But there are a number of amendments around—if a company provides moneys to a person, if the person is related, there is an obligation to pay money, and all this sort of stuff. Again, it is quite complicated but it is important that it is acknowledged.

It is a pleasure to speak on Part 3 of this bill. As I was flicking through Part 3 in my office, as I am sure many other members are doing, I did come across a clause in Part 3 that I think, for me—and I am no lawyer—I wanted to get some clarification around the language that is being used. This is clause 334AB, which amends the Student Loan Scheme Act 2011. In particular, it replaces section 207(1) with a new section 207(1). It may be justified, in this example, but I think some of the wording may set a dangerous precedent if it were to be used elsewhere.

The new section 207(1) inserted in the Student Loan Scheme Act says “No obligation as to secrecy or other restriction imposed by an enactment or otherwise on the disclosure of information prevents an authorised person from disclosing to another authorised person any information …” around a student loan or any unpaid amounts. If authorised people who are trying to deal with an unpaid amount of a student loan need to talk to each other, that is a fine thing. But what I think might set a dangerous precedent if this language ended up in another piece of legislation—and I want to repeat this, because we are saying that no obligation as to secrecy or other restriction imposed by an enactment or otherwise can prevent something from happening.

I do not know whether this sequence of words is taken from some other piece of legislation, but I would think that if we are setting a precedent here where we say that it is fine if there are other enactments that exist that are meant to keep information secret but do not need to be enacted here or do not need to be followed, it is a dangerous precedent to set. When we are talking about student loans, and information needs to be swapped, I do not think that is too much to ask. It may be justified. But if we took this as a precedent to another level, where the information is sensitive, and we are saying “Well, don’t worry about the secrecy or the enactments that are upon you at that time, because we’re allowing you to share the information.”, there might be an issue with how that might be interpreted if an issue did arise, with some sensitive information being swapped between one agency or one person and another.

So the question that I would like to pose to the Minister in the chair, the Hon Judith Collins, I guess, first and foremost, is whether this is a normal thing to be put in legislation, especially when we are talking about there being “No obligation as to secrecy or other restriction imposed by an enactment …”. So these are laws that we pass in this House, to be obeyed. In the wording here, it is basically saying that despite what the law says, it does not matter. That is how I read it.

As I say, it might be justified at a low level transfer of information, but when you are getting into some serious information that might be being transferred from one person to another in a Government agency—if we are setting a precedent here, where we are saying that it does not matter about what restrictions you may have on that information, it does not matter what legislation may pertain to you, and the restrictions on that information that you are sharing, because we have got a set of words here that says it does not matter.

I think that is potentially a dangerous thing to do. It might be a low level thing that we are doing here, as I say, and as I have said already in my 4 minutes and 10 seconds, it may be justified. But I think we need to make sure that we are not setting a dangerous precedent, because the laws that we pass in this House should be obeyed, and not just thrown away with a piece of wording that could be used in other legislation, for other purposes. If the Minister in the chair could clarify that, it would be quite useful.

Thank you for the opportunity to assist Mr Faafoi with his issue, where he has asked whether or not the provisions of clause 334AB might set some sort of a precedent for other information that the IRD or other agencies might have. Well, it does not, because the provisions specifically deal with student loans and the declarations made, and it is for the purpose of verifying any declaration made by an applicant for a student loan. So it is very specific. It is not a general go-to provision, should anyone want to find out any information about anyone else. It is very specific.

The other thing is it relates to information from one authorised person to another authorised person, so it is very, very specific. There is no precedent value at all, so that is not a precedent.

I think most New Zealanders would think that when people are applying for student loans—actually, a lot of it is done on trust. We trust that people are providing the right information. But where there is an opportunity to clarify something, I think it is something that agencies like the IRD are expected to do. This is taxpayer money that it is providing to students, or to people wishing to get student loans, and I think it is absolutely beholden on those people to verify, if there are any concerns, the veracity of an application or a declaration.

Thank you for the opportunity to make a contribution to the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill, which deals with a number of remedial matters.

I want to refer to clauses 306 and 309 of the bill, which deal with prize money for the racing industry and how that is dealt with in taxation terms. People might be interested to know that for some time now the regime of GST has operated in a way where, if you are fortunate enough to be one of those lucky people who takes their horse to the races and the horse wins or gets some prize money—and normally that is up to fourth or fifth place in New Zealand racing—the prize money is deemed to be a supply of goods. It is a payment to the owner or owners of the horse for supplying the horse in the race, which of course becomes the business of the racing club. The racing club is actually making money off the fact that the horse is racing, and, therefore, that is how it is treated in terms of GST.

It appears that what this change does in this legislation is actually include greyhounds, as well, and I think that is right and proper, because it is part of the racing industry, after all. Initially, the clauses just referred to horses, and I see that now greyhounds are included as well, so that is good to see. My question is around what happens if there is prize money for a dog through a dog show. How is that to be treated under this legislation? Is it treated the same way if the dog competition—the dog show, for example—offers prize money to the winning dog? Is that something that is dealt with under this legislation or not? It seems that it might be, depending on whether it is a taxable activity.

Certainly, what I know of the racing industry is that for some people it is their income, and so it is a taxable activity, but for quite a few of us this is our entertainment value. We never really expect to actually make an income or a living out of it, but we have a great time dreaming about the money that our horse will win. I have a dream at the moment that a horse I have a tiny, tiny percentage share in is going to win the Derby next year. So there is my tip; I will give it to you right now. He has not got a name yet, so I cannot even tell you the name, so you will never know whether I am right or not about this, but this is part of the excitement of the whole industry. People do have these dreams, and you never know whether they are going to be realised or not.

The income coming from that and how it is treated tax-wise can be somewhat of an unknown entity, but I think, from what I read of these parts of the bill, it does actually matter whether the racehorse owner who received the money is involved in this activity as a taxable activity, where they derive an income, or whether it is, as I said, for many of us hobbyists, something that we do although we never really expect to make an income out of it. We expect to pay for our horse to be trained, to have the great thrill, we hope, of watching our horse step out on race day and watching it go around; and maybe—maybe—to have it pick up a prize. If it does, I can tell people from personal experience, there is just about nothing more exciting.

So it is going to be extended to greyhounds as well. I have also had the thrill of owning a tiny part of a racing greyhound. That can be just as thrilling, and also, obviously, should be treated in the same way. I have just a few questions, if Minister Collins would care to clarify the circumstances under which these amendments would apply, particularly around whether we are going to name particular breeds of dog. I see that when we talk about horses we just talk about horses—we do not say thoroughbreds; we do not say standardbreds; we just say horses—but when it comes to dogs, apparently it is just greyhounds.

Just a quick word to clarify—I do not think it applies to dog shows, because I do not think that anyone is expecting to get anything other than a ribbon, actually. But I must say I really enjoyed the member Sue Moroney’s contribution, and I am looking forward to—

💬 Hon Ruth Dyson: You need to get out more. They do have prize money.

Well, look, as the owner of an almost-14-year-old Jack Russell terrier, I think we are past our prime when it comes to dog shows, but thank you for that opportunity.

How old is 14 dog years in human years, Minister Collins?

💬 Hon Judith Collins: It’s about 90.

Yeah, OK. Well, I am not going to make any negative comments about 90-year-old dogs. Can I first of all say what a breath of fresh air it is to have a Minister who is actually engaging in our questions and not disregarding them all, and who not only responds to them but knows what she is talking about. It is a blissful relief, after over 8 years of not having that, so thank you for that, Minister. I am not sure that you have always done it, to be fair, in all your other portfolios, but, you know, break the rules—that is good.

I was really interested in the comment Minister Collins made earlier about tax legislation often coming as a result of substantial—white paper, green paper—consultation, getting a lot of understanding and support. It further cemented the concerns I had, which, with respect, were not adequately addressed in terms of why some of the major players did not have their well-considered, thoughtful submissions agreed with. We may not get to that point tonight, but I would really like to understand better why you have such disagreement between a bunch of the key players—the chartered accountants, the Law Society, etc.—and the IRD, or, in fact, the Minister, because the Minister does the final sign-off on the policy. It was the same with the amendment, which we did not support, of Ron Mark. It was the same theory. I am not going to talk about the details of that, but, again, X is saying this, and Y is saying that, and I do not understand. It was hard to judge who was right and who was wrong. Even if I had been on the Finance and Expenditure Committee, I think that would have been quite difficult.

I want to just get to the next question, though, which is in relation to Part 3. I have got two questions here. I am really supportive of the idea that we are allowing a longer period of time for reconsideration of tax issues, but I think it has got potential downsides, and I want to know whether the Minister has thought of them. Where somebody has made a genuine mistake in their GST return—and I guess, obviously, they would either owe money or be owed money—it can now go out to 8 years instead of just 4 years. During a period of 8 years I think individuals’ circumstances can change substantially. What discretion is there going to be for the remission of debt?

We are starting on the basis of this being an accident. It was a miscalculation, there was an error in the return—no consideration of somebody deliberately not paying their due tax. This is a genuine error, either on behalf of IRD or on behalf of the punter. They are now able to go out for 8 years, as this provision in Part 3 proposes, but in that time their circumstances have changed dramatically—they have been ill; they have lost their job; they have lost their home, whatever; marriage break-up—there will be a variety of circumstances under which the person’s finances are considerably different. It seems to me that we have heard in the past that IRD’s discretion is quite limited in terms of remitting debt, and I would be really interested to know, alongside the extension of the time allowed—which, as I say, has got some good and bad features—what discretion is going to be given to IRD to say: “Well, your circumstances have changed. It was a genuine error that caused this underpayment of GST in the first place. We’ll remit it. We won’t require it to be paid.” That is the first part of my question.

The second part—I think one of my colleagues referred to it in a bit of a humorous way. Stuart Nash said he could not really imagine IRD ringing people up and saying “Guess what? We owe you a lot of money.”, but I have confidence that the system works both ways, that IRD does not just ring people and say “You owe us money.” but would also do the same if it was reviewing a client’s returns and found that, actually, IRD owed them money that it had not paid. I would just like you to reinforce my confidence, Minister, and say that that is correct.

I do not understand either, though, why this is only about GST. Why is this not about other forms of income? There are confusing lengths of requirement as to when people have to keep their returns. This now brings in another one. So it is going to be 8 years for GST. Does that mean people have to keep all their tax returns for 8 years? Currently, most people, I think, do that for 7 years. If that is the situation for GST, what about the next step? What about for other sorts of taxes? Is this a trial, or is this as far as the Minister wants to go in this regard? [Bell rung] Mr Chairman?

The CHAIRPERSON (Hon Chester Borrows): The Hon Ruth Dyson.

Thank you, Mr Chairman. I will probably take just a brief call, because I did want to ask about the provisions outlined in clause 328. It came as a great surprise to me that we still had stamp and cheque duties relating to the Stamp and Cheque Duties Act of 1971. I often say in jest to people that I will pay them by cheque, just to see what their reaction is. Do they have any recollection—if I said “Iain Lees-Galloway, I will pay you by cheque.”, he would look totally blank. He is of an age where he actually does not know what a cheque book is. He may remember parents or grandparents paying by cheque.

On a serious note, though, I know that stamp duties apply to other things. If we are going to retain this regime of stamp and cheque duties, what is it worth to the Crown now? What is the cost of administration of the Stamp and Cheque Duties Act of 1971 compared with the income gained, and how much of that income is retained by the Crown as opposed to how much is then dispersed to other parties? I am pretty sure that stamp and cheque duties are not a direct taxation to the Crown, but that might be wrong.

This is a huge amount of alteration; the whole of section 86G of the Act has been taken out—in fact, more than that. Section 86GB, right through, has been taken out and replaced. So it seemed like quite a lot of work, timewise, but I am not so much interested in that, because we do have a responsibility as a Parliament to keep our laws up to date. It is more of just a—of interest and maybe for future review by the Finance and Expenditure Committee. What is this worth? What is the Stamp and Cheque Duties Act of 1971 worth? How much do we gain and how much of it is retained by the Crown, and what is the estimate of its administration costs? Thank you for the opportunity to make those points.

This is just a brief call, but it is something that, actually, when I was looking at it, I was not too sure of the meaning. First of all, I do like Ruth Dyson’s comments about when the IRD is reviewing a client’s returns. I think you meant auditing their accounts? Going really—

💬 Hon Ruth Dyson: No, they have a review first.

Yes, you are dead right, and I would love to see the day when the IRD phones up and says: “Dear sir, we do actually owe you money.” That will be a—hell might freeze over.

I would like to talk about clause 340, and this is inserting a new section, section CX 17B, “Transport in vehicle other than motor vehicle”, into the Income Tax Act 2004. This is about fringe benefit. The title of the section is “Transport in vehicle other than motor vehicle”. This is interesting. The reason I say that—I am going to quote this, because it is just a very small line. It says: “A benefit that an employer provides to an employee in the form of transport of the employee in a vehicle is not a fringe benefit if the vehicle—(a) is not a motor vehicle; and (b) is not designed principally for the carriage of passengers.”

The reason this is interesting is that I am actually unsure what the definition of “vehicle” is in the Act. I have had a look in the bill and there is no definition in here. The reason I say that is that maybe this is talking about electric bikes, because electric bikes are obviously becoming the big thing these days. I cannot actually see an employer providing an employee with an electric bike, but you never know. But the reason why this has caused me a little confusion is you talk to a lot of people, and the first thing they say about an electric car is: “The great thing about it is that it does not have a motor. It has a battery.”

In fact, if you look at the Teslas, you can open up the bonnet, where a motor would be in a normal car, and you can open up the boot, where the motor would be in a V-Dub, and there is no motor in either, so you get quite a lot of space there. So if a company provided, say, for example, a new Tesla without a motor—one of these sports Teslas—and with a back seat where you can barely fit a set of golf clubs, does that mean that it does not incur fringe benefit? You could never say a sports Tesla was designed principally for the carriage of passengers, and this is the other thing here. What the legislation actually says is “not designed principally for the carriage of passengers.”

I, for example, drive a ute. It is my parliamentary car; it is all branded up. A lot of tradies drive utes, and it is principally for getting their gear from site to workshop, etc. You would never argue that they have bought a ute principally for the carriage of passengers. I just wonder whether this is, in fact, tidying that up because the tradies have said: “Hey, look, I’ve got to provide a ute to my apprentice. I know he’s not going to use it for the carriage of passengers because I have given him so many tools that this is principally for providing a means to transport gear to and from the yard or to and from the site.”

The other thing is, again, the definition of “vehicle”. Are we talking about a bike, or is it something—the bill talks about a “vehicle [that] is not a motor vehicle;”, so obviously there is a recognition that a vehicle does not have to have a motor. I am wondering whether maybe this is one of those pieces of legislation that the Minister of Transport talks about where the Government is encouraging the use of electric vehicles. The Minister of Transport has always said “We will put into legislation clauses that encourage people to use electric vehicles. It’s an aspirational target.”, so I am wondering whether, in fact, an electric vehicle is not a motor vehicle, and, therefore, if an employer provides a sports Tesla to an employee, it is not counted as a motor vehicle. It is not principally designed for carrying passengers and, therefore—

The CHAIRPERSON (Hon Chester Borrows): Electric motor?

Well, is it, though? But—

💬 Brett Hudson: It’s a five-seater, Stuart.

No, the sports Teslas are not. The sports Teslas have two seats, and then a little seat at the back where you can stick your golf clubs. You cannot fit anyone in there. But you do not buy one of these cars principally—and the word is “principally”—for the carriage of passengers. You buy these for a whole lot of other reasons, but not to carry people.

So has it got an electric motor? Well, that is the interesting thing: what is the definition of “motor”? You know, when you talk to people about this, they say: “The thing I love about the Tesla is it hasn’t got an engine.” It has not got an engine. It has got a big battery and a couple of other bits and pieces that drive the wheels.

💬 Brett Hudson: Motors—electric motors.

Well, is that called a motor? I am not too sure. I think you could find that maybe Elon Musk will bring his legal counsel over and say: “This isn’t a motor.”

The CHAIRPERSON (Hon Chester Borrows): Five seconds.

So what I would like to say is there are a number of definitions here that are not quite clear, and it would be—

The question was put that the amendments set out on Supplementary Order Paper 261 in the name of the Hon Judith Collins, and the following amendments in her name, to Part 3 be agreed to:

in clauses 274C and 274D, replace “Parts 1 to 8 of the Social Security Legislation Rewrite Act 2016” with “the Social Security Act 1964”; and

delete clause 335C(3).

Amendments agreed to.

Part 3 as amended agreed to.

Clauses 1 and 2