Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill

Now we come to the debate on Part 3, which is clauses 104 to 222, “Amendments to Income Tax Act 2007”, and Schedules 1B, 2, and  3.

Thank you, Madam Chair. If you’ll allow me to start at the beginning of Part 3, “Amendments to Income Tax Act 2007”, clause 104B, amending section CB 6A, provides clarity about what is now meant by the phrase “bright-line test” and how that would be applied. We can—and, in fact, do—have debates and discussions across the House about the appropriate period of time for that test to apply, but I thought I might begin my contribution by just outlining for the sake of anyone who is unclear within or without the Chamber what it is exactly that the brightline test does.

It’s a popular misconception that the brightline test is some kind of tax. In fact, a tax applies on the sale of land in certain ways that we will soon see, and really the point of the brightline test is actually a way of understanding how that tax is to be applied in a situation where the intention of a person who has bought and then disposed of land cannot be gauged very easily. Of course intention is somewhat subjective and so it’s been difficult to determine historically and so it is that previous parliaments to this came up with the idea that within a certain period of time—two years originally and soon to be five, it seems—if a person were to buy and then onsell the land, then it would be deemed, effectively, that their intention all along had been to buy and sell for profit, and so the income that they would gain from that profit would be taxable. So it’s an exercise in certainty and it’s an exercise in providing clarity as well.

The phrase “residential land” is used in that, I presume, but I must confess I don’t know whether that’s previously already being clarified in the legislation. If it’s anything like the use of “residential land” in similar phrases within the Overseas Investment Act then it will be somewhat messy and difficult to determine in certain cases. But I take it that there isn’t any particular contention or debate about its meaning in relation to the legislation brought forward before the House today.

So looking then at the way that clause 104B would operate, in amending section CB 6A(4) the subsection heading would change. Well, that’s fine because that’s not a substantive change in itself; merely an aid to interpretation. But we do see that the phrase “a freehold estate” would be replaced by the phrase “an estate or interest”. “An estate or interest” is a broader conception of how one may relate to land because an interest in land might be something that is broader than simply owning and, certainly, having a freehold estate. So the intention there I presume is to have somewhat broader capture of those to whom the brightline test would apply. That’s a policy direction that the current Government has indicated that it is intending to make, and in that sense I suppose we can observe at least that the legislation will reflect that desire that they have.

In particular, I wanted to have a look at clause 108 as well, which talks about “Section CB 15 amended (Transactions between associated persons)”. The reason that this is significant is because it sets out the time frame within which a person can dispose of land and still be treated as under the 10-year time frame there, as opposed to five years, which we’ve seen previously. What’s going on here is that we’ve got a situation where two different persons are contemplated: a transferor and a transferee.

What we are saying, effectively, in this legislation, or the committee, in general, is saying—whether or not we on this side of the House agree with it; if we are in the minority, I suppose that’s all academic—collectively, is that the person who has acquired the land from someone who is associated with them has, effectively, acquired it at the time that the first person acquired it and so the second person won’t be penalised by something of the nature of an entity change that might be perfectly innocent, not designed to defeat the taxation legislation, not an evasion, and not an avoidance either for that matter. But it might be that a single trust remains continuously in ownership or holding an interest but the trustees may change, so the legal ownership might technically change albeit that the beneficial or equitable ownership doesn’t.

Another example might be that land is transferred by way of a matrimonial property change—or relationship property change, I suppose we should say—and so there are good reasons that it might be that land transfers from one person to another and that the second person who owns it might legitimately be considered not to have owned it as recently as that transfer, but, instead, going back to the original acquiring of the land.

The significance of that of course is that in this case what we’re actually talking about is a scenario where it’s to the benefit of those persons for tax reasons, because a period of five or 10 years, as the case may be, commences at an earlier point, and if one is selling or disposing of the land outside that period then one will be able to—I say “get around” the tax and I use the term very loosely and it’s not the right term. I’m trying not to use “avoid” or “evade”; I’m trying to avoid “avoid”, so to speak. So it might be that, for perfectly legitimate and innocent reasons, such a transfer takes place and the tax is not incurred at that point.

Before I finish my contribution, I’ll just step back in time briefly, sort of jumping a bit to clause 107, which amends section CB 11. That’s talking about a situation of building business, and that’s where disposal takes place within 10 years of improvement. So whereas previously we’ve seen a section that talks about the acquisition and the disposal of land, here what we’re actually concerned with is a time frame that’s triggered by improvements being made to the land. Reading the legislation at face value and without having had the benefit of attending the select committee in which it was discussed and examined, but having some experience in these matters from a previous professional life, the improvements that are completed trigger a time frame of 10 years, and it’s the time at which the improvements are completed, as distinct from having merely begun, that the clock starts ticking, so to speak.

We’re talking about the beginning of the improvements as well, but that’s actually in relation to the person carrying on a business of erecting buildings, or an associate of the person carrying on a business of erecting buildings. The significance of the business aspect, as I understand it but I’ll invite the Minister to correct me if I’m wrong, is that we’re talking about a business as opposed to being resident in the home in a way that we might regard as being consistent with having that as one’s family home. The subject of family home is coming up in debates and discussions in this House in other contexts and I won’t go there, so to speak, but I did just want to highlight that it seems there’s a consistent theme running through, more or less, that a family home is to be regarded as somehow separate or different from those who are in the business of conducting improvements for the purpose of building, and elsewhere we see, similarly, a subdivision business is to be treated in a particular way.

Finally, within my remaining time, I would just like to note that the legislation makes a deliberate effort to distinguish the situation that was previously the case, where the brightline test would apply in relation to an interest being acquired that is contingent. In other words, an interest that relied on another thing happening at new section CB 6A(4)(d), in clause 104B, and what we now have is a situation that contemplates an agreement being entered into under which the person acquires the estate or interest. So I suppose the obvious question there, which is on everyone’s lips, is whether this characterisation of the acquiring of the land is broad enough, and if the answer is yes, then I suppose it’s clear enough that the interest being acquired—that is, the purchase—more or less is captured by the provision, and I suppose that’s what’s intended by the Government in that.

If the Minister cares to correct me on any of these assumptions and presumptions that I’ve made, then I would welcome that, but if not, then I suppose I shall leave it as a record for this committee that that is my understanding of those particular sections and their import, and I look forward to hearing more debate and discussion and, indeed, contributing to it.

Thank you, and I’m sure the Minister in the chair, the Hon Kris Faafoi, being a very skilled business practitioner, is going to take the opportunity to address those questions that my good colleague Chris Penk has just raised, because they are a very important feature of this bill. I’m just looking forward to his contribution when he has a moment.

I just thought I might move on to something a little bit different. This is about portfolio investment entities, commonly referred to as PIEs. I know that—

💬 Hon Scott Simpson: The Minister knows a bit about those too!

Yeah, the Minister is very experienced with these. Of course, the reason I’m raising this is that these are very fundamental entities that help KiwiSaver accounts. They are the way that many people invest their KiwiSavers, and what a debate we’ve been having more generally outside this Chamber about another tax, which, of course—what’s this bill called? The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill.

💬 Simeon Brown: What’s the other tax, Andrew?

Well, I daren’t mention it, because Madam Chair might give me a hard time, but the issue around PIEs is fundamental for people who want to invest in listed companies.

Just so we all understand what a PIE is, a listed PIE is an entity that, basically, invests in a whole lot of companies on a recognised exchange, particularly the New Zealand Stock Exchange, and provided it meets other requirements, it is in a situation where it has preferential tax treatment. So rather than paying 33 percent, it might be 28 percent, and there’s a lower threshold as well depending on the type of investment and the scale of it. And that’s why it is so vitally important to KiwiSaver investors, and we have a lot of KiwiSaver investors; we’ve got about $40 billion in the KiwiSaver accounts, ACC—through those types of accounts. It’s very important for the future of New Zealanders to be able to invest using these structures, and that’s why some of the other murmurings that we’ve heard in public that talk about what might happen to these PIEs has got to be treading on very fine ground, because we do not want to disincentivise people from investing in good quality New Zealand businesses listed on the New Zealand Stock Exchange, because we need capital coming into those businesses. We’ve got a stock market worth only $100 billion, we’ve got a housing market worth a trillion, and we need more people investing in them, perpetuating and sustaining our New Zealand businesses.

So to the rules here, and it relates to clause 167, one of the things that this bill does is make two changes to the arrangements. The first one relates to the wind-up provisions of listed PIEs, and what it does is give some transitional arrangements for an entity intending to become a listed PIE. It allows an entity that is not listed on a recognised exchange to become a listed PIE provided that it has a minimum of 100 shareholders or more; has resolved to become a company listed on a recognised exchange in New Zealand if it were to obtain the required consents; has applied to the Financial Markets Authority for an exemption from disclosing in a product disclosure document—this is a normal type of document that companies do when they have to list on any stock exchange—the full documentation around the nature of the company’s activities, its directors, all those aspects and financials of course; and, the fourth thing, that it satisfies the commissioner that the company would apply to become a listed company if it were to obtain the required consents.

What this does is give a provision for a listed PIE delisting as part of the process of winding up. And what we put in place as part of this are some transitional mechanisms to allow it to happen over a period of time, and it doesn’t cut to the core of the integrity of that PIE. And it has some aspects to it. For a PIE status for a listed PIE using this method, it must have two years or longer from the date the listed PIE is delisted, it must have a date specified in its election clause, and it must specify when the number of shareholders reduces below 100. So I’m highlighting this issue because New Zealanders saving for their future is a fundamental issue for New Zealand. We need people to do it. PIE status is an important element in achieving that, and we need to protect that.

Thank you very much, Madam Chair. Seeing we’re heading towards the dinner break and the speaker who’s just taken his seat, Andrew Bayly, was talking about PIEs, I’m feeling mildly esurient now. However, I think he was discussing something far more complicated than mince and cheese.

I’m obviously going to confine my discussion to Part 3 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill, in particular to address what are exclusions for Housing New Zealand. I do not presume to be any expert in tax, to the degree that the Minister of Revenue and his officials can be very relaxed about my contribution and any insight therein.

Fundamentally, tax rules have been designed, particularly around land tainting, as I understand it, to make sure that as people are looking to sell their properties, so mainly those who are working in development, can, in effect—well, have sought to prevent, if you will, arranging one’s financial arrangements in such a way that if you were to dispose or subdivide a piece of land, make improvements, there’s always been an attempt in the past to separate that out so that you could, in effect, avoid tax obligations. There have been changes to tighten that up to make sure that, actually, if someone is rearranging through trusts, through the erection of extra dwellings, or so forth, even if it’s done by association, a person or developer is still required to pay the rightful amount of tax. I’m more than happy for the Minister to correct me. In fact, it would be fantastic if the Minister takes a call and educates this member on the 101 of land tainting, if he so chooses.

What this particular bill is seeking to do, in this particular section, is to allow an exception for Housing New Zealand so that they are able to get on with the process of building. As we see particularly in clause 109—if I have it right here in front of me; yeah, in 109—as it says quite specifically in new section CB 15D, there’s an exclusion to “not apply to [the] Housing New Zealand Corporation”, and, importantly, as well “a company in the same wholly-owned group of companies”. So this is an exception from the rules for Housing New Zealand. As I understand things, it’s an opportunity, therefore, for Housing New Zealand to get on with its business, which is to build more houses. I know, on this side of the House, we do remain disappointed at the progress that is being made around housing. Obviously, there’s the question around KiwiBuild, but I think the intention of exclusion here is a prudent one. If this enables Housing New Zealand to be more effective, that’s a positive. Obviously, if it enables it to be more effective, prudent, and right when it comes to its tax to the Crown, that is an excellent thing. So I think, overall, it’s a good provision. I don’t think, from this side of the Chamber, there are any major concerns.

We would certainly encourage, after some committee stages we’ve had, that with the complexity of some of these clauses, they be triple-checked. We had a situation two weeks ago where a commencement clause had some, effectively, wrong numbers; certain cross-references were not correct. When I look at CB 15D(1), it’s referencing one, two, three—at least four, five other references. It’s a very minor point, Minister; you’ll have excellent officials, but to make sure that they run through and make that correct. We don’t need, as we did two weeks ago, to return to the House and reopen a committee stage to make sure one thing is inserted.

Fundamentally, where we sit here is that there’s a whole way that land developers are able to arrange, or have been able to arrange, their affairs to, obviously, maximise, I suppose, their profit and minimise, where they can, their tax payments. There has long been concerns about these; there have been a number of changes that have been brought to this House, and this particular one, as I say, and from the social housing perspective—what enables Housing New Zealand to get on with its job effectively, to look after New Zealanders, is a positive thing, as I say. I’m very keen to make sure that this does actually bring about some better progress than we have seen to date in the building of homes. But, Minister, to the extent that that little contribution in this rather large bill, again, helps those Kiwis most in need, we’re happy to support that aspect on this side of the Chamber.

Thank you, Madam Chair. I just wanted to take a call on Part 3 of this bill, particularly relating to Supplementary Order Paper (SOP) 135, the Government SOP concerning the bloodstock industry. I suppose, when this was mooted in the Budget, I thought, well, that’s quite exciting for the industry, and I thought, well, maybe we’re going to see some real positive progress here with respect to enabling people to break into an industry that’s not exactly cheap to get into. So when this came to the Finance and Expenditure Committee’s notice, you can imagine I was quite disappointed when I saw the numbers they’d put round it, because the figures they’d used to encourage people into the industry were—well, by anyone’s standards—astronomical. In other words, you had to have $404,000, I think it was, to buy a colt and about $460,000-odd to buy a filly, if it was a thoroughbred. Now, the standard breeds are a little cheaper and they’re more in the $100,000 and $150,000-odd range.

Obviously, from my perspective, it was never going to be a winner, because imagine someone starting a new business—and we’ve talked a lot about business in the House today—and needing half a million bucks to kick it off; it’s unlikely to happen, I think. And so it proved, because we’ve had the first of the sales at which this measure would have been implemented. I was quite keen to ask the Minister in the chair, Kris Faafoi—I’m sure he will have a pretty good grip on this given his sporting prowess; he was very good on the weekend—just how many thoroughbreds might have qualified for that tax relief at the recent Karaka sales. I suspect the answer will be about as many runs as I made on Sunday, which was zero. But I also wanted to just add to that that, interestingly, this was very strongly advocated for by the thoroughbred industry, and, ironically, the standardbred industry looks to be the potential beneficiary of it, because I think there were, by my reckoning, a number of horses that potentially could have qualified for this tax relief depending on where they go to in the end, because, of course, only horses bought by New Zealanders and initially raced in New Zealand and eventually settled in New Zealand qualify for this tax relief.

So it was disappointing, I think, to see the numbers that were put round this. There was an estimation that it would cost, I think, $4.8 million in the first year of its implementation. I think it’s going to be nearer $48,000 than $4.8 million, but that’s something—to be fair to the people who put this SOP together, it would be very hard to understand what the outcome might be unless you understood what the level of sale was going to be. Interestingly, in the thoroughbred case, the sales average was slightly back on where it’s been; in the standardbred case, it was 30 percent up. You could never have predicted that, I don’t think, were you trying to put a piece of legislation together like this, and you probably couldn’t have predicted where those horses might go and who might buy them either. So it was probably a very difficult prediction to make, but, none the less, it could’ve been, in my view, an exciting opportunity for the industry had it been set at a level that encouraged new people into the industry. It certainly didn’t enable that to happen, because, as I said earlier, it’s highly unlikely new people are going to come into an industry with half a million dollars to spend on a horse.

So whilst we initially, on this side of the House, looked to this SOP with some enthusiasm, when we saw what was going on was clearly not going to work—and I think we got to the point where we opposed it simply because it didn’t enable the engagement of people in the industry that probably had been foreseen by both the industry and maybe even by the Minister who introduced the SOP, Stuart Nash. So a bit of a disappointing piece of legislation I think, from everyone’s perspective, for an industry that I think needs every bit of encouragement it can get. I think Governments have got to be very careful when they get into encouraging industries, because we’ve seen too many times in the past where we’ve encouraged industries with bits of legislation that have turned out to have quite the opposite impact to that which was intended. We certainly have seen that, I think, with this little piece of Part 3 of this bill, which is disappointing because I think, as I just said, it would’ve been really good to have attracted a whole lot of new people into this industry by using this bill. It used to be the case, of course, and the reason it was done away with was probably the reason there was some suspicion around its implementation on this occasion.

Thank you, Madam Chair. I just thought I’d now talk about the accounting income method for businesses, and we’ve been talking about businesses a lot today, because they are the key driver of wealth in New Zealand and they are also the people who employ most people in New Zealand. So the importance to us in terms of creating the right framework in which they can flourish, in which they can grow, and in which they can continue to employ people but, more importantly, take on new people and also drive intellectual capital and create a more dynamic economy generally is just so vitally important.

The National Party was very good when it was in power, if I may say so, in terms of introducing the accounting income method for a way that businesses accounted for their tax. I’m not sure everyone understands the arrangements for tax for businesses, but they’re a lot different from personal tax. The requirement to pay provisional tax on a number of occasions and then to pay a terminal tax payment, which is a bit of a wash-up, has traditionally always created problems for businesses that do not have strong cash-flow. That might be for quite legitimate reasons. They may be quite sound and sustainable businesses, but they’re very seasonal, as an example, so they get all the money up front, and then for the last six months, there’s no money, as it goes through a period of—you know, maybe for climatic reasons; whatever, do not have the access to revenue. Accounting for your provisional tax as you go through the year and paying it out at a time when you’ve got no money coming in, or very little money coming in, traditionally has been quite a problem. As a result, many companies have actually ended up being late paying their provisional tax, and the fees for being late are 1 percent for the day that it takes place—if you were due to pay a payment and you don’t pay it by that due day, you get 1 percent, and thereafter you get charged 4 percent, so a 5 percent tax rate or penalty rate. Of course, what happens with penalties is they grow rapidly with time and, in many cases, they can blow out to be very large balances even though the original payment that was required actually was low.

The other thing about provisional terminal tax is it requires the entity to have a very good view on its profitability going forward. It’s based on last year’s, and often there’s a 10 percent rule where if your profit was $100,000 last year, you will aim to pay $110,000, and you will pay your provisional tax based on that and do the wash-up as terminal. But the issue with that is that many companies do not have that line of sight around either their revenue or their cost structures, and the ability to be able to manage that and then actually pay the provisional tax on the due date is actually really, really difficult and, in many cases, just an outright guess. I think the issue with this around the accounting method was a way of dealing with it. The traditional method was called the standard or the GST ratio method, which is those payments, but under the accounting process, what happens is that you will pay it on a monthly basis, if that’s the way you want to pay it, and you will pay it based on your actual profit—the tax that you will pay on that profit, on a month-by-month or whatever basis you choose, so that you can coincide your cash outlay with the money that you are receiving at the time. That means you don’t have to get into the forecasting ability that’s such a bane of many small businesses in New Zealand, and you don’t potentially get into a situation where you are late in paying your provisional tax. I think that’s a crucial aspect of trying to help and support our businesses.

Now, this bill has some remedial aspects around it, and I think one of the big things is when you could elect to join the AIM, or accounting income method. Under the previous rules, what it did is you had to make that decision, basically, for the next financial year, and under the rules that we brought in—and it’s something that the Finance and Expenditure Committee has worked very strong and hard on, and I think that we came with the right conclusion. It is to allow businesses to make that election during the course of the financial year, provided, of course, that they’ve paid their provisional tax, or, if they’ve used a pooling account, a third party who pays that tax on your behalf—which is quite a normal method; using an intermediary account—then they could convert to an AIM method, and, again, this is about making it good for New Zealand businesses.

I wish to come to clause 111, in Part 3, which deals with, really, the exclusion for the dwelling, or the main house exclusion. I wish to ask the Minister in the chair, Kris Faafoi, in particular, under clause 111(1), where there is a replacement section CB 16(1)(b) where it says it’s replaced with “the dwellinghouse was occupied mainly as a residence by,—(i) the person: (ii) if members of the person’s family live with them, the person and members of the person’s family living with them:” and “(iii) if the person is a trustee, 1 or more beneficiaries of the trust.” Now, I struggle to understand what the third one means, really, because what that really says is if a person is a trustee, then somehow they can be excluded from the residential provisions, and then it goes on: “1 or more beneficiaries of the trust.” Now, bearing in mind this is a new section, or an amendment, and then it’s left to further parts in clauses 112 and 113, in which, really, the same wording is used, I’d like the Minister to explain exactly what they mean—“if the person is a trustee, 1 or more beneficiaries of the trust.”—and whether that actually makes sense.

I say that because as we go into these provisions and as we look at and the Government looks at what the tax working party has come up with in terms of capital gains, these types of provisions and the wording and understanding of them will form the basis on which a lot of New Zealanders make decisions on property investment and their taxation affairs. I’d like the Minister to explain how that clause 111(1)(b)(iii) actually reads and is meant, because as we go through this—and I’ve already been in contact with some lawyers and accountants who are relishing the opportunity of finding workarounds, particularly in the capital gains tax.

💬 Hon Scott Simpson: Huge business opportunity.

A huge business opportunity. We need to understand what this means, and I must confess I don’t, at this point. If you then go on to look at further provisions under the bill which deal with exclusions, then you’ll see that they’re mentioned in 112 and 113, as I’ve said, but the same clause is not mentioned in 111. If you then look at 110, which deals, really, with the brightline test within five years, and then you go further down to the 10-year test, which is mentioned in other parts of this bill, we need to be really careful that we get the definitions right. If I look at 110, it says that “In section CB 16A(2)(b), [we’re going to] replace ‘residential land’ with ‘residential land described in subsection (1)’.”

Then I go down to the next part, which says, “Subsection (1) applies to a person’s disposal of residential land if the date that person first acquires an estate or interest … is on or after 1 October 2015.” That is when the first brightline test was introduced by the previous Government, and then it was carried on and extended by two years under this Government. So what I’m really seeking assurance—and I know the Minister doesn’t really want to answer questions in this House because it’s not necessarily his area of expertise, but what I’m saying is this same legislation will be repeated in future taxation legislation should a capital gains tax come in, and I think it’s really important that under clause 111(1)(b)(iii), we understand what a trustee’s roles are in an exclusion process and what “1 or more beneficiaries” means. We need to get it right because it will make a fundamental difference to tax planning matters for New Zealanders. Thank you, Madam Chair.

I move, That the question be now put.

Thank you, Madam Chair. Thank you very much indeed. I’m grateful to have the chance to speak on Part 3, particularly because there’s a really interesting provision concerned with the arrangements involving tax credits for charitable or other public benefit gifts. The reason that this is really interesting is that in the whole area of charities and institutions that provide what’s known as a public benefit, we’ve decided, specifically by designating them as such, that they provide a benefit to society that we don’t want to minimise, and we don’t want to limit their effectiveness by way of taxation. So there is some significance to society as a whole, and, of course, there is a significance to those organisations themselves in the way that they operate and in the way that they structure themselves. Accordingly, what we have here is a provision which, understandably, seeks to limit the ability of such organisations to structure their affairs in a way that would unreasonably get around the taxation laws.

So within Part 3, I draw your attention to section GB—that’s golf bravo—55 in clause 157, headed “Arrangements involving tax credits for charitable or other public benefit gifts”. So the first thing to note is that the section will apply when a person enters into an arrangement that has the purpose or effect of defeating the intent and application of section LD 1, which is to do with tax credits for charitable or other public benefit gifts. I’d like to draw the attention of the committee to the phrase “purpose or effect” because I wonder if this is exactly what the Minister and his Government is intending by adding this. What we have is a situation where, by saying that it would be the purpose or effect of defeating, essentially, the tax credit law, that would be captured. Now, if you have a purpose but without an effect, then what we have is a charitable entity that is trying to get around the law but unsuccessfully so. That makes a nonsense of the next provision, which sets out the consequence of such an attempt—or, indeed, a successful attempt—to defeat the tax laws. So we’ll jump ahead to that before we come back to the purpose or effect provision.

The effect, the outcome, and the consequence would be that the credit would be reduced. So the tax credit under section LD 1, elsewhere in the law, would be reduced to the amount that the commissioner considers would have arisen but for the arrangement described above. So we’ve potentially got a situation—that I would seek ministerial clarification on—whereby someone might intend to get around the law and might intend to gain for themselves a tax credit to which they’re not entitled and be unsuccessful with it, and yet the commissioner would then somehow attempt, I suppose, to reduce the credit to an amount that they would say would apply if the thing that hasn’t occurred had not occurred. And, of course, the reduction would be zero in that case. So I think that’s a slight logical absurdity. It may be a relatively small one, but seeing we are in the business of considering the tidying-up exercise that the committee of the whole House stage represents, I think it’s worth the Minister turning his mind to, if I may say so.

There’s another question regarding purpose, which is, of course: who gets to decide that such an arrangement has that purpose? Given that elsewhere within that same section it will be the commissioner who will be making a determination, I would guess—but, again, I welcome clarification and confirmation—that it would be the commissioner himself or herself that would make a decision that the purpose or effect of the charitable entity was as described.

I suppose for the sake of completeness we should consider that the fact that the defeating of the intent is described as either being in relation to purpose or effect might mean that someone, a charitable organisation, does something that has the effect of defeating the intent but didn’t have that purpose. Well, that seems to me pretty reasonable for the legislation to deal with such an organisation in that way because, really, what would be happening under the following provision is that, simply, the credit would be reduced to what it would be but for that accidental case.

With the reduction of a tax credit, I suppose it’s a double negative, whereby, of course, the tax would go up because the credit would go down. But what we’re saying, of course, is really that’s the default arrangement, which is that legal persons who are resident, and so forth, must pay tax unless they’ve got some particular reason not to do so.

One item I would like to bring to the attention of the Minister before I conclude my remarks—and I think I’ll be able to do that easily within the time that’s accorded to me; I say in case any colleagues should wish to accept the baton at that point—is that what we’ve got with the credit reduction that the commissioner is invited to undertake given such an arrangement is that we’re simply told that the commissioner considers such a situation in relation to what the taxation situation would have been had the arrangement not occurred. So what we don’t have is that the commissioner must in his or her reasonable discretion make such a determination, nor were we told that such a consideration would be based on generally accepted accounting principles, for example, or in accordance with Inland Revenue Department Acts, a phrase that’s defined elsewhere in the legislation.

So I wonder if the Minister could provide some advice about whether there could be a bit of clarity around that, given how significant the powers of the commissioner would be in that situation. If we are going to say to him or her that they have the ability to undo the damage that they’ve identified and turn back the tide, then I think it’s probably pretty fair that we ask him or her to do so in a way that is consistent with some sort of external or objective standard by which that can be calculated, measured, and, of course, if not reasonable in its application, then be challenged. I won’t belabour that point any further, and I simply observe that these matters are pretty important in a way that charitable and public benefit entities do have certain rights. But with those rights come responsibility, and the relationship between society and the State in that way is worth us considering clearly in this legislation, and, if we’re going to consider it, we might as well make it as clear as possible and as straightforward as possible.

Tim van de Molen: Does it impact on the surf lifesaving?

I’m sorry, Madam Chair. I’ve been asked the relationship between this and some other matters that I’ve recently been speaking about in another forum, and I have to advise Mr van de Molen that, in fact, this has very little to do with those. So, moving on, and I’ll conclude my contribution at that point but with the hope and expectation that the Minister will address those points.

I move, That the question be now put.

The question is that the Hon Stuart Nash’s amendments to Part 3 set out on Supplementary Order Papers 188 and 189 be agreed to.

💬 Gareth Hughes: Point of order.

CHAIRPERSON (Poto Williams): We’re in the middle of a vote.

💬 Gareth Hughes: It regards the vote, Madam Chair.

CHAIRPERSON (Poto Williams): Can we just complete—

💬 Gareth Hughes: I raise a point of order, Madam Chairperson. I was just under the understanding that Supplementary Order Papers 188 and 189 would be voted on separately.

CHAIRPERSON (Poto Williams): Just let me take some advice on that. OK. We will do that.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Part 3 be agreed to.