Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (No 2)

Members, we now come to Part 2. This is the debate on clauses 4 to 101,“Amendments to

I just want to ask the question—clause 7 and clause 8, around residential land transfers. This is about defining the brightline rules when land is transferred from a trust to a trustee, and sets it out and, basically, defines when that land becomes subject to the brightline test, and it refers to transfers of land on or after 1 April 2022. I just have a very simple question: clause 7 deals with residential land, and clause 8 deals with residential land transferred in relation to certain Māori trusts, as opposed to just being general family trusts. Can the Minister confirm that they are the same provisions, and, if they are not, why would there be a difference between residential land transfers to “ordinary”—if I can use that word—family trusts than those to a Māori family trust?

I’m not aware of the answer to that question but I will check with officials—

CHAIRPERSON (Hon Poto Williams): The Hon David Parker.

—and return to the—sorry, Madam Chair.

CHAIRPERSON (Hon Poto Williams): No worries.

I’ll check that with officials and get back to the member.

OK. Sorry, this might be a fast-moving debate, this one. Another little area I just want to ask the Minister to check—lucky he’s got his advisors there—is clause 18, “Treatment of amounts derived from cross-border employees”.

As the Minister will be aware, if you’ve got an employee working for a foreign-domiciled tax entity and they come and work in New Zealand, there’s an obligation to pay the PAYE on their New Zealand resident income. There’s certain rules around it, which are covered under clause 18(1) amending section CE 1F, inserting new subsection (3B)(b), employees present in New Zealand for a period during which they have breached those rules around paying the PAYE. There’s a 60-day clause—this is under new subsection (3C), “Grace period”—for the adjustment to be made; any correction to be made. Can I just ask the Minister to confirm why that 60-day period? Because I think that’s a really important thing: that there’s an understanding on whether there’s consistency across other such breaches of the tax bill or other pieces of tax legislation that have previously been passed.

Responding to that last issue first—and I will check with officials to check that I have this correct—but I think the 60-day grace period is to reflect the fact that where you have a non-resident in respect of these somewhat complex tax arrangements, it might take a bit of time for the overseas-based entity to get their head around the rules and do the right thing. So they’re given a period of grace to do that.

In respect of the earlier question about whether there is a difference between Māori land trust structures and other trusts, I’m advised that the difference is necessary because of some of the rules that relate to Māori authorities and the ancestral rules relating to some inheritances around some Māori land trusts.

If I could bring to the attention of the House—it’s an issue that the Greens, in particular, will be interested in—we have tabled a Supplementary Order Paper (SOP) 322 to extend the exemption from a fringe benefit tax in the bill. The bill already attempts to deal with an inconsistency in the tax legislation around car parks. Employers can provide a car park to their employee, which is of financial benefit to the employee, and they don’t pay fringe benefit tax on the benefit that accrues to the employee, even though there could be some tax avoidance involved in it.

The prior National-ACT Government, under Peter Dunne, tried to amend that by including fringe benefit tax on car parks. They were pushed back on that and gave up on that, which left an inconsistency between fringe benefit tax implications for generally fossil fuel - heavy forms of transport and public transport, and this legislation fixes that by removing fringe benefit tax on employer subsidies for public transport.

The Green Party have wanted to take that further and extend the exemption from fringe benefit tax to employer contributions or purchases of bicycles—including e-bikes, and scooters, including e-scooters. The Green Party had promoted that as an SOP—it wasn’t tabled in time for it to be free of the financial restrictions that are attached to proposals with fiscal implications. So the Government, to assist, has tabled a Supplementary Order Paper to similar effect, which is now on the Table.

Tēnā koe, Madam Chair. Tēnā koutou e te Whare. Just speaking to the Government’s Supplementary Order Paper, which has just been tabled, No. 322—thrilled to see this. When I spoke on the bill last week in the second reading debate, I was lamenting the fact that the bill didn’t yet include an exemption for active transportation, like bicycles and e-bikes and scooters.

We heard extensively at the select committee that there was huge support for this and that the fringe benefit tax was an active barrier that was preventing employers from providing that support to switch to more sustainable modes of transport for their commute to work. And it is one of those common-sense measures that’s actually win-win, because it’s good for public health, it’s good for clean air, it’s good for the environment, it can help reduce congestion in our cities, and it can help people get around, particularly when they’re dealing with uncertainty over public transport services, or when public transport services just don’t exist. That’s where vehicles like an e-bike—which have an upfront cost, which can be a bit of a barrier—can be a huge benefit. It also reduces their personal commuting costs while reducing emissions.

So it’s just a fantastic policy initiative, and I thank the Minister and the Government for taking it on board. And I really just want to speak to the success of the people-powered campaign that led to over 400 submissions at the select committee, which I’m sure was very influential as well. It does speak to the power that people can have in the democratic process and the important role that they have to campaign for solutions, because there are many positive solutions out there. And, you know, sometimes Government departments aren’t always the keenest to be leading from the front when it comes to changing things. And, you know, I do understand that there will be some slight additional work that needs to be done on this in terms of regulation, which is provided for in the Supplementary Order Paper, in terms of determining exactly what sort of vehicles are eligible to make sure that it is used for vehicles that are practical for the purposes of commuting to work and not recreation.

So I do and I would contribute to the House that I have some ideas on how we could ensure that the vehicles that are eligible for the exemption are ones that are practical for transport and not expensive mountain bikes that will only be used off road. There’s some examples from overseas, like the UK with their cycling to work scheme, which has been in place for over 20 years—of how they ensure that it is primarily leading to those public benefits and not private benefits. And so I think that’s something that the IRD and the Minister might want to look at in the development of the regulations and also just some practical aspects of—if it is an e-bike, for example, if it has integrated lights, if it has a front or back rack, if it has mudguards, it’s very likely to be a utility bike. And if they are considering a cap on the value, they should consider that a higher cap be applied to cargo bikes, which are rated to carry more than 160 kilograms, because that can also carry additional passengers, like children, which makes it more practical for commuting for some families.

But thanks—yeah, very, very pleased to see this development. And I just really want to shout out to all of that the hundreds of people who submitted in favour of this to the select committee.

Thank you, member, for that contribution, and, you know, some credit where credit’s due: the Hon Julie Anne Genter has been pushing this hard for a while and convinced the Government.

In respect of the journey that we’re on as a country to reduce carbon emissions, it is very complex and there are lots of little steps, each of which seems relatively insignificant in the great scheme of things, the sum of which, however, is significant, and this is one of those initiatives. I think I should also give a bit of credit to the prior Prime Minister the Hon John Key, who stopped the sneering at cycleways that we suffered until that point in New Zealand, and gave recognition to the fact that there are many modes of transport that can have better health and environmental effects, as the Hon Julie Anne Genter has already mentioned.

Now, the emissions reduction plan that we’ve signed up for as a Government has got many components and somewhat ebbs and flows a little bit. We recently decided that we weren’t going to proceed with the biofuel sales obligation—there were mixed views about that in society. So we’ve lost that contribution to our emissions reduction. We pick up a bit, here, through encouraging more active forms of transport, which, as the member has said, has a health benefit in that there are reduced particulate emissions. It’s a more active form of transport, so there’s a health benefit to the person who’s actually being more active as they go to work—that has a personal health benefit for them. There’s also, of course, a congestion benefit and a reduction in carbon emissions. So we’re pleased to be supporting that initiative.

Thank you very much, Madam Chair. Minister, I want to take a look, if I may, at clause 17, which is in regards to “Treatment of amounts derived by cross-border employees”. For those of you watching at home and enjoying this debate on tax legislation, just keep up to play with this, because this is a good clause. So what I’m interested in, particularly around new section CE 1F(2), inserted by clause 17, Minister, which is a reference there to “Amounts treated as derived 20 days after payment”. The question is quite simply whether the Minister believes that there is adequate flexibility in regards to that 20-day aspect, acknowledging that there’s a number of differences and complications that come with individuals that are deriving income, particularly when working on a cross-border mechanism—whether he believes that that 20-day period, which is obviously quite specific, is appropriate and is flexible enough in regards to what is required, and whether any other consideration was given to that point. I do note that it was something that was canvassed at the select committee phase and I’m interested in the Minister’s comments in regards to it.

Thank you for that question. Clause 17, which inserts new section CE 1F into the Income Tax Act, on the treatment of amounts derived by cross-border employees, at subsection 2 does have a 20-day period which says that “the PAYE income payment is treated as derived by them on the 20th day after payment when the employer chooses to deliver their employment income information”. But then it needs to be also read in light of clause 18 of the bill, which inserts a new section CE 1F(3C), which says that there’s a 60-day grace period. That grace period addresses perhaps some of the issues that the member’s concerned about, because it recognises the difficulties in complying with New Zealand’s tax system when you’re a non-resident. Because many breaches of our rules are inadvertent, we’re trying to reduce compliance costs and administrative costs both for the taxpayer but also for the revenue department by allowing people to correct these things promptly if a mistake is made.

The fringe benefit tax on public transport exemption ignores the fact that the ability for employers to provide such a benefit is severely constrained by practicalities. For example, an employer would need a process agreed with Auckland Transport for Auckland Transport to identify the employees and for Auckland Transport to invoice the employer directly. That seems, to me, very impractical. If the Government wants to encourage public transport use, why hasn’t it preferred to allow employers to reimburse employees for the costs without tax?

That’s a fair point that the member makes. These rules do need to be practical. They are designed with a view to minimising avoidance, but you can go too far in your precautions. If I understand the member’s point correctly, he could be referring to the situation where an employer, rather than giving someone $10 a week to cover their bus fares, is required to purchase the bus fares on behalf of the employee directly from Auckland Transport, for example. That’s an issue that has been raised by others in addition to the member. We are concerned to look at that and make sure that we’re not creating another problem by being too loose there. But we will have a look at that issue again, and if it’s not working in as practical a way as was hoped, we will address that in a future tax bill—perhaps in the May remedial tax bill.

I just want to turn to the Minister’s Supplementary Order Paper (SOP) 319, which is about employee benefits for North Island flooding events. I did have a very careful look to just see what areas were covered by this SOP, which, unfortunately, we haven’t seen until just before this committee of the whole House stage. So it covers Coromandel, Gisborne, Northland, Wairarapa, Wairoa, and then it also covers Bay of Plenty and the Waikato and Tararua. And it covers the three major North Island flooding events, which is Cyclone Hale, the heavy rain of the Auckland Anniversary, and Cyclone Gabrielle, which we all know has caused such incredible damage to a large number of places.

So, look, whilst we haven’t seen it, as I said, in the main we support this SOP as a way of allowing people to move into other areas, leave their homes, go and help in the areas that have been badly affected and to deal with issues such as reconstruction and repair of land, infrastructure, and other property in the affected areas of the specified areas. And a “distant workplace” is a workplace that is the area affected by the North Island flooding events—that’s the definition.

So that seems good. The quantum is $5,000, which is an increase in what we had used for Christchurch, which I think this is a replica from—I’m looking at the Minister. Perhaps the first question is: the appropriateness of $5,000. So given the rapid increase in rents—and we now know rents have increased $170 per week since 2017. The average rent now is $575. That means that works out to, I think, 8.6 weeks. So my first question to the Minister is: why the $5,000 and why the eight weeks? Why was that particularly deemed appropriate? And then there is the specified period of eight weeks. So why that specific period? I’m looking at—just to help the Minister—proposed new section CZ 24B(1)(c), inserted by clause 31C in Supplementary Order Paper 319. It would be very useful to understand that.

And I just wonder, in the proposed new section CZ 29B(5)(b), inserted by clause 31D in Supplementary Order Paper 319, it talks about recovery, “includes restoration and enhancement.” I suspect the SOP should actually say restoration and enhancement of what, because it’s not clear. But maybe that’s a drafting issue. Anyway, it would be useful just for the Minister to elaborate on that, given that select committee wasn’t made aware of this before it came to the committee this afternoon.

The $5,000 amount was based on the figure that had been used by the last National-ACT Government, post the Christchurch earthquakes, adjusted for inflation. So there’s no trickery in it; it’s just that old figure adjusted for inflation since—no trickery at all.

💬 Andrew Bayly: I wasn’t suggesting it was trickery.

I know. I know you didn’t, but there’s nothing more to it. I don’t want to say it’s arbitrary—it’s not arbitrary—but it’s just the old figure adjusted for inflation.

In respect of the eight-week period, I’m not sure if that’s the same as it was post-Christchurch. I’m advised that it’s the same period that was used post - Christchurch earthquakes—or Canterbury earthquakes, I should say.

Just referring to proposed clause 31B, inserting new section CZ 23B “(Employee benefits for North Island flooding events: exempt income)” in Supplementary Order Paper 319: new subsection (1)(g) provides that in order for a payment to be tax exempt, it needs to have been treated as being exempt income by the employer. This raises a practical issue for employers who have conservatively paid tax on any payments to employees while waiting for action from the Government. Inland Revenue need to make it clear that employers are able to rectify past payday findings to correct prior taxable amounts.

I’d like to note that this rule allows an employer to give up $5k to employees who were impacted by flooding, without tax. There are lots of businesses who will have made emergency payments to help employees.

I’m advised that the answer is yes.

Thank you very much, Madam Chair. I want to have a brief discussion in regards to Supplementary Order Paper 322, which I think was derived from the submission of the Greens’ Supplementary Order Paper 320, which wasn’t tabled. But it’s in regards to the exemption of fringe benefit tax (FBT) on bicycles and other items such as that, including electric scooters, etc. I guess the point of clarification is around how this potential exemption could be open to abuse in terms of obtaining these assets—bicycles—and getting the exemption for FBT but then using them for private purposes. I’ve got two young boys, 10 and 12, they love riding bikes, right? But if I told them, you know, “That’s Dad’s bike and it’s only to be used for commuting to work”, well, I don’t know, maybe it’s just my two boys at home, but I’m thinking they probably are going to be using these bikes for private use, right? I don’t think that’s too far a bow to draw in regards to this.

But also, I’ve got a number of number of mates—and maybe it’s a North Shore thing: I’ve got that lycra club—you know that lycra club? It’s about 6 a.m., 7 a.m. in the morning, getting up and you’ve got the lycra club going and they’re up; driving up. And I don’t mean to offend many of my friends that will be watching because they’re part of those clubs; I’m not myself. But the challenge is, I can just foresee it. I’m not going to draw any of my friends or colleagues into this, but I can just foresee that they’re going to go, “Well, this is quite a nice opportunity, isn’t it? You know, we’ll get that little bike through the work scheme, through the bank scheme.” Because interestingly, they had this in the UK when I was working in the UK, and I won’t go into any detail but you could also get the same exemption in that. And what happened, interestingly, is a whole lot of people ended up with nice flash race bikes for the weekend, all fully funded through the taxpayer—and, you know, while it’s not appropriate, obviously this is open to rort.

And the challenge that I want to ask the Minister is: while it’s all nice on paper, isn’t this really going to be just an opportunity for tax leakage—not in regards to the tyre tube, but leakage in regards to tax revenue?

💬 Chris Penk: Ha, ha!

Geez, that was all right, quite nice, Mr Penk. The reality is, you know, no matter what controls or important stuff is put in place, once these bikes are bought, they’ll be on TradeMe in the next week, won’t they? They’ll be selling them on TradeMe down to their mates, 15 percent or whatever, not quite—but a little bit of a discount. And this is just going to become a circular economy.

Just in respect of the answer I gave to Damien Smith, the way in which an employer would deal with payments that have been made previously would be to amend their employer monthly schedule of their payments to reflect the fact that it was a tax repayment.

In respect of the issue that the member from the North Shore raised in respect of abuse: incidental private use is OK, the e-bike has got to be mainly for commuting. And members will note that new section CX 19D(3), proposed in Supplementary Order Paper 322, includes regulations that can be made as to the maximum allowable cost of the vehicle; we’re not going to be allowing this to be rorted through gold-plated bikes. There can also be regulations made about the requirements for any vehicle, and the Hon Julie Anne Genter has already covered what some of those things could cover.

I’d like to refer to clause 31D, proposed section CZ 29B “(Accommodation expenditure: North Island flooding events)” in Supplementary Order Paper 319. CZ 29B(3) requires employees to be hired and working on site within six months of the flood in order to benefit from the extended five-year exemption for employee-provided accommodation. While the legislation at CZ 29B(4) provides that the Minister of Revenue can extend this state by Order in Council, it is clear that this time period is unworkable and should be extended to four years at the outset, like with the earthquake-equivalent rules. Noting that the base tax rule is that all accommodation provided by an employer to an employee is taxable income to the employee. However, there are some exemptions, including when an employee is provided accommodation because they are working on a big out-of-town project. In many cases, there’s no benefits to the employees; they may be maintaining a home elsewhere, they’re away from their family, etc. The base time for this rule is three years. However, it’s proposed to extend this to five years, which could realistically be how long some infrastructure projects or repair projects may take. A five-year exemption was provided for workers on the earthquake rebuild. However, that was more generous than what has been suggested here, which is that an employee needs to be engaged and working on a project by July this year. This just isn’t realistic and things aren’t organised that quickly, and we’d like the Minister’s opinion on that.

Well, with respect, I disagree. It’s not yet clear that that longer period will be necessary. If the member is proven right by events as they actually unfold, then we could look at the issue again.

I move, That the question be now put.

The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Papers 319 and 322 be agreed to.

Brooke van Velden’s amendments to Part 2 set out on Supplementary Order Paper 321 are out of order as they were not lodged with 24 hours’ notice. Nicola Willis’ tabled amendment inserting new clause 99A is out of order, as it was not lodged with 24 hours’ notice.