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

Members, we now turn to the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill. When we were last debating this bill, we were debating Part 2. This is the debate on clauses 4 to 115, “Amendments to Income Tax Act 2007”. The question, again, is that Part 2 stand part.

Thank you, Madam Chair. I thought it might be useful—because this debate had been interrupted—that we might just reappraise ourselves of where we’re at and, in particular, Part 2 of this quite significant piece of legislation.

For the benefit of members in committee today, Part 2 of the bill contains amendments to the Income Tax Act of 2007, and as such this part includes improvements to the approved insurer levy debt investment rules, the generic response measures for emergency events, simplifications for transferring overseas pensions to New Zealand, and the increases to the thresholds for exempt employee share schemes.

There are a range of, in fact, many other smaller remedial changes that are included in this part of the bill, and there is also an Amendment Paper that includes a few changes to this part, as well. Those matters will include measures, for instance, to ensure that the appropriate tax outcomes for artists who receive resale royalties are achieved, and it grants the Auckland Future Fund, which is connected to Auckland Council, an exemption from income tax. It also adds the NZ Memorial Museum Trust - Le Quesnoy to the list of overseas donee organisations and makes some minor technical changes to items that are already included in the bill.

I’d just like to thank the Minister of Commerce and Consumer Affairs for that summary of some of the issues that are in Part 2. I do just want to traverse a little bit of where we were at in the debate, and what we were working through is we’re making a quite methodical process through Part 2, going clause by clause—of course, not particularly concentrating on clauses which just involved, say, substituting a heading or putting a new heading to a section, because that would be a little ridiculous, but we were working through the substantive issues that are contained within this tax bill. I do note, as the Minister said, there are some substantial issues in this part of the bill and particularly the emergency provisions, which we haven’t quite worked our way towards yet. I am looking forward to discussing those in depth.

There are, however, some clauses that come in before those new emergency provisions come in, and we do want to work our way through them bit by bit by bit. I think the furthest that we had gotten in the debate last—it was last Wednesday night? That would be right, last Wednesday night, so some time ago now. The furthest that we had gotten to, I think, was my colleague the Hon Barbara Edmonds discussing clause 16B and I had been concerning myself with some of the issues in clause 20. Now, I understand my colleague Megan Woods may have a question or two more on clause 20, but I want to move just one step further—just one step further; add a “1” to that—and we’re going to go to clause 21. That is the measures around the thresholds for exempt employee share schemes.

Now, the interesting thing is that these exempt employee share schemes will often be used with start-up companies and the like, as a way of remunerating employees, and in that space. It’s a way of incentivising employees; it’s a way of ensuring that people have a stake beyond a job—a stake in the firm that they are working for. That seems, on the whole, to be a good thing. The curious thing is that when we were last discussing this bill, it was on a day when the Government had asserted that they were all about growth—or growth, growth, growth. Or growth, growth, growth, growth, growth—if you say it enough times, it really happens! We were interested and we asked several questions of the Minister of Revenue as to the measures in this bill that could be considered to be growth measures. The Minister came back with the approved issuer levy amendments, which is pretty trivial.

There’s a couple of questions here. Given that it was the only measure that the Minister came up with at the time—

Hon Dr Megan Woods: They’ve had more time now.

Hon Dr DEBORAH RUSSELL: They have. I, having had a little bit of time to reflect on how growth, growth, growth, growth, growth gets to be done, whether the Minister regards this particular amendment in the tax bill—it’s proposed in the tax bill where we are increasing the thresholds for exempt employee share schemes—as a measure designed to promote growth, growth, growth, growth, growth too, or whether it is just one of those annual sort of inflation adjustments that happens from time to time. I would like the Minister to talk—to comment, perhaps—on whether or not it is a growth measure, what it’s going to add to growth, how it might promote the New Zealand economy. It does seem to me that it could probably fit within that space.

Then the curious thing is why the Minister focused on the approved issuer levy last week instead of talking about this as a growth measure. Now, I did ask the Minister in the debate last week and I did foreshadow I was going to ask this again. I did ask the Minister to come back to us with whether there had been any assessment of the revenue impact of the changes to the approved issuer levy, because he had asserted it would lead to growth in the economy and I said it would be nice to see some numbers to back that up. I’m hoping that the officials have had time to work those numbers up and that the Minister will come back to us on that approved issuer levy.

The other thing I would like to know is—so two questions there. One: is it a growth measure? Two: if so, why didn’t the Minister mention it last week? Then the third question here is: what is the assessment of how much growth might come about as a result of this particular change in the Income Tax Act?

Thank you, Madam Chair. It’s, again, another big privilege to be able to stand up and to continue the debate on the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill. Again, I acknowledge the Minister of Commerce and Consumer Affairs’ earlier comments around some of the more significant policy issues in the bill, but also I want to affirm where we got up to with the debate a week ago. At the time, I was currently debating with the Minister and had a number of questions around clause 16B of the bill.

Just to recap, for some members, the bill obviously is an omnibus tax bill. It has a number of both substantive policy issues, which the Minister outlined earlier in his comments, but also it has a number of remedials, and some of the remedials that we started to discuss in the last part of the debate were around the land rules remedials. These are the remedials which are covered within clause 16B. Members will note in the revision-tracked version of the bill that, actually, clause 16 has been totally wiped out. In the original bill, when it was introduced, we had a clause 16; that has totally been revised during our select committee process, and we now have this new clause 16B which looks to amend section CW 3C of the Income Tax Act.

As a recap, those land use rules are remedials, however they are important remedials because there was a change in an earlier tax bill around the brightline test. The brightline test, for those members who can remember, was introduced by John Key at two years. It was then extended to five years, extended to 10 years by the Labour Government and then one of the first tax bills that came in under this new Government removed it from 10 years back to two years. It’s quite clear that the remedials which are contained in this bill try to fix some of those corrections from some of those changes.

Those land rule remedials ensure that the brightline period is not restarted when a co-owner acquires land from another co-owner on partition or subdivision. I did talk about that a little bit in the previous part of this debate, ensuring the new brightline test does not apply to transfers of inherited land by a beneficiary of an estate. The policy intention behind that, when the Rt Hon John Key put those provisions in in 2015, was to ensure that there was rollover relief, particularly in a transfer of an estate.

The other remedials in this bill also include ensuring that the provisions that provide rollover relief for the brightline test apply to those in civil unions, in de facto relationships, as well as marriages. Again, it was just around if there is a divorce or separation, it is relationship property and there is some rollover relief in that particular circumstance. The remedials also ensure that the rules apply when land is acquired on a subdivision between co-owners and is subsequently disposed of as operators intended.

Going back specifically to some of the drafting for clause 16B, because I did ask the Minister—it was a very big change that was recommended; a very big change—and we weren’t able to go back to submitters to cross-check some of those changes. It really was up to the Finance and Expenditure Committee to basically trust officials that how it’s being drafted both affirms what submitters had come through with, but also was technically correct. I asked the Minister for his assurance around this big change.

He obviously provided it at the time, but there was one particular issue—which, I think, upon reading and having a bit more time to read that particular clause, and it was an issue that was raised by the New Zealand Law Society, and which officials at the time believed shouldn’t be changed. I want to clarify with the Minister, particularly around that drafting—given it was a huge drafting change in the new clause 16B—whether he’s received any additional advice from officials since we have now reported it back around this drafting and also to see whether the Minister has had any more official advice around it. I can see why the Law Society believe it’s a drafting error. That’s around the rollover provisions and the application of section FC 9(4) in the Income Tax Act to these provisions.

Under section FD 1 of the Income Tax Act 2007, the Act states that the section applies for the purposes of section CB 6A—that is the brightline test, section CB 16A, and Part D of the Income Tax Act. However, section FD 1 of the Income Tax Act also applies for the purposes of section FC 9(4). The question that the Law Society had, and which I just want to get confirmation from the Minister on, from his officials, is whether that section FD 1(1) should actually include a reference to section FC 9(4).

I think the Law Society, obviously, submit on a number of bills. They actually have a specialised group within the Law Society, a tax advisory group who review all the different types of bills and provide submissions. They’re very senior law practitioners and very respected law practitioners, too. They raise the issue about whether it should apply for the purposes of the brightline test and whether the bill should be amended to include it.

I just want to ask the Minister whether he’s received any additional advice since the bill has been reported back on whether that change should be done, as recommended by the Law Society, and what advice does he stand upon. Officials have declined their submission, but I think it’s actually a relevant question, particularly for the drafting and particularly because we weren’t able to take back the revision-tracked version of the bill to submitters to again ensure that the drafting was both accurate or that it actually still made sense.

It is a minor question in the scheme of things, but it’s one that I think, given we haven’t had an opportunity to retest it, I just would like to seek some more reassurance on from the Minister.

Well, thank you, Madam Chair. I wanted to thank both the Hon Deborah Russell and the Hon Barbara Edmonds for their contributions in this debate. Just starting with the last question from Barbara Edmonds, I’m advised that the Minister has not received any further advice on the drafting of clause 16B, notwithstanding the submission from the Law Society.

I want to come to the issues raised by the Hon Deborah Russell relating to growth, growth, growth. I’m very pleased that she’s on message, on track, and she is receiving loud and clear what this Government is all about. These changes actually will assist, for instance, exempt employees in terms of their share schemes. The purpose of the change is actually to make it easier for companies to attract talent and keep talent. That is what it’s all about. In a time when New Zealand needs to attract talent, when companies and entities need to grow and thrive, the retention and recruitment of talent is an important part of it. That’s a very simple example of how this relatively simple but important change can help with the growth, growth, growth strategy of this Government.

Thank you, Madam Chair. I thank the Minister in the chair for his answers to the questions. As my colleagues have indicated, we are going through this clause by clause.

On the answer to the question that my colleague the Hon Barbara Edmonds put about whether or not the Minister had sought advice, it’s useful for us to understand, now, that the Minister hasn’t sought advice on the Law Society submission, but we would like to know: will the Minister be, in the future, seeking advice around that advice? As my colleague intimated, this is a very expert group of tax professionals that have highlighted what could be some significant drafting errors. Is this something that the Minister intends to pursue and look at and think about whether or not this does need a fix in the future?

As my colleague the Hon Deborah Russell intimated, the clause that I’ve got some specific questions around is clause 20. Now, this is part of a suite of clauses that are covering off emergency events. Of course, as a Parliament, and over a number of years across multiple Governments, we’ve responded to emergency events in quite ad hoc ways. We have significant experience, of course, in how that was dealt with in the Canterbury earthquake sequences and how the emergency provisions applied here.

Clause 20 inserts new section CW 19B around “Certain amounts derived by employees during emergency events” and “exempt income”. This is a prelude to some of the meatier emergency provisions, which we’ll get on to in questions around subsequent clauses as we go through, but this is an important one none the less. This is around income that is associated with accommodation and workers that need to come in and have accommodation in the event of a significant emergency event. One of the things that this says is: “Income that satisfies section FP 20 (Certain amounts derived by employees during emergency events) is exempt income to the extent to which the income is—(a) accommodation: (b) less than or equal to $5,000 in total, if the income is in a form other than accommodation.”

Now, this is both an insertion, but then there’s been a redrafting through the committee in terms of the track-changed bill. In terms of drafting questions that go with this, now, we all know, in this Chamber, that a colon is used to introduce what follows. It serves two functions, and this is important in terms of the drafting of this clause 20 of the bill. It can be used as a list or an explanation, but it doesn’t necessarily link two independent clauses. The question is whether that $5,000 is, indeed, a cap if accommodation is directly paid by an employer or whether it is an either/or in terms of, obviously, the second point there, which is around the instance of reimbursing—so whether it’s income in the form other than accommodation. Obviously, you wouldn’t want to be taxing people that have gone into help in the aftermath of an emergency situation.

I think, given that there has been quite a change in the drafting there, it would be useful for us to know what purpose that colon is serving in this clause and whether or not this is indeed a cap that has been introduced. And, if it is related to the direct payment of accommodation as well as the reimbursement, what would the justification for that be? Indeed, what is the justification when you’re talking about a reimbursement? There are emergency events that have differing durations, and it’s possible for us to imagine an employee that is actually going to need more than $5,000 of accommodation. We’re talking about an entire tax year, and there may be a long period of time that will be required in terms of that. What exceptions can there be to that cap if there is still scope to have flexibility to respond to the nature of the disaster?

Of course, we are entirely supportive of us having a more streamlined way in which we deal with natural disasters and to the tax relief that needs to apply there. I look forward to the answers from the Minister.

Thank you, Madam Chair. I have a couple of really specific questions for the Minister on clause 19 of Part 2, which is the new section CW 17D on payments relating to health and safety. Understanding the current system pertaining to this clause, particularly in what has been referred to in section CX 24 of the Income Tax Act 2007 around how the benefit has to be—the fringe tax is exempted if it’s referring to managing health and safety, but it’s particularly to do with things that the employer may be providing for the employee.

However, what we’re seeing here is that, under new subclause CW 17D(1), it says it applies to when the “employer pays an amount to, or on behalf of,” relating to the health and safety. I kind of wanted to check, in terms of “pays an amount to, or on behalf of”—is this to do with, I guess, a financial or actual monetary amount that’s being provided to an employee so that way they are able to keep themselves safe at work or managing the risk to health and safety in the workplace? I guess the question there is: is this amount, which may be monetary, being given to the employee for them to buy equipment that they can then use as part of their health and safety and mitigating risks at the workplace, or is it some sort of other payment? Understanding that we are also looking at the fact that this amount is exempted income under new subclause CW 17D(2), the question there, and in terms of exempted from fringe tax, is for a benefit that would be excluded by section CX 24.

Now, the issue with section CX 24 is that there are three paragraphs when you’re looking at the benefit that is to be provided to an employee. It “is not a fringe benefit to the extent” and paragraph (c) of that, and each of those clauses is in conjunction—it’s “and”, “and”, so you have to have all three. But part of that, in terms of section CX 24(c), talks about the fact that it is “excluded by section CX 23 from being a fringe benefit if provided on the employer’s premises.” If we’re taking the fundamental element of the exemption from fringe tax being “on the employer’s premises”, how does it relate to new subclause CW 17D(1) where it says it “pays an amount to, or on behalf of, an employee” when that amount may be off premises?

Those are just kind of some questions around the context of why this particular section was introduced, the circumstance it was introduced. Are we looking at “pays an amount to, or on behalf of,” in order for the employee to be able to purchase equipment that will manage risks to their health and safety or the company’s or the employer’s health and safety as a person conducting a business or undertaking under the Health and Safety at Work Act? Also, in terms of new subclause CW 17D(2), if we’re seeing that one of the criteria for exemption of fringe benefit under section CX 24 is that the benefit must be provided on premises, how then would it relate to the payment amount when that payment amount to the person may be used off-premises? Thank you.

Thank you, Madam Chair. I’d like to, again, thank members for their useful and probing questions, particularly the Hon Megan Woods, who knows well from her personal experience of being in Government that Ministers receive information, advice, and supportive submissions from a variety of sources and organisations—not least of which is the Law Society—on a very regular basis. She can take assurance from that, I think, that notwithstanding the formal process, organisations such as the Law Society are never backward in coming forward in terms of offering advice to Ministers or Governments.

She asked some questions specifically around emergency events. The whole purpose of the clause 20 changes are to actually provide certainty. I think any legislation that assists in providing certainty, depending on the nature of the event—which can sometimes be uncertain—is helpful. The drafting is intended to provide in that subsequent recovery phase some certainty for people who are involved.

Lawrence Xu-Nan asked some questions around clause 19, particularly in relation to fringe benefit tax. There were some good questions in that, particularly relating to the fringe benefit tax liability if a benefit occurs on an employer’s premises. I can remember from my own days of being in business situations where, for instance, providing a barbecue and sausage sizzle at the end of the working week—was that considered a fringe benefit - type contribution to the employee? I think some of this is a matter of degree and some of it is actually a matter of just good judgment.

Members, the Government has indicated that it wishes to lift urgency, so I will be reporting progress. Thank you.

Progress to be reported.

House resumed.