Nash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In Committee[Sitting date: 12 April 2016. Volume:713;Page:10386. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): I would like to talk about clauses 26 and 73. This is about the disclosure of information to the Australian Tax Office about borrowers who are or may be overseas-based. The issue this is trying to solve is one of the key problems in collecting overseas student loan payments: holding up-to-date contact information for defaulters. You know if you cannot get hold of them then how can you liaise with them or correspond with them? Many of them are believed to live in Australia and what this will allow is the exchange of information as has been talked about between the Inland Revenue Department (IRD) and the Australian Taxation Office to receive up-to-date contact details of New Zealand student loan borrowers residing in Australia through matching details against the Australian Taxation Office’s database of Australian taxpayers.What this will allow the IRD to do is to contact those individuals and keep them engaged with their student loan obligations and where appropriate recover outstanding student loan repayment amounts. The thing we cannot forget when we are talking about student loan borrowers and even more about student loan defaulters is that when a New Zealander has signed a contract with the Government to undertake a student loan it is a legally binding agreement and they must abide by the terms. I think it is just incorrigible that someone may head across to Australia to avoid paying off their student loan after arguably drawing the benefits of that loan in order to get educated or do whatever people do with student loans.The thing about this and this is where it is quite clear is that an amendment to the Tax Administration Act 1994 creates an exception to the taxation secrecy provisions. The one thing that the IRD values more than anything—what its whole integrity is based upon—is in fact maintaining the secrecy of individual taxpayers so no one knows what anyone else is doing. My personal view is that the IRD does act with complete integrity in this instance. It has a number of clauses and terms and conditions and individual employment contracts that ensure that all staff members know that they have to maintain the integrity and the secrecy of each taxpayer.So the interesting thing about clause 26 is that it limits who in the Australian Taxation Office is authorised to receive the information from the Commissioner of Inland Revenue. Again this just maintains the integrity of the tax system. But it also prescribes the information that may be provided by the commissioner and says that the information must be relevant for the purpose. What I mean by this is that the IRD cannot go on a proverbial fishing exercise. So it cannot say to the Australian Taxation Office: “We want everyone between the ages of 21 and 28 between A and Z who holds a New Zealand passport that is registered with these names.”This is the interesting thing: it can go after only those people who it knows have a student loan and who it suspects may be living in Australia. When I say “suspects may be living in Australia” the bill is actually quite clear. The IRD does not have to prove they are living in Australia; it just has to suspect they are living in Australia. This is again where we come back to a common theme which is that it has to actually know what it is looking for. If you do not know what you are looking for in tax law then you will never ask the important question to get the information. We have talked about overseas trusts and this sort of thing and I do not want to bring that up again but it is a great example—when someone says “we have a transparent system” how do we know it is transparent? Those who are seeking transparency will never seek answers for questions they do not know whether to ask or not.It actually would be good for the Minister in the chair Craig Foss to speak about this and the reason I say this is that I have a suspicion that Mr Foss is an expert in this. I know he is a financial whiz. He has worked overseas in financial markets—I say this as a positive not a negative—and I would like to hear his views on how this legislation compares with other pieces of tax legislation and whether he thinks this is consistent with other pieces of legislation.The other clauses I would like to talk about are clauses 8 and 9. This is about the treatment for over-recovered additional deductions. I will just give a bit of background on this. The Commissioner of Inland Revenue is able to require a New Zealand - based student loan borrower’s employer—i.e. the boss of a student loan borrower—to make additional deductions from that borrower’s wages and salary to meet previous shortfalls in repayment obligations. The commissioner is allowed to do this by law without actually seeking the permission of the student loan borrower.What the IRD does is it writes to an employer—it must be in writing—and the commissioner advises the employer of the total additional amount to be deducted and by law the employer must deduct this money from the employee’s account. But it is also recognised that there may be circumstances in which the commissioner might have got it wrong or the employer has deducted too much or something so what it does is it ends up creating an inherently unfair situation for that employee—that student loan borrower. There is one thing that I think one of my colleagues talked about and that is the inherent fairness of the tax system. One of the guiding principles of any tax system but certainly the New Zealand tax system is fairness.What clauses 8 and 9 do is allow a student loan borrower who feels aggrieved by the commissioner requiring an employer to take money without their knowledge to apply to the commissioner and say: “Hey I think you’ve made a mistake.” It has to be done in writing and there is a whole set of processes that a student loan borrower must follow but what it does allow at least is a sense of redress which again is important and I think just adds weight to the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill.There is just one other thing that I would like to mention and it is a point of clarification I suppose. A number of speakers have talked about deposits in income equalisation accounts and shareholders of close companies. Income equalisation is an interesting topic. What this is intended to do is allow persons to carry on—initially actually it was agricultural fishing and forestry businesses—and smooth their incomes over years when they may have massive highs and massive lows. So this is where clause 30 “Schedule 3 amended” talks about deposits in main income equalisation accounts. Again it brings with it that notion of fairness.What it does allow I believe is the avoidance of the aggressive sort of tax planning that some individuals may feel they want to enter into in terms of avoiding their obligations which again is most important. But basically clause 30 inserts into schedule 3 new clause 7 which says: “The borrower’s adjusted net income is increased by the amount of a main income equalisation deposit the borrower makes for the income year.” So if the student loan borrower whacks $50000 into this equalisation account then his or her income increases by that amount. Again this is used as a smoothing tactic which is fair and it makes a lot of sense to be honest. But this just ensures that no one is avoiding paying their fair share.We have talked about borrowers in trusts but there are also borrowers who are major shareholders in close companies. Again what the legislation does is list the different entities a borrower may be engaged in in terms of just the normal I would have thought process of doing business—companies equalisation accounts trusts etc. etc. What it does do—and this is why we are supporting this part of the bill—is introduce that level of fairness. But it also ensures as mentioned that people cannot—well in my view—undertake the sort of aggressive tax planning that we want to avoid in our tax system.But that is probably all I am going to talk about for now. There still are some other issues that need to be clarified within Part 1 but let us see where we get to with the next speaker.