Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill

Members, we now come to Part 3. This is a debate on clauses 116 to 153, “Amendments to Tax Administration Act 1994”. The question is that Part 3 stand part.

Well, thank you very much, Mr Chair. So Part 3, as noted, deals with amendments to the Tax Administration Act 1994. Obviously, the purposes of the Tax Administration Act is to outline how taxes will be applied. Thus, many of the amendments in Part 3 give effect to the discussions that we’ve just had in regards to Part 2 and make other remedial changes. The main policy item that was not already covered in Part 2 is in regards to the crypto-asset reporting framework. We’ve also got an Amendment Paper which amends part of the bill to introduce the administrative provisions that will support the introduction of the Government’s final year fees-free policy, the substantive provisions of which are included in the amendments to Part 5 of the bill.

I want to start off with the crypto-asset reporting framework, and if you thought tax law was cryptic, well, then you try crypto-assets, because they’re pretty tricky. There’s some really interesting policy questions sitting around the crypto-asset reporting framework and it’s around the automatic exchange of information, all right. So part of what these rules do is try to set up common reporting across jurisdictions about crypto-assets. Tax administrations worldwide are trying to retain visibility over income and investment earning opportunities, trying to understand where assets are flowing around the world.

Ordinarily, I perhaps might have been able to thrash this out in select committee, except it’s an issue that can’t quite be thrashed out in select committee, and that’s to do with the concern about information from New Zealand taxpayers with respect to crypto-assets flowing around the world. But we’ve just had some pretty interesting developments in the United States of America with the new regime there and the extent to which the information that they are receiving gets shared to entities who ought not to have it.

Now, look, in New Zealand, our staffers at Inland Revenue—the people who work for us—are bound by some pretty tight rules around what records they may or may not look at. Information that Inland Revenue holds should not escape from the bounds of Inland Revenue and, actually, mostly it simply just doesn’t. It stays put there. Our tax officials are highly trustworthy. But we do know that, unfortunately—well, however we might see it. But in the United States of America, which is part of this crypto-asset reporting framework, that information that goes to the US tax authority—the name has escaped me. It’s so late on a Thursday—

💬 Hon Simon Watts: The IRS.

The IRS—thank you.

💬 Cameron Brewer: Oh, even Deborah’s weary.

I am tired—I am tired. It’s the IRS. We know that’s being shared now, or has been threatened to be shared with entities outside of the framework of the American Government, and, in particular, with entities and people who may not have been bound by the same restrictions around privacy and the like. I just wondered to what extent the Minister of Revenue has done any work around this or consulted his officials around it, given that we are now entering into this crypto-asset reporting framework, and, of course, we have other information-sharing schemes, as well. So I’d welcome a comment on that from the Minister.

Yes, well, thank you very much to the member, and for those tuning in, we’re on Part 3 of the income tax bill. We’re into our seventh hour just in terms of the clock there. So buckle in, we’re on to crypto-asset service providers, which is a great area.

The member the Hon Dr Deborah Russell asked some questions in regards to consideration around what information and what consideration was given to other jurisdictions in regards to this policy. IRD does have a team that focuses solely on international tax and keeping an eye on what other countries are doing to make sure that we’re fit for purpose. They did take on board feedback from a wide range of sources in order to make sure that the legislative changes for reporting of crypto-assets in the New Zealand legislation was best in class. I’m very confident as Minister in the IRD ensuring that they’ve done due diligence and due process. And, of course, the very competent Finance and Expenditure Committee led by Cameron Brewer also reviewed this bill. Actually, it might have been other members before that, of course, but they went through and I believe that they were very comfortable with this section as well.

I want to continue on with talking around the crypto-asset reporting framework, and so I thank the Minister of Revenue for that answer. I too have a very high regard for our officials in Inland Revenue and their standards of integrity and probity.

I want to go to clause 117 of the bill—so we’re now in Part 3, so clause 117. It starts on page 129, but I actually want to look at clause 117(3), which amends section 3, and we’re inserting in there the “CARF document” and saying what the “CARF document” means. It’s the “International Standards for Automatic Exchange of Information in Tax Matters:”—yada, yada, yada. But it’s not a very—I don’t want to get too specific about this. But it gets amended from time to time, and it gets amended by the OECD and the Group of Twenty countries and is adopted by the OECD.

What, in effect, we’re doing is we’re outsourcing some of our tax law to the OECD. Now, we’ve done that before and, again, I think it’s probably appropriate to do it again. What is concerning here is that the CARF document is amended from time to time, so how is Inland Revenue going to be advising people who are affected by this that in fact the OECD document has been amended? There’s a pretty good system at Inland Revenue for advising when there’s new rules coming out, new interpretations, new policy statements, new case law, all coming out. But when we’re waiting on an entity from overseas to adjust something, what is going to be the system for ensuring that people who are affected by this get to know that there has been a change in the underlying OECD document?

The clause that’s being referred to here is clause 117(3), amending section 3 of the principal Act, the definition of “CARF”—now, of course, just for those who have been watching, we’ve been talking about livestock. We’re not talking about that calf; we’re talking about the crypto-asset reporting framework definition for the OECD—just for some member’s family that are watching at home, that might be getting excited at this point.

Look, as the member knows, there’s a lot of information sharing that goes on between jurisdictions. This is a very routine piece of legislation around the format in which that information is shared. There is a lot of robust consideration around releasing any of that information, of course, but these things get updated regularly, as do a lot of these clauses, and this is simply reflecting those changes.

Carl Bates, is this a question? We’re still having questions. We’ve just started Part 3. Take your call.

I move, That debate on this question now close.

Thank you so much, Madam Chair. I was excited when I thought that Mr Carl Bates was actually going to take a call on Part 3.

I have a question for the Minister of Revenue—I have, actually, a number of questions for the Minister on the Minister’s Amendment Paper 247, specifically the new clause 118BA, “New section 7AAAA inserted”, on the final-year fees-free scheme. To start with, just going through the supplementary analysis report (SAR)—we have seen that in the SAR there are a number of limitations to this particular bill. I think the one that I’m most interested in—I mean, we understand there’s a whole bunch of coalition agreements that have to be fulfilled, etc.—is the constraint by the limited stakeholder engagement. My first question to the Minister is: what student bodies—and particularly when we’re looking at student bodies from disadvantaged communities like Māori and Pasifika student organisations—has the Minister or officials consulted with this particular policy? That is, I guess, if you want to relate it, new section 7AAAA(1), on the administration of the final-year fees-free scheme.

Now, going through the SAR, there are also a number of concerns, and I think two of the things that are quite concerning were the complete change of focus in terms of this particular policy, changing from encouraging participation in tertiary education to incentivising learners to finish their studies or training. Understandably, both are important, but by shifting this focus—and the primary consideration of this is due to the overwhelming barrier for Māori and Pasifika students in terms of access to tertiary education. Has the Minister considered how we are going to be able to encourage participation in tertiary education as a result of these particular altered changes that we’re making to this particular fees-free scheme?

I think the next question is whether Te Tiriti o Waitangi analysis as well as the Waitangi Tribunal report on this precise point of the fees-free scheme shifting from a first-year fees-free scheme to the final fees-free scheme has been genuinely taken on board by the Ministers and by the Government when deciding this particular shift. In that same regard, then, what evidence, as part of the coalition agreement, when we’re changing this, was used to determine that having the final-year fees-free scheme genuinely will have the kind of cost saving that the Government is looking for but also at the same time benefiting the students? So that’s a lot of questions around the policy part.

I do have a question on the specific section 7AAAA(2) around this, which is “If a person who receives an entitlement under the scheme … does not qualify for the entitlement under the eligibility requirements of the scheme, the person must immediately repay to the Commissioner”. I want to focus on the phrase “eligibility requirements”. Now, one of the things we did also see in the SAR is the fact that it’s going to be actually quite a high risk, considering the TEC—and that’s the Tertiary Education Commission—will need a complete change of system when we’re looking at administering this final-year free scheme, because it is not such a simple eligibility test. There are other tests as well that are required, particularly around the fact that it is not simply just people enrolling in the final-fee scheme; it is actually upon the completion of the learner’s qualification.

So, in that regard, what sort of evidence and advice has the Minister received that students are able to pay for that first year—third year, I guess—up front, or does the eligibility requirement mean that the students, like the current scheme, will still be able to get it up front but, should they not pass it, they need to then refund that to the commissioner—which is how I’m reading subsection (2) here? So those are quite a lot of questions there for the Minister to respond to in terms of the final-year fees-free scheme.

Thank you to the member Dr Lawrence Xu-Nan for those questions. The member will appreciate that we are reviewing the Taxation (Annual Rates for 2024—25, Emergency Response, and Remedial Measures) Bill, and the policy decisions in regards to fees-free are interesting but not necessarily the role of Inland Revenue and, hence, the taxation bill to implement. This is about the implementation of those components that the IRD has responsibility for. The member asked me whether I have confidence in my department in the context of ensuring that the cost benefits and the way in which they do so is appropriate. Well, of course I do. They’re one of the most effective entities operating in this space.

The other question was around the submissions and whether there were any submissions from those within the tertiary sector or students. Well, as the member will know, there were 28 written submissions. I think the Finance and Expenditure Committee saw 16 of those in person. There was a wide range of input from a wide range of sectors, including experts, and we are comfortable that the views of those that are impacted in regards to the implementation of these tax rules have been appropriately captured through the work that’s been done by both the select committee and the Government.

Thank you, Madam Chair. I’ve got some more questions on the crypto-asset reporting framework. I want to go to clause 150 of the bill; it’s on page 146—as we’re trying to keep track of where we’re all going on this! It’s the clause that when it goes into the Tax Administration Act, will put the actual requirement for reporting on people who hold crypto-assets. Of course, it does also say that a crypto-asset user must report stuff to the relevant authorities and so on.

But the question is, I suppose, a fairly straightforward one. We have a self-assessment system in New Zealand. We rely on people who are supposed to be taxed actually reporting their income themselves and taking the steps to report, themselves. Most of us get caught—I shouldn’t say “caught”—in a tax net. It’s a traditional phrase because we’re earning salaries and wages and in it goes. But, in this case, we’re looking at crypto-assets, which by their nature are cryptic and hard to track down. So I’m just going to ask a little bit about how the Minister of Revenue anticipates that these particular reporting requirements will actually be policed and the extent to which Inland Revenue will be able to track down and require this reporting of people who actually do hold crypto-assets, whether he anticipates that, in fact, people will come forward and report on their own crypto-assets, or that Inland Revenue will have to employ various measures to try and track them down. If the Minister could just comment on that.

Yeah, well, the member the Hon Dr Deborah Russell will be aware that IRD have a big and significant focus on compliance and integrity matters. They received additional funding by this Government to increase the amount of work—that obviously includes the components around the crypto-assets framework. It’d be fair to say that many taxpayers—actually over 95 percent—generally will comply without any problem, and that’s because that is the appropriate mechanism. There is always a small or very few number of people that need a little bit of support to comply with their obligations. And for those that are blatantly avoiding or evading their tax, then IRD have the full weight of powers to be able to deal with those individuals and organisations.

My final question on the crypto-asset reporting framework—it’s just one last thing I think that the committee ought to work through. I’m going just a few pages back to clause 144—it’s on page 143—and it’s inserting new sections 142L and 142M into the Tax Administration Act. What’s sitting in here are the penalties for non-compliance with the rules. There are various amounts sitting in here as to if they don’t take reasonable care to comply with the requirements: $20,000 for the first time they do it, $40,000 for the second time they do it, and so on. Then up to a maximum of $100,000 a year for those particular penalties and so on. What I want to know from the Minister of Revenue is just how those particular penalties compare to other penalties in the Tax Administration Act. I can see that they’re scaled in particular ways here, but usually we anticipate that people who are investing in crypto-assets are perhaps playing around with significant amounts of money, so I want to know how proportionate those penalties are, especially in relation to other penalties within the Tax Administration Act.

I thank the member the Hon Dr Deborah Russell for the question. The member’s right: the area of crypto-assets and the financial flows that relate to that are significant. There was in the region around US$1.4 billion of potential fraud and hacking of this currency at a global level, so there’s a lot of money flowing through there. IRD do see this as an area of risk and hence have applied what they believe is proportionate penalties to deal with the scale of potential risk that they deal with, and they do that across all tax types.

I move, That debate on this question now close.

I’m going to allow one more really specific question. Make sure it’s specific. I’m going to take one from Lawrence Xu-Nan, and we’ll see how it goes. We’ve actually spent quite a long time on this piece of legislation, albeit we haven’t been on this part for so long. I will take a second one—

💬 Hon Dr Deborah Russell: Point of order, Madam Chair. We did clarify with the earlier Chair that the amount of time was not the issue; what mattered was whether the Minister was engaging, which of course the Minister is, and whether there was novel material being presented.

CHAIRPERSON (Barbara Kuriger): That’s exactly what I just said. I said I’m going to gauge the questions to see how far we might go.

💬 Hon Dr Deborah Russell: But the time is irrelevant. The amount of time spent is irrelevant.

CHAIRPERSON (Barbara Kuriger): What I’ve just said is that we haven’t had a lot of time on this part, so I’ll be gauging the questions to see how we go. Thank you.

Thank you so much, Madam Chair. I understand that I asked the Minister of Revenue a lot of questions before, but there was one that I was really hoping to get clarification on. That is Amendment Paper 247, new clause 118BA, inserting new section 7AAAA(2). That is around whether the expectation is for students to pay up front and, if they don’t finish their course, they’re going to get refunded; or, if they don’t finish the course, they have to pay the money back, or they need to complete the course first and then get a reimbursement. So that was my question.

My question is actually one of curiosity, and this is mainly to do with the new clause 150B of Amendment Paper 247. New clause 150B is talking about “Power to extend time for doing anything under Act”. In terms of comparing this Act to the principal Act—the Tax Administration Act 1994—I’m curious to know from the Minister: why was there the removal of the part “within a fixed time cannot be so or is not so done,”. So the updated phrasing is, “If anything is required by or under this Act, the Income Tax Act 2007 …”—etc., etc.—“to be done by a taxpayer by a specified date or … within a fixed time,”. But then there is a changing of wording from the existing one. I want to check with the Minister why the wording was changed, and what is the intent of this change of wording? That also applies to subsection (2) as well, in terms of the change of wording.

Finally, considering that this is a replacement of section 226(1) and 226(2), and not specifying subsection (3), I just want to get reassurance from the Minister that anything that is done here by Order in Council is to consider secondary legislation.

Madam Chair, I want to touch on a matter that’s associated with the new emergency provisions, the emergency response provisions, but it’s a matter that’s canvassed in the Tax Administration Act, not in the Income Tax Act. So it’s very properly within Part 3 and we haven’t touched on this previously.

It’s clause 151B and it inserts a couple of new sections in the Tax Administration Act—sorry, 151B on page 147. What this is to do with is when a person who is attempting to use these emergency relief provisions, when they must notify the commissioner by having actually used those emergency, or wanting to use those emergency, relief provisions. As people who’ve been here all along—my colleague Megan Woods talked about the use of money measures and so on. Obviously, if Inland Revenue doesn’t receive money that it’s expecting to receive, like provisional tax, it wants to know why, so it needs to be notified why that’s happening and so on. So there’s a variety of deadlines in there and they all look really appropriate.

But if I could direct the Minister of Revenue’s attention to new section 226H, subsection (5) there, it says that “The Commissioner may allow the person to file a notice under this section at a later time if the Commissioner considers there are exceptional circumstances.” I wonder if the Minister could just give us a little bit of an insight into what he would regard as being exceptional circumstances, given that these measures already allow a lot of relief for people who are caught up in emergencies. Now, obviously we try to look after people in those circumstances; there’s already a lot of lenience in these provisions. What becomes “exceptional circumstances” even in the context of an emergency?

Thank you very much, Madam Chair. Just answering the two questions that we’ve had—actually, I’ll start with the last one in regards to new section 226H(5), inserted by clause 151B. One would appreciate that emergency events are fast moving, they are complex, and they are not always the same. What we are simply acknowledging in this case is that sometimes the circumstances do mean that the Commissioner of IRD, who is highly competent and experienced in dealing with this, has the ability to be able to make a call in regards to a scenario to allow decisions to be made quickly. I think that is the purpose of that clause, and that allows that commissioner to do so.

In regards to the questions by the member Dr Lawrence Xu-Nan in regards to students, just to clarify, students must complete the course, and once they’ve completed their course, then they can apply for reimbursement.

I move, That debate on this question now close.

The question is that the Minister’s amendments to Part 3 set out on Amendment Paper 247 be agreed to.

Amendments agreed to.

The time has come for me to report progress.

Progress to be reported.

House resumed.

Madam Speaker, the committee has further considered the Taxation (Annual Rates for 2024—25, Emergency Response, and Remedial Measures) Bill and reports that it has made progress on the bill. I move, That the report be adopted.

Motion agreed to.

Report adopted.