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

When we were last considering the bill, the question was that Part 4 stand part. The Minister had the call, should he wish to resume.

Thank you, Mr Chairman. I was addressing Part 4 of this bill, which has a number of mainly technical amendments. But I did highlight one which I thought might be of interest to members, which is the new offence being created in respect of software products that are used to deliberately misrepresent GST returns by fraudulently recording receipts as being lower than they actually are in order to defraud the Revenue. It’s a new area of fraud that wasn’t known to me before becoming Minister of Revenue. I understand it’s really the importation of computer programmes that are used to that effect overseas, and it’s being made illegal to either use them or possess them for any reason.

Thank you very much, Mr Chair, and I appreciate the Minister’s providing a little bit more information in regards to that point. I want to refer to Part 4, clause 135B, which is an amendment that was made in regards to “Authorisation to make payments under small business cashflow loan scheme”. What I’m interested in from the Minister in this regard is the context in which that was deemed to be made and the extent to which that aspect—which is on page 137, just for reference—was brought into play.

We appreciate the implications around the impact of COVID and we appreciate that this has brought a number of unique implications to a wide range of business areas in this country, and, obviously, in this case, particularly in regards to the taxation of those businesses. But I think what would be fair to say is—and we saw this across a number of other areas of legislation—that it was the aspect around the fact that a number of these points were done under considerable pace, and it would be fair to say that in some other areas of legislation in regards to COVID we’ve noted that there have been a number of errors made subsequently when we’ve reviewed that.

So I’m looking for more context in terms of this point. I refer in particular to the aspect of the definition around “associated person who receives the benefit of the grant,”—and I quote from clause 135C—and the extent to how broadly that associated person definition is being looked at.

The other aspect that I’m interested in is it talks about “adequate consideration for the supply of goods and services”, and I guess that is a point at which I will no doubt have a range of considerations around what is deemed to be adequate consideration. What I’d be interested for the Minister to address is in terms of where he sees that and how that is going to be determined, I guess, in terms of what is deemed adequate consideration.

So I’ll leave it there, if I may, Minister, and then we’ll come back to a couple of other areas. Thank you.

Payments that are made under the likes of the COVID support payments or under the business cash-flow scheme are made pursuant to applications under which the people that are seeking to receive the money make certain declarations to the Inland Revenue, and if they’re assessed according to the criteria, for which the processing is generally computerised for large numbers of transactions, they then get the payment. There are integrity measures that are used by the Inland Revenue to take samples and check whether things are all as they ought to be. Some of those end up in applications being declined; others are found after the money is disbursed. Where the money is disbursed wrongly, there is a right to get the money back from the person to whom it is paid. If they say they can’t pay it because they’ve given the money to somebody else, the Inland Revenue needs the power to get the money back from the person to whom it’s given, and the associated person test is to find the class of people from whom the money could be sought to be repaid in those circumstances.

The associated person definition is quite a broad definition which already sits in the income tax legislation. That definition is not changed by this legislation. It imports that same definition.

As to the question as to what is or isn’t adequate consideration, I’d presume that that’s an assessment as to whether it was for value. If the money was paid in return for fair value of services, then it probably would be for adequate consideration. If it was gifted or it was somehow used to repay a debt, I think that probably wouldn’t be seen to be for adequate consideration.

I thank the Minister for that response and context in terms of that, so I appreciate that. I want to move now to clause 169, which is part of Part 4 of the Act, which is in regards to section 183ABAB—amending “Remission of interest for taxpayers affected by COVID-19: general rules”—and that broadens out to clause 169B, which talks about some of the implications around the timing around that remission element. I guess why this is important in this context is—and the Minister will, no doubt, be aware of some of the conversations and ideas that National put up in regards to loss carry-back and the implications on businesses of losses that were incurred as a result of COVID-19; losses that were primarily outside of the control of businesses—they’re just the reality of having to operate under the impact of COVID-19, which for many businesses, and particularly in hospitality and parts of retail and travel, have been absolutely catastrophic.

What I’m interested in really in regards to clause 169 is, in terms of the extent of that remission of interest process, and in terms of the thinking around whether that is as far and as much as we could have gone in regards to providing support for those individuals. We had a number of individuals—I guess a circumstance in which you would have to be paying interest is potentially around the inability to meet your requirements under terminal tax obligations. And I’m in no doubt—due to cash flow issues and the fact that many businesses have actually sucked up all of their working capital as a result of trying to manage under COVID—cash is tight and tax is probably one of those last things. I know there has been some consideration around the deferral of the timing of those tax payments, which I think would have been helpful. At the end of the day, cash is cash, and you’ve got to find it from somewhere. So I’m interested in terms of some of the consideration around that. Will that, and in the view of the Minister, actually make a material impact or a material difference in regards to the benefit or the relief that that will provide on our business community?

Also, in regards to the timing around that, whether there was any consideration around—I won’t go into whether there’s consideration going forward, but in the context that I was referring to before around loss carry-back, looking back on prior periods as well, and potentially in circumstances where individuals have incurred interest on terminal tax in prior periods, and whether there was any consideration around whether benefit could be afforded to certain businesses, potentially in a targeted manner.

Thank you. My understanding is that the Commissioner of Inland Revenue and the people who conduct the affairs of the department on her behalf already have had discretions to waive penalties. They didn’t have the discretion to waive use-of-money interest, and the Government thought that, in the context of COVID, it was appropriate to extend the discretion of the revenue department to waive interest. There does need to be some incentive to pay tax on time—it would be unwise to give everyone a waiver of interest, even if they didn’t need it—so there is an obligation for this to be done on an individual basis by people applying to the department for the exercise of that discretion, which is being widely used at the moment. The department’s not being niggardly about this; they are using their discretion quite frequently to give people time to pay their taxes and waiving interest, in that regard. Indeed, the extension of these powers has actually been recently triggered by another Order in Council, if I remember correctly, which went through Cabinet very recently.

In terms of whether that is applied retrospectively to earlier interest debts, I can check for the member with officials on that. I anticipate that, certainly if it was backdated, it wouldn’t be backdated before COVID, but I’m not sure whether you can only apply prospectively or in respect of a period prior to your date of application. I’ll check with officials on that issue and get back to the House.

Thank you, Mr Chair. It’s a pleasure to rise on behalf of ACT on this Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill at committee stage.

I just had a specific question for the Minister around clause 168B, and this inserts new section 183ABA. I wondered if the Minister could be a bit more specific about what this particular change for the remission in circumstances of emergency event is. Because if I went back to look at the previous law and how it reads, it appears as though this is for a particular case where, if an emergency event has been declared in an Order in Council, and a person is unable to physically make the payment, it appears that the word “physically” may be quite important. But under this new change, the physical element of being prevented from making a payment has disappeared. I wondered whether that was for a specific reason. Is it because instead of it being an emergency event such as like a landslip or someone physically being unable to make a payment in that way, whether there was any other type of emergency events that this is supposed to capture?

Thank you, Mr Chair. I was just waiting for the Minister to respond to that, but in the meantime, I’m just trying to introduce another topic and I’m conscious that there are a few questions that the Minister is responding to.

But I just want to ask about the “use of money” section, clause 153B, that is in this part of the bill. One of the big things is the issue around the current charging of the IRD, and I wondered whether the Minister had a look at the actual rates that are being charged by the IRD. Because, as no doubt he will be aware, and I know, Mr Chair, that you will be aware, if you owe the IRD money at the moment, for instance if you haven’t paid tax on time for some reason, and particularly during COVID period where many companies have been affected by cash flow—the use of money charge currently, I believe, is 8.27 percent. On the other side, if the IRD owe you money, i.e., you’re getting a tax refund, at the moment the interest you get on the amount of money that the IRD hold on your behalf is actually, I think, 1.62 percent. So there’s roughly about a 7 percent differential, which is hugely disadvantageous if you owe the Government—in the form of IRD—money. But if you are owed money by the Government then you don’t get much money on it.

So I was just keen to see whether the Minister had actually looked at this issue about whether the use of money rates that are currently applied are still relevant, practical, and appropriate, because I would put it to the Minister that I think charging someone a rate of 8.27 percent is much, much higher than what you’d have to pay from an overdraft. I know there’s a disincentive that the Government wants to put in place to stop people using the Government, in effect, as a bank, but the rate is several hundred basis points over what even you would be paying currently, particularly when interest rates, up to very recent times, have been as low as 2.5 percent. So that’s my question, and, hopefully, you can provide a bit of a light on that.

Referring firstly to Brooke van Velden, the definition has been broadened by deleting the word “physical”, which didn’t cover some of the circumstances under COVID that prevented people from paying their taxes. The definition has been broadened so as to allow the department to have a discretion in those COVID-related circumstances.

In respect of the use of money interest point that Andrew Bayly has raised, the 1.62 percent is a bit more money than I think I get for some of my money sitting around in the bank, so on the deposit side I don’t know that it’s far out of whack. In respect of the rate that’s charged for use of money, yes, it is higher than a mortgage rate. It’s lower than a credit card rate, of course. The member is right that it is set and reviewed regularly, and it’s intended to be set at a level which doesn’t cause Inland Revenue to be used as a bank because their source of funds would be cheaper than the source of funds that would be able to be accessed by most borrowers.

Thank you very much, Mr Chair, and, again, I appreciate the Minister’s responses on our questions. If only we could keep an order of the different clauses, but we’re going to move away a little bit around here.

So I want to refer to clause 173, which is Schedule 7, around disclosure rules. It continues on the theme that I’m taking today around some of the changes that have been made in the income tax, the taxation areas around the impact of COVID-19. And this one in particular, clause 173, Part 1, in section 4, is around COVID-19 information-sharing. I think we would all acknowledge, again, that the need and the benefit of sharing information as a result with other Government departments—so this clause, for those that aren’t aware, of clause 173, and there might be a few people out there that haven’t read that clause in their lead up to listening to this debate. But if you haven’t, it’s around ensuring that the Government can assist and share information with other departments around information regarding COVID-19.

I guess the key element that I’m wanting to question—and, again, this was raised during the select committee process—is the fact that the Government has allowed this information-sharing to be undertaken in perpetuity. They haven’t limited the time in which that information-sharing would stop. And you might say, “Well, that’s reasonable. You know, information-sharing is a good thing.” But the keyword that was referenced here was “in relation to COVID-19”. We’ve got the spokesperson for COVID-19 in here still. But that element in itself is hugely—well, it’s difficult to narrow in terms of “What does it mean if it’s in relation to COVID-19?” So, one, we’ve got a change in terms of sharing of information, and large information-sharing is, you know, people’s personal information, and then quite a very broad term in that it’s going to happen for pretty much in perpetuity and when, in relation—I guess, nowadays, you could argue that anything is in relation to COVID-19. Right? I mean, you could say that—actually, to be honest, we hear that a lot, actually, all the problems that we face in this country. I must say, Mr Chair, and I’m trying very hard to stay on clause 173(1), but all the challenges and problems are the fault of COVID-19, and, oh, Ukraine, yeah.

But, anyway, back to the clause, because that’s what we’re here for. So what I’m looking for—the question for the Minister is to clarify, one, why have we decided to just take the opportunity to extend this for perpetuity? Two, how does he see that the detail—and, I guess, my concern is there’s a bit of a weakness in terms of the drafting here around, you know, what is in relation to COVID-19. And, therefore, also, I guess, if there’s no end date, then I guess the question is: what’s the incentive to actually work to close the availability of that power? What incentive is there to actually do that? Because you’ll just say, “Well, it’s in regards to COVID-19, so it’ll continue and continue.” So I’d be interested for a little bit of context in regards to that.

Because I think it is important. I think people’s personal information and the freedoms of their private information have been under a lot of focus here in this Chamber, in a number of areas, and the information with regards to taxation is equally as important.

If I could address the issues that have been raised in recent calls by members of the Opposition. Just before I do so, the figures that Andrew Bayly quoted to me as to use of money interest were 2016 figures. The figures currently are: 7 percent is the use of money charge, and 0 percent is the amount that you’ve paid.

💬 Andrew Bayly: Still a 7 percent differential.

There is still a 7 percent differential, but those numbers do change—it’s an illustration that they do change through time.

In respect of the member Mr Watts’ earlier question as to whether you can have interest remission backdated, the obligation is for the person seeking remission to apply as soon as is practicable. If they have applied as soon as is practicable and the revenue department thinks that that is within that practicable period, it could be backdated a while. But if they’d left it for a couple of years before they applied, they wouldn’t get it backdated that far.

In respect of the change to the information-sharing rights of the revenue department, this, in the main, has been important to enable the sharing of information between the Ministry of Social Development and the revenue department, both of whom have been involved in the schemes that have supported people to try and keep them attached to their jobs and to try and keep businesses operating. The purpose is still limited to COVID, although there’s no end date now, except as they relate to COVID measures. So if there was any further information sharing in the future and it wasn’t related to COVID, it wouldn’t be enabled by that provision. I’m also advised that this was worked through with the Privacy Commissioner, because the member is quite correct that there are proper limitations on the ability of the department to share information, and there should always be those limits.

Thank you, Mr Chair. So my question is to the Minister on the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. Now, I’ve been involved in a few remediations, Minister, but I’m not sure if you’re going to be able to remediate the reputation of this Government in the eyes of the taxpayer because the tax rates and the total tax take that this bill enables are eye-watering. They’ll leave more than just a speck of dust in the eye; they’re likely to be permanently blinding.

💬 Barbara Edmonds: I raise a point of order, Mr Chairperson. My point of order is we’ve debated that in Part 3 of the bill; we’re in Part 4 now.

CHAIRPERSON (Ian McKelvie): Thank you, Ms Edmonds.

Mr Chair, I just would like to bring the attention of the Minister to the matters arising from section 81A, a new section under clause 179, that is, amendments of assessments arising for the living circumstances existing at the time of an initial assessment for child support. So what new section 81A appears to describe is that for a liable parent, that is, somebody who is liable to pay child support to another parent or carer of their children, if the circumstances change during the course of this assessment period, the receiving carer can make an application to have the person pay—the liable parent—an additional sum if they believe that they have not paid sufficient based on the assessment. So in these straitened times, when the cost of living has increased for all kinds of household items, including rent, petrol most recently, food—people’s circumstances on a given day means they can pay their bills if they’ve got enough money coming in.

What I understand this section allows for is for the Commissioner of Inland Revenue to make an assessment about somebody’s circumstances in the past where the commissioner believes that they have not paid their entitlement as a liable parent and that they therefore should make up the shortfall. Now, of course, if somebody is liable to pay and the circumstances dictate when assessed accurately that they should pay, well, of course they should pay. But while this section here, 81A(3)(a), states that for the person who’s a liable parent, “the backdating has the effect of increasing the amount of the parent’s child support liability:”, for the receiving carer, if we look at new section 81A(3)(b) there, “the backdating has the effect of decreasing the amount of child support payable in respect of that carer.”

However, there doesn’t appear to be a corresponding allowance for the liable parent actually to receive acknowledgment that their circumstances may have changed during the assessment period, because for liable parents who might lose their job or who were running a small business and found that their incomes were severely constrained—in fact, they might have been making no profit at all; they might have burnt up all of the savings that they had in the bank, just covering the costs of paying the rent on their business premises and paying staff that extra amount that the wage subsidy didn’t cover, paying their staff’s KiwiSaver and covering PAYE. Now, if that person, that small-business owner, was also a liable parent and it turns out actually that they weren’t liable to pay the child support at this time during the assessment period because their financial circumstances have changed, they won’t get any credit. They don’t get any recognition for their straightened circumstances.

Minister, that appears to be unfair so my request of the Minister is to answer this question: is it fair that the liable parent has to pay additional in the event that it turns out they are assessed as being liable to pay, but if it turns out that because of their financial and personal circumstances they weren’t liable, they won’t receive any acknowledgment of that, any reduction in what they’re required to pay—they’ll still have to pay the full amount as if their world was rosy and that nothing had changed?

With respect, I think the member has misread the section, because my reading of new section 81A(3) says that “The Commissioner may also backdate any amendment … to the time of when the assessment begins if the recipient of the assessment—(a) is a liable parent, and the backdating has the effect of increasing the amount of the parent’s child support liability.”—so that’s the change in respect of the liable parent, or—“(b) is a receiving carer, and the backdating has the effect of decreasing the amount of child support payable in respect of that carer.”, so I think it is reciprocal.

I move, That the question be now put.

Oh, thank you very much, Mr Chair. Just a brief contribution from me, if I may, in this Part 4 of the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. I draw the attention of the committee, including the Minister, if he’d so kind, to new section 141EE—Echo Echo—which is within clause 160 of the bill. So this is the penalty for acquiring or possessing electronic sales suppression tools, and I do acknowledge that the Minister previously spoke—I think it was the Minister who previously spoke about this when we were last considering this as a committee, and I don’t wish to rehearse that same ground in general terms about the sale suppression tools. But my query is rather why the offence has been framed in the way that it has. Because what we’ve got here is a penalty for acquiring or possessing the tools, but then we’ve got essentially an exemption that says that it doesn’t apply when the person hasn’t used the suppression tool in the business. And I don’t understand why we wouldn’t simply have an offence that says it’s an offence to knowingly use a—

💬 Hon David Parker: Which clause?

Oh, I beg your pardon. It’s clause 160, in answer to the Minister’s question about where it is that I’m looking at that. I just seek his confirmation he’s been able to find where I’m referring to? Yep? Thank you. So just a question really, and it’s probably reasonably straightforward and he might be able to dispose of it quite easily, but I’m wondering why we’re framing the offence as possession, notwithstanding that possession itself isn’t going to make out the offence. It seems to me that we’re trying to get to a place where we are penalising someone for acquiring one of these tools for the purpose of evading tax, essentially, or reducing the amount that should legitimately be paid, but it seems to me that that would be a much more straightforward matter if we were simply to have an offence of using it and knowingly using it.

And then the other question, which related to the same provision, was about the penalty for an offence under this section, and that’s a penalty of $5,000, and I just wonder where that figure was derived from. Because it seems to me at least theoretically possible, without having done any numbers to support it, that the value of the tax evaded might be higher than $5,000 if there was sufficient revenue for that to be the case. So any guidance that the Minister can provide in that regard would be much appreciated.

My understanding of the intention of new section 141EE, as inserted by clause 160 of the bill, is to cover the circumstance where someone acquires a business, and the business that they acquire had the software but they couldn’t reasonably have known that. Therefore, although they are legally in possession of it, they didn’t know, and therefore they ought not to be caught by the penalty.

In respect of the penalties question, my understanding is that there is a civil penalty of $5,000. The criminal penalty can be up to $50,000, and both of those would be separate from the penalties that would be payable in respect of unpaid tax if, in addition to that, there had been tax fraud which had led to the underpayment of tax, which could lead to tax penalties under the penalties regime, and use of money actually, quite separate from the criminal penalties that would apply to the possession of software. That said, that maximum penalty for the courts, I think when someone was presenting the case on behalf of the accused—the penalties that they were liable for under their tax might be relevant to the issue as to what penalty the courts actually imposed.

Minister, just going back to this clause 179, which inserts new section 81A: I was referring previously—and you did answer, thank you—to my question about new section 81A(3)(a) and new section 81A(3)(b). I need further clarification, because I think there’s a very large gap between what new section 81A(3)(a) allows for—a liable parent would have to pay more if the assessment requires it. In this case, we’re not talking about a private agreement between two parents who have separated amicably and have agreed on childcare arrangements for the children and have agreed on a division of responsibilities and who will be paying for certain things in the children’s life, which would be wonderful, but it doesn’t apply to most people who separate, which is why Inland Revenue compulsorily takes the liable parent contribution. That assessment of what a liable parent is required to pay actually is often determined by an Inland Revenue staff member acting in the role set out here. Their assessment is, essentially, full and final, so the liable parent, I understand, would find it very difficult to challenge or overturn an assessment because that’s not what the system allows for. It’s a very, very blunt tool.

So once a liable parent has been assessed, and the money is being removed from them compulsorily, typically through the PAYE system, it’s then paid by the liable parent to Inland Revenue, who then distributes that money to the recipient, to the receiving carer. I think that’s where the very big gap is between your understanding of what this section allows for and what I understand it to mean. Because you’re absolutely correct that if a receiving carer, if their circumstances change and it turns out that they’re not entitled to receive what they previously were, and there’s a decreased amount of child support payable to them—that’s understandable. But this clause says nothing about the fact that the liable parent must continue to pay at the amount they were previously paying. All it says is that the liable parent, if they are required to pay more, must pay more. The receiving carer will receive less, but it doesn’t say anything. In fact, it’s absolutely silent on what I understand the process to be, that the liable parent continues to have the money taken from them and paid to Inland Revenue, but that Inland Revenue does not, in fact, have to pay it out to the receiving carer if it turns out the receiving carer is not entitled to it.

So, Minister, I’d like you and your officials to respond to that, because this is creating the impression that while the liable parent is required to pay more, the receiving carer gets less—actually, Inland Revenue banks the difference. Now, we’ve heard from other members here who’re concerned about the rate of interest payable on the use of money and that that appears in some way that Inland Revenue is, in fact, earning much more from that interest payable than even trading banks are at the moment on term deposits, for example.

Is this, in fact, another example of where Inland Revenue, through sleight of hand or perhaps through an error or a misunderstanding of the English language, has identified here in new section 81A(3)(a) that a liable parent can keep paying or is required to keep paying—the receiving carer gets less. But what happens to that big chunk of money in the middle that is coming from a liable parent’s PAYE or whatever means Inland Revenue uses to compulsorily take that money? It would be extremely unfortunate if there’s an error here in this bill—either by omission or commission. I mean, this does refer to the commissioner, so we assume it’s by commission—where they intended to carve out this apparent exemption or ability for reassessment, which actually ends up being to the monetary benefit of Inland Revenue. That would be extremely unfortunate. So, Minister, would you care to explain that, please, to the committee?

There’s not much to explain, because I think the member is incorrect. I mean, if a liable parent’s position changes—for example, if they lose their job or are overcome by an illness and can’t make their liable parent contributions—they can at any time apply for a reassessment, and that’s provided for in law. Our liable parent contribution system, which is administered by Inland Revenue, is very unusual in the world and very good compared with the services that are offered by other countries in respect of the payment arrangements for children in the custody of a former partner. Indeed, the new computer system the Inland Revenue has just finished transitioning to, literally in the last couple of months, is a Canadian system which is used by many States around the world and many countries around the world. Until it was updated to accommodate New Zealand’s situation in respect of liable parent contributions, it didn’t have in that international software that capability. It was written into the system to deal with the New Zealand system. On a recent briefing note—because the licence terms that we have for that software give to all of the other countries or States in the world that use the software the benefit of upgrades in any other part of the world—the provisions in respect of liable parent contributions are now available to other countries in the world. I’m advised that that’s stimulated some interest as to whether other countries could improve their settings to reflect ours, which are very good in this regard.

Thank you, Mr Chair. For the sake of interest, Minister, if you wouldn’t mind—clause 202 in Part 4, where it speaks to the revocation of the Co-Operative Dairy Companies Income Tax Regulations. I’m cognisant of the fact, as I’m sure you are, that Fonterra is going through and probably will see a proposed capital restructuring. What will this part of this piece of legislation ultimately mean for the likes of the dairy industry and its overall certainty?

As I prepared for this debate I actually read that section and the similar sections that revoke the Cooperative Milk Marketing Companies Income Tax Regulations 1960 and the Cooperative Pig Marketing Companies Income Tax Regulations 1964, and I thought, goodness me! It’s very unusual that I find something that was passed in the year of my birth, 1960, that I can comment on the revocation of.

💬 Andrew Bayly: You’re still young, though. You’re still young.

Thank you. I think the effect of these on commercial practice in New Zealand will be nil, because they have long since stopped being used, and that the revocation of them will have absolutely no effect; it’ll just tidy up the statute book.

It’s very obvious that anything from the 1964—

💬 Hon David Parker: Sixty.

It’s 60! 1960 has lost its effect in the community now, so the poor Minister. I’d just—

💬 Andrew Bayly: That’s pretty tough.

Oh, I know, it is a bit tough but, you know, it’s a Thursday afternoon. Just clause 153—the 2 percent threshold that’s been brought in in that clause—

💬 Hon David Parker: Sorry, what clause?

Clause 153, where it brings in, in section 113A(4)(b), a 2 percent threshold for an adjustment, I guess, basically in GST—basically, if you get an error, or there’s a change of over 2 percent, then I assume that then becomes a quantum of interest for the department.

So would the Minister please explain how they came to that point as well, of 2 percent, and also why there isn’t a quantum there—because it could be, actually, 2 percent on quite a big amount of transactions; it could actually be a significant amount of money. And also, is that a hard and fast number? So if somebody’s 3 percent or 4 percent—and it might be on a very small number that there was just a mistake—are they going to then have to be caught by that clause, or is that a number that actually has a little bit of discretion around it? Because you wouldn’t want the department to be in a situation where it’s forced, in having numbers like that which cause them to actually—or thresholds like that—have to unnecessarily make it harder for the taxpayer, or, actually, for themselves, because sometimes it just won’t be worth their work to worry about.

So it would be really helpful, for just some ordinary taxpayers out there that might be doing their GST returns, to have a bit of clarity from the Minister. Is that a hard and fast number, that 2 percent? Also, does it have a quantum, just in case it is on a huge amount of money? I see he’s getting good advice there, so that’s good to see. Also, is there any discretion for a taxpayer that may be just, say, 3 percent or 4 percent, and not actually, you know, the 2 percent may be the hard and fast rule but, actually, in reality, it’s going to be in everyone’s best interests to have a bit more discretion. So if the Minister wants to give some clarity for just general taxpayers, that would be good.

I’m advised that if it be—sorry, Mr Chair, I should have sought the call.

CHAIRPERSON (Ian McKelvie): You’re certainly called.

Thank you. I’m advised that if the error is up to 2 percent, then there’s no need to make a voluntary disclosure. You can just fix it up in your next GST return and you don’t have to bring it to anyone’s attention. If it’s more than 2 percent, you both have to fix it but you also have to raise it to someone’s attention through a voluntary disclosure.

I move, That the question be now put.

Thank you, Mr Chair. I’ve got to say I thought my colleague the Hon David Bennett was laser sharp in his questioning. I think it’s showing his background as an accountant. What was it, KPMG? Gee, no one knew that about the Hon David Bennett. But it was a very good question, and I’m looking forward to a more fulsome answer from the Minister.

The question I want to turn to is relating to research and development—clauses 144 and, over the page, 145. As the Minister will know, the country spends about $4.5 billion on R & D in New Zealand, which, interestingly, compares with about $32 billion in Australia. I know it’s a much bigger economy in Australia, but it just shows how we’re just over 10 percent of what’s spent in Australia. It is vitally important that we do spend money on R & D. Of course, that’s why I think the announcement by the Minister responsible for research and development, the Hon Megan Woods, late last year that the Government’s spend on R & D was going to be reshaped to have more regard for the cultural values of Māori was a very interesting announcement late last year that many people missed. Because, of course, R & D is about creating value, and it’s important that we do make sure that certainly the Government’s spend on R & D is very much focused towards creating new markets, etc.

But in relation to clauses 144 and 145, there is a change in the wording, and this is the first bit—it’s really just to try and understand it. From my reading of it, there has been a change which inserts “the income year immediately before”, defined as “the prior year”. I think that’s the only difference of it in terms of when the grant can be applied for. There’s obviously a break between the expenditure up to $2 million, and then clause 144B deals with over $2 million, and we know there’s that differential approach. So one is just to understand it.

The second question which I’m interested in is: what does this apply to in terms of R & D? Obviously, we have the research and development tax incentive, which is the major part of the way the Government funds R & D in New Zealand. As we know, you’ve got to have a minimum expenditure of $50,000. There’s certain classes of expenditure that are deductible, including depreciation and direct costs. But, of course, once you breach the $2 million of annual R & D, obviously you fit into the higher bracket. So does it only apply to the R & D tax incentive? Does it also apply to the Callaghan approach, which in my understanding is a much bigger threshold? So just having an understanding around how this works and, obviously, what it really means for our people that are funding R & D in New Zealand.

Minister, if I may, for the sake of—I’m not being belligerent; I’m just trying to understand. Going back to clause 202, in Part 4, about cooperative dairy companies’ income tax regulations being revoked, in the actual piece of legislation it speaks to, and I quote, “The regulations also provide for the establishment of powers and procedure of the cooperative dairy companies’ income tax appeal authority, which is to hear and determine objections to any decisions of the commission under the regulations or under section 146 of the Land and Income Tax Act 1954.” Can you kind of try for the sake of the committee and myself—I am quite ignorant of all this—to explain how that doesn’t create further uncertainty. You talked about outdated legislation. Arguably, it seems a protective mechanism to the industry.

In response to Andrew Bayly, I would quote Lewis Caroll who says, “It says what it means and means what it says.” Just means something slightly different to what it used to mean, because it says slightly different things. So if I read from the section, clause 144, I think it’s absolutely clear, because it means what it says and it says what it means. What it used to say was, if I read clause 144(1): in section 68CB(2), replace what it currently says, which is “income year (the first income year) and up to 2 further consecutive income years”, with “income year (the first income year), the income year immediately before (the prior year), and up to 2 income years immediately after)”. It’s very clear.

Thank you, Mr Chair. Thank you, Minister, for responding to that last question I asked of you. The 2 percent—you basically said it was a hard and fast rule. So anything above that you have to redo your return and, basically, adjust it. That seems rather unfair for taxpayers that just—say they had a marginal—they might have had $100 out on a reasonably small return, and that could actually be well over the 2 percent if it was on a small taxpaying amount. Are you telling me that they then have to file an amended return before the next return? So if they’re on a two-monthly taxpaying basis, for example, and so you don’t have to, the official advice, basically—he’s looking like he’s shaking his head, saying you don’t have to. But from what the Minister said, he indicated that they may have to remedy that immediately. And if it is in such a case, then that would be, I think, quite unfair and quite difficult for a lot of small GST payers, if they’ve got to have that kind of regulation on them.

And then, if they don’t do it, what would be the consequences for that? Are they going to be liable for further tax or penalties, or how does that work? And how would that complicate the system? And also, you’re probably looking at your end-of-year balance dates, when there is a bit of a GST wash-up. Is this going to apply to that as well? If there’s a 2 percent rule, is it theoretically on your last return or is it on the full year’s returns? So I guess when you have a hard and fast rule like 2 percent in any tax legislation, it does create a lot of dilemmas around actual practicalities of how it works. And maybe it’s better to have some flexibility in there where you have 2 percent and/or the department can use its discretion just for the sake of the department actually having to waste resources on small GST returns that may be incorrect, and also for the sake of taxpayers so they don’t feel that the IRD’s chasing them up all the time for minor errors, because 2 percent can be quite a minor error for a lot of taxpayers.

I’m advised that there is no change to the underlying rules in that regard and that the existing rule is that if the amount is under $1,000 for a small business, they don’t have to necessarily file a return, they can fix it up in the future. The only change I’m told that is occasioned by clause 153 is to make section 113A(4)(b)(ii) broader in that until this passes, there is an upper maximum that caps the 2 percent at $10,000, which is a small amount for a large business, and this therefore is a taxpayer-friendly change.

Thank you, Mr Chair. One of the amendments to the COVID payment scheme, which business need more than ever now—it’s a question for the Minister, with regards to, would he reactivate it within the tax framework for this year? Is that the tax loss carry-back scheme, where people didn’t use a lot of it, numbers-wise, because of timing, when it was announced—I, nevertheless, thought it was a really great initiative to bring forward. Our research is showing, and that of Deloitte’s, that it’s needed even more than ever this year, and it’s a simple tick on the IRD box to reactivate it. It’s a money-go-round, anyway, but it would really help business to get through this next financial year. So I would like to find out from the Minister whether that’s possible. It already exists in the IRD system and it would be very easy to reinstate it, as opposed to suspend it as it is at the moment.

And the second question I’ve got is, last week on the desks and letterboxes of people who are principled parents, they suddenly found a 7 percent loading—I take that being inflation—on their child assessment maintenance bills. I was wondering, did he realise it was that significant and that everyone’s scrambling because they’re not earning as much this year to reassess expenses and reassess the contributions they need to make to childcare, and it advantages the people who aren’t paying and disadvantages the people that are maintaining and looking after their children?

So those are the two questions I have for the Minister.

Loss carry-back is not in Part 4 nor in any other part of this bill, and neither is the other matter that the member raised addressed by Part 4 of the bill.

I move, That the question be now put.

Point of order, Mr Chairperson. I just want to go back to before I had to leave the Chamber briefly. The Minister answered a question and I think he may have made an error. I’d just like him to clarify it before we go to the vote.

Well, that’s not a point of order. The question is that the question be now put.

The question is that the Minister’s amendments to Part 4 set out on Supplementary Order Paper 134 and the Minister’s tabled amendment be agreed to.

The question is that Part 4 as amended be agreed to.

Part 4 as amended agreed to.

Schedule 1A