McClay Todd: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — Second ReadingText is incorporated into the Bound VolumeMcClay Todd: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — Second Reading[Sitting date: 20 October 2015. Volume:709;Page:7381. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue): I move That the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill be now read a second time. This omnibus tax bill continues the Government’s work in supporting New Zealand’s businesses by delivering the initiatives and policy reforms necessary to create a more productive and competitive economy. At the same time it continues the Government’s focus on maintaining the tax system over time so that it remains fit for purpose.With these principles in mind the first set of proposals are aimed at encouraging business innovation by removing some of the obstacles that the current tax rules can impose on small start-up businesses. Under the current rules these businesses are often unable to use their tax losses in a timely way or at all because the tax rules require them to carry their tax losses forward to deduct against future income. This can be a barrier to undertaking research and development for innovative start-up companies compared with large firms which can usually offset losses against existing income streams.The bill addresses the problem by proposing to allow eligible research and development start-up firms to claim up to 28 percent of their losses for eligible research and development expenditure in any given year. Twenty-eight percent reflects the current company tax rate and the Finance and Expenditure Committee has recommended futureproofing these provisions so that any change to the company rate in the future automatically flows through to what can be claimed in research and development losses. This cash-out will be delivered in a form of a refund and the losses cashed out will be capped at $500000 for the first year increasing by $300000 over each of the next 5 years to $2 million. The proposed changes are intended to provide a temporary timing benefit only. When the business makes a return on its research and development it will be required to repay some or all of the amounts cashed out by either income tax payed by the business or from any gains on a sale.The second suite of research and development proposals is designed to relieve the problem known as black-hole expenditure where some development expenditure is never able to be deducted for income tax purposes. To deal with this problem the bill proposes to allow capitalised development expenditure to be either deducted over time as depreciation or if no depreciable intangible asset is created—including where research and development projects turn out to be unsuccessful—then taken as a one-off deduction upon a write-off for accounting purposes. These proposed changes to the tax rules for research and development will be welcome news for our innovative start-up firms.A third set of changes proposed in the bill clarify the GST rules for New Zealand’s 13800 bodies corporate. These proposals will give them assurance on their GST position by confirming that services provided are supplies for GST purposes and give them the option to register for GST. There are also several special rules to protect the tax base from adverse consequences of giving bodies corporate this choice. It is important that in going forward with GST bodies corporate are not able to shock the GST system when it comes to a period of time where they may have a larger deduction than an ongoing GST case would have where they are registered for a longer period.The bill also includes measures to reduce the penalty burden on liable parents with child support debt. These measures are aimed at reducing long-term child support debt and encouraging liable parents in debt to better manage their child support repayments. The intention is to encourage liable parents to re-engage with their child support obligations and to strengthen the Inland Revenue Department’s ability to work with parents to regain control of their child support debt and enter repayments. Ultimately it is about getting child support debt paid so that the money goes directly to the children who need it. This Budget 2015 initiative was referred to the select committee for consideration and now forms part of this bill.I want to thank the Finance and Expenditure Committee for its measured consideration of the bill and for its recommendations to improve the workability and fairness of several positions. For these same reasons I wish to advise that I intend to introduce a Supplementary Order Paper to the Committee of the whole House which will contain a small number of technical amendments. The principal proposal will allow greater flexibility to more quickly align the tax exemption criteria for community housing entities with the Government’s HomeStart threshold. The remaining proposals in the Supplementary Order Paper will further refine and update certain measures already in the bill. I have great pleasure in commending the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill to the House.