Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill

Members, we now come to Part 2. Part 2 is the debate on clauses 4 to 45, “Amendments to Goods and Services Tax Act 1985”. The question is that Part 2 stand part.

Thank you, Mr Chairman. It’s somewhat ironic given the claims from the other side that we never reduce any taxes, but the two points I would highlight in respect of Part 2 relate to amendments to the Goods and Services Tax Act 1985: a number of remedial provisions, two of which are the zero rating of cryptocurrencies—treating it like a financial service rather than a GST-able service—and also the removal of GST on the internal part of an international, part domestic transport service. Currently, there’s some lack of—well, there’s actually quite a difficult regime for taxpayers to comply with, and this simplifies it to expand zero rating to accommodate subcontracting arrangements for the transport of goods in New Zealand where this is part of the international transportation of goods.

Thank you, Mr Chair. I acknowledge those challenges that the committee considered those issues carefully, as the Minister will be well aware. Particularly around cryptocurrency, as the Minister is also aware, the use of hybrid instruments around cryptocurrency, we thought it was appropriate that it should remain as it would with shares or some other hybrid or derivative, so the issue around cryptocurrency was an important issue that the committee considered, and we think that was useful. The other one is, as the Minister quite rightly points out, the domestic lag of an international transaction, and the committee found that it was an appropriate amendment because of, as he said, the complications around that.

I just want to talk now about the records of taxable supplies and, for people who are listening in, there is a change to the requirements around records for taxable supplies and it might be just worthwhile the Minister talking a little bit about this. So, at the moment, when people go to buy an item like a power tool from, let’s say, Mitre 10, a good New Zealand company, they will get issued a receipt at the till. That, surprisingly, what most people don’t understand is it doesn’t actually constitute a taxable invoice, because, under the current Act, that does not have all the necessary information.

So what I was hoping the Minister might do is just elaborate a little bit more around the new arrangements around the invoice, because there is now a cut-off, and the committee talked about this at length, around if you are buying an item up to the value of $1,000. Then, as I understand—and this would be useful for the Minister to confirm—that till receipt, in effect, will become legitimate because there is a de minimis, or minimum value, that’s now been applied. And for an item that you acquire for more than $1,000, then there is a greater level of disclosure. I suppose the question I really want to ask, because I’m hoping the Minister will inform the audience, is: will a point-of-sale document other than a handwritten invoice—because a lot of small businesses, and we’ve got 350,000 of them, don’t want to be sitting there writing out hand documents—still be deemed appropriate, or what are the rules around that? So it’ll just be helpful if the Minister could elaborate on that particular issue.

I’m happy to assist the member, who was on the committee and, I’m sure, understands these issues well. These issues are dealt with in clause 19 of the bill. The member is quite correct that the practice in commerce has overtaken the old rules, and the terms “invoice” and “tax invoice” are being replaced with “supply information” and “taxable supply information”, which are simpler and can better accommodate the till receipts that the member refers to as meeting the obligations needed to be valid tax records. So there’s less specificity as to the form of what used to be a tax invoice; more flexibility—

💬 Andrew Bayly: So will a point of sale work?

I will check that with officials, but I would except that a till receipt from the likes of Mitre 10, as the member said, would qualify as a record of a sale for GST purposes if the GST number is on it. I’ll check that with officials, but that’s my understanding—yes, up to a thousand dollars, that’s correct.

Thank you very much, Mr Chair, and thank you to the Minister for engaging in conversation around the points that my colleague Andrew Bayly raised. I want to refer now to Part 2, new sections 19E to 19P, set out in clause 19, in regards to the removal of the words “tax invoice”—a term that has been in use for nearly 30 to 40 years, a lot longer than some members have been in this House. I’m interested, particularly from the Minister, around the implications of that, because, you know, the feedback received from the select committee process said that a number of contracts and elements, such as that, use that term throughout, so there actually is a process of unwinding the removal of that term. I’m interested, from the Minister’s point of view, what, if any, assessment has been undertaken in regards to the potential compliance costs or time around that and the implication of that change in the bill.

The other aspect I’d like to ask the Minister around is the lead time in order to implement the changes. My colleague Andrew Bayly just spoke about a number of questions in regards to clause 26, replacing section 24, with regards to the changes around the tax invoice portion. Again, my question here is around the timing of the implementation of these changes, which, I think we would agree on both sides of the Chamber, are modernisation changes to the GST scheme, which were not in play in 1985. But with changes comes a time required for that lead-in to convert from one process to another, and for those taxpayers, I think that will, in effect, click in on 1 April, then that time line isn’t that long. So I’d appreciate a little bit of feedback around that process and whether any consideration would be given to provide some extension of time for those taxpayers to meet what, for some of them, will be reasonably significant compliance obligations. Thank you, Minister.

In respect of the member’s question about new section 19E, set out in clause 19, that’s the new form of a credit note. For example, if you’re take some goods back and you’re getting a credit note, then the replacement for that is what’s called here “supply correction information”, and the requirements of that are set out in new section 19E(1) and, for example, a name and registration number of the supplier have to be included on the till docket, if you like, if that’s the form of it.

In respect of the implementation date, some of the taxpayer-friendly changes take effect from the enactment of the bill. Some of the others that require some systems changes on the part of taxpayers come into effect on 1 April 2023 in order for those systems changes to be made by those—

💬 Andrew Bayly: And so does this one apply then?

I’ll check that issue. The member—for those that didn’t hear that, Mr Bayly just asked, in respect of the supply correction information, whether it’s from enactment or 1 April 2023, and I’ll check on that.

Yeah, people probably didn’t hear, but I did ask the question whether it would apply from 1 April 2023. Very good questioning from my colleague Mr Simon Watts. It was an issue that we considered at the Finance and Expenditure Committee. Whilst in some cases for larger companies—because they’ve got bigger systems, they’ve got bigger IT departments—actually to comply with invoices over a thousand dollars becomes very, very easy—well, easier—because they’ve capacity and capability to make those changes, what many of us were concerned about at committee level was changes for smaller businesses. Ninety-seven percent of small businesses employ 20 or fewer people in New Zealand, and so they don’t have large IT people sitting around. Obviously, sometimes they have systems that are white label, that are not easily able to be changed, even at a point-of-sale system. And they’re costly to change, in the time it takes to change. So there was significant talk about this at the committee, and I know Mr Watts is referring to that, in an oblique way. But the strong desire was that it should be delayed until 1 April 2023, and, again, we did come to a resolution on it, but I’d be very grateful if the Minister of Revenue has got an answer on that.

New clause 19E nests within clause 19 of the bill, and the commencement date for that is found at clause 2(28B), which lists clause 19 of the bill as coming into force on 1 April 2023.

Well, the Minister is a former lawyer—and it’s good that he can follow his own bill. So the next thing, I think—and I thank the Minister for doing that, because I think people need to have clarity around these new rules. Of course, we’re going to have 375,000 business owners tonight going, “Gee, I may have to ring up my provider, my point-of-sale provider, or whatever they may be, and get on to that tomorrow, because it will take some time for me to put in place a new system.”

The other issue I just want to turn to now is clause 25, which is about apportionment rules, and, obviously, this is quite a reasonably sort of complex tax issue. But under clauses 7(4) and 25, it would, basically, amend the GST apportionment rules in the GST Act. And the first thing is I just want to make sure that this only applies to property developers, this clause. It appears to, but, again, I want to make sure that the Minister is clear with people who are watching tonight, that clause 25, regarding enforcement rules, only relates to property developers. That’s the first thing.

I think the big issue here—and it may be worthwhile for the Minister to explain what we mean by apportionment rules, but, basically, it means the difference between taxable activity and non-taxable activity. Again, maybe he can give us an example if it is relating to property development how that would work, and just in respect of this type of apportionment rule, there’s, obviously, been a change. And, again, I’d just ask the Minister to sort of highlight what those key aspects are.

Thank you, Mr Chairman. My understanding is that, yes, it is dealing with subdividers or developers of land who are furthering a taxable activity of developing land or dividing land into lots, which is the description at clause 25 of the bill, if I’m referring to the clause that the member’s interested in. I think I am, but, if I’ve got the wrong clause, let me know. And in respect of the apportionment, to ensure that people are not overtaxed, then there’s a division or an apportionment between input tax deductions so that the disposal of a mixed-use asset, which is one that’s used for both taxable and non-taxable purposes that have appreciated—that they’re not overtaxed. The cap will continue to apply to the land disposed of by the property developers as an increase in the value of which they dispose of is connected to their taxable activity, which is property development.

Thank you, Madam Chair, and I just acknowledge the Minister. It’s good that we’ve clarified that it only relates to property developers. The second part of the question before—and maybe he’s just reflecting on it—was that it would be useful to have an example of how this might work.

For instance, if someone owned a property and on it was a building where some of it was used for private purposes—the developer lives in it—some of it was used for an office, and then there is the issue of the land, we’ve actually got three parts to this title that the developer owns: the private-use part, the office, and then we’ve got the land underneath it. So, in an apportionment, first of all, it would be good to understand what is the basis for the apportionment between the private use and the business or taxable component of the house, and also, at the same time, how the land component comes into play. I’ll ask him that question first, and then we can go into the next bit.

If the member wants to be getting more precise answers than this, then I’ll have to go to officials. But what the tax system’s trying to do is to differentiate between the parts of the use of that land asset, part of which is subdivisible land and part of which is a residence, to make sure that the part that is related to residential use—which is not a GST-able activity—doesn’t attract GST, and that’s achieved through apportioning value as between that part of the property and the part of the property that is being subdivided, which does or may attract GST.

Sorry, I’m just seeking a bit of clarification. Are we talking about the land, the subdivision component of the land, only, or are we talking about the component of the house? Because I heard Minister Parker talk about subdivisional components. So that’s the first, and maybe the Minister might take the opportunity to talk to the good official there.

The second thing, I suppose, is: how do you determine this? How do you determine the two components, between taxable and non-taxable? Do you have to go and get independent verification, or do you just make an assessment, subject to the IRD coming back and maybe asking you to clarify that? What is the formal process for actually getting through this process?

I’m advised that that apportionment has to be done anyway, because there is part of this activity that is taxable, as a subdivision, and part of it that is not, from the GST point of view, because it’s a personal residence. So that need to distinguish between the two already exists at law, so there’s not an additional compliance cost; it’s just trying to make clear the apportionment rules.

So, if that is the case, the purpose of clause 25 is really to say that the disposal of land that the person has acquired is a zero-rated supply. So that is the non-taxable element—that is the private-use component of it. But, in terms of the component that is taxable, there is now a new definition in subclause 6(b), which says, “for a disposal to which paragraph (a) does not apply,”—that’s the paragraph above—“the amount that, when added to any deduction already claimed, produces a total amount equal to the amount of the full input tax deduction on acquisition …”. So maybe the Minister can just explain the new cap rules on that total amount of GST that is payable or claimable.

I call Simon Court—sorry; Simon Watts.

Thank you very much, Madam Chair. Crikey! Look, I was thinking about that good contribution from my good colleague Andrew Bayly, and I know the Minister is conferring at the moment with officials, and so I thought, while we’re doing that, we would buy a little bit of time just to talk about a slightly different topic while we come back to the very important points that have been asked.

I want to go to clause 5, (2) and (3). It is in relation to the changes that have been brought into play in the GST legislation around cryptoassets. And I think those on the Finance and Expenditure Committee will remember, probably, this conversation—that the changes made under the Goods and Services Tax Act 1985 relate to the exclusion of “cryptoasset” from the definition of “goods and services”, and, in effect, moving it to the definition of “currency”. And, I guess, what we discussed at the committee—and I’d be interested to just get the Minister’s perspective on it—is the unintended consequences of that change of definition, for cryptoassets, because while we’re acknowledging the fact that they aren’t going to be subject to GST, the unintended consequence of that change in definition—which may seem subtle but actually is significant—is the other associated services, such as brokerage, on those type of transactions may therefore be captured.

So I’m interested for the Minister just to provide a little bit of perspective—and I appreciate he might want to have a chat with his officials, which he’s currently doing, so I’ll continue just to add a little bit more context to my points while we’re doing that—I’d appreciate if the Minister could come back and give us a little bit more clarity around clause 5, (2) and (3) on cryptoassets. Thank you, Minister.

Responding to Andrew Bayly’s earlier question, I’m advised that the intention here is that people who are not property developers do not get overtaxed by the apportionment rule that does not apply to property developers. I think I’ve got that right.

In respect of the allied services in respect of cryptocurrency, yes, a boundary has to be drawn somewhere. If the service that is being provided is, for example, a brokerage service, then, as would be the case for a broker selling shares or servicing a share transaction who charges brokerage, that would attract GST and so would the brokerage on a cryptocurrency transaction.

Thank you, Madam Chair. I wanted to go back to a topic that my colleague Andrew Bayly was talking about with the Minister, before, about the supply correction information under new section 19N, inserted by clause 19, and I note that the section applies “where a registered person has previously issued taxable supply information that includes an inaccuracy.” But there is a subclause (4), which states that “a registered person is not required to supply correction information under subsection (2) for a supply because part of the consideration shown in the taxable supply information for the supply has been rebated under a Pharmac agreement to Pharmac, whether Pharmac is acting on its own account or as an agent for a public authority.” And I just wondered if the Minister would be able to provide some clarity around this sub-clause about the benefit of it being added, what the hope was behind it, and why Pharmac itself has been singled out with its own subclause, because I know there will be a lot of people who have interest in medicines access. But I’ve tried to look around the report that came back from the Finance and Expenditure Committee, and I noted in that report there was no reference to Pharmac. So I wondered if the Minister could provide a little clarity about its addition into this new section 19N.

Thank you, Madam Chair. I appreciate the Minister’s engagement with us on these questions; I appreciate that some of them probably are, for those at home, extremely thrilling, but the GST Act, in all the main, is important.

So what I want to refer to is around new sections 19E and 19F, and there’s some changes that have been made in regards to the GST legislation around information-gathering requirements. There seems to be—and it was noted through the submission process—an inconsistency of the different information requirements for suppliers and recipients, respectively, that is required in the new “taxable supply information” definition that’s come into play, and that’s specifically under new section 19K(8). I’m interested in a little bit of consideration around why we’re seeing, potentially, some different requirements around the information requirements in those portions of the Act, whether that’s intentional or whether it’s more so an oversight in terms of drafting, it would be good just to get a little bit more detail in regards to that.

Well, my reading of the bill—and I might misunderstand the question—but there is now no 19K(8).

Madam Chair, thank you for that. I’ll let Mr Watts just review that.

I just want to go back—just to talk about these apportionment rules. I think the Minister the Hon David Parker had a valiant attempt at talking about these beastly apportionment rules, but I’m not quite sure he showed the clarity that we’re actually searching for. So I want to maybe just push it back to the Minister and see whether what I’m saying is maybe a better description of these apportionment rules. Does it mean that where you have a private interest or you’re not a developer, then you won’t have to pay GST, but if you are conducting a taxable activity, such as property development, you will have to pay GST, but there’s a cap on how much you can claim, which is limited to the amount that you’ve originally deducted or claimed, so the total at the end is the same? Is that correct?

The other issue with that is if the tax rate changes within the transaction period. For example, if the Labour Party put up GST to 17.5 percent, which is completely likely, and someone had purchased at 15 percent, how does that work, then?

If a developer is involved in a transaction, then they can’t pick and choose and say that for part of the transaction they’re not a developer, because they’re in the business. All of their revenue is related to a taxable activity, and therefore is caught. If they are not a developer, then different rules apply. If the member has a more specific question than that, in respect of wanting to dig into that second category, I’m happy to answer further questions.

Thank you. This bill has three main purposes. It is supposed to strive to improve the current tax settings by ensuring that the current tax rules work as intended, but it also seeks to modernise tax settings with regard to the administration of KiwiSaver and Working for Families. Then the bill sets the annual rates of income tax for the 2021-22 tax year.

What I’d like to do with regards to GST is talk about a tax on a tax. My favourite document at the moment is the Half Year Economic and Fiscal Update, and it seems that tonight there hasn’t been a lot of conversation about actual numbers. If you look at GST, as a major tax, it is actually going to, in terms of forecasts, be an average $2.6 billion higher each year compared with the Budget update, with the biggest drivers being an increase in the forecast for private consumption and residential investment, and a small contribution from the opening of the borders in terms of migration. If you look at core tax revenue, you take it up a level. This is where Minister Parker could be accused of being Mr Scrooge. It’s going to be an extra $2.2 billion per year, on average. That’s $48.6 billion higher by 2024-25. There’s no mechanisms in here with regards to management of inflation around GST, corporate tax, source deductions, and other withholding taxes.

So one of the things that has slipped by—and it’s not too late, because the petrol tax was changed in a matter of days—is to actually look at the overall inflationary effect that the Government is benefiting from in terms of its GST intake. Irrespective of cryptocurrencies, which is a long-term strategy, generally, more and more money’s going to be pulled out of the economy from businesses and personal households for consumption. That is having an extra kicker being placed on top of it.

I’d like to ask the Minister: when we spoke about this at the Finance and Expenditure Committee, seven or eight months ago, these figures, as they’ve developed, weren’t as progressive for the Government, if you’d like to call it that. Today should have been the day that we all came together to look at the overall taxation strategy, and whether giving New Zealanders a break or their businesses a break were an essential thing to do. If you look at that quantum of money that’s going to be taken in over the next five years, everybody does talk about GST being sacrosanct and a simple system, but, in the wider context, there’s a hell of a lot of money going to be collected, and we’d like to make sure that there is some empathy towards the people of New Zealand and the businesses of New Zealand with regards to the GST component of the bill, as well as the income tax component.

Dealing with Brooke van Velden’s question in respect of new section 19N in clause 19 of the bill, I’m advised that the provision at subclause (4) is a replication of an existing provision in the Goods and Services Tax Act, so it needs to be restated in accordance with the new, more flexible rules as to tax invoices, or their equivalent supplier information. The existing law has an exception in respect of rebates—the amount that’s being rebated under a Pharmac agreement to Pharmac—and that’s just being carried forward in this provision. So there’s no substantial change.

The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Paper 134 and in the Minister’s tabled amendments be agreed to.