Smith Lockwood: Income Tax Bill — In Committee Third Reading 
Smith Lockwood: Income Tax Bill — In Committee Third Reading 
[Volume:641;Page:11274] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This is quite an important debate this afternoon because the opportunity for wide consultation and the opportunity for example at the select committee for those who are concerned about precise wording changes to have those changes thoroughly considered are very important in this rewrite process of the Income Tax Act. Let me give members an example. In one part in the Act we have traditionally referred to where a person lives as a person’s “place of abode”. The rewrite proposed to change that to some other terminology—forgive me because off the top of my head I do not recollect exactly what the rewrite proposed— 
Chris Tremain 
: Permanent home. 
Dr the Hon LOCKWOOD SMITH 
: “Permanent home” was the new proposal as distinct from permanent place of abode. But at the Finance and Expenditure Committee it was argued with committee members that that change should not be made because “permanent home” would mean something different from “permanent place of abode”; therefore in the bill before us now the change has not been made. 
Members may wonder why I am referring to this. The reason is that that has been part of why the rewrite process has been successful. I think that it is in schedule 51 or some schedule like that that the intended changes are spelt out and there is a list of intended changes. But what has been hugely important in this rewrite process is that unintended changes have been avoided. Part of the success in avoiding those unintended changes has been the extensive consultation with professionals and when officials and professionals have not been able to agree on wording the chance for the select committee to be able to make recommendations. For example in the rewrite the select committee suggested—and again I am going from memory—that a “loss attributing qualifying company” be changed to just a “contributing company”. Again the select committee was able to be convinced not to change the words and to stick with the terminology that had meaning in New Zealand because a contributing company—and again I am going from memory—could have a different meaning and therefore produce an unintended consequence. 
My reason for raising this concern is Supplementary Order Paper 136 which has well over 250 pages. This Supplementary Order Paper as I see it—and today as we are entering into this debate it is the first time I have seen it—writes into the rewrite of the Income Tax Act the legislation in the new language if you like that has been passed in the last year or so. For example the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 that was passed last year introduced the offshore portfolio investment regime which was commonly called the fair dividend rate legislation. But the rewrite of that legislation because it was so recently passed was not written in the language of this rewrite. 
So we can see that the rewrite of that legislation is certainly covered if we look in this Supplementary Order Paper at the rewrite of sections under new clause DN 6. Clause DN 6(g) for example covers the rewrite of how a fair dividend rate is calculated and relates to former sections EX 48 and EX 49 in the Income Tax Act which are covered in Volume 2 in that rewrite. But in this printed version of course the legislation we passed last year for the foreign investment fund regime or the fair dividend rate is incorporated literally or word for word into this bill we are addressing. This Supplementary Order Paper has the rewrite as I interpret it of that legislation in the actual language I presume of this rewritten Income Tax Bill. 
What is crucial about that is that the select committee has had no chance—no opportunity—to hear from tax professionals about wording changes. The Minister in the chair Lianne Dalziel should tell us which of the legislation passed I presume in the last 12 to 18 months—such as the original KiwiSaver legislation and certainly the Taxation (Savings Investment and Miscellaneous Provisions) Bill which colloquially became known as the RC legislation last year or the 2006 Act that brought in the new fair dividend rate—is covered in this Supplementary Order 136 and the extent to which the Law Society and the New Zealand Society of Accountants are happy with the wording that is now to be incorporated via this Supplementary Order Paper. It is our experience on considering the wording in the principal bill in front of us that there were significant words about which various professional groups came to the select committee and said: “Look you people need to be mindful of this this and this because if you don’t attend to this there will be the risk of unintended consequences—perverse outcomes.” I think we need to know whether the Minister in the chair can guarantee us there are no provisions no wordings and no constructions in Supplementary Order Paper 136 in which there is still any controversy at all among the professional sector out there. This Committee has had no opportunity to read this nearly 300-page Supplementary Order Paper this afternoon—no opportunity. 
What is more I believe it is crucial that the Minister in the chair puts in front of the Committee the key issues. It is hard to believe that all of this can be rewritten in the language of this new bill without there being some controversy surrounding some of the wording and some of the construction. If there is no controversy I guess we will just have to accept the Minister’s word on that but it puts at risk this whole rewrite project whose success has been in the fact that people could come to the select committee and make their points and the select committee could say: “Yes it makes no sense to change that.” There is no opportunity for that to happen this time around because we do not know what those professional taxation bodies have to say about the rewrite contained in Supplementary Order Paper 136 which is important stuff because it covers all of the offshore portfolio investment legislation. 
As I say the bill that we have in front of us without the Supplementary Order Paper will simply be incorporated as we passed into law last year. But I presume that this Supplementary Order Paper does rewrite the legislation. For example if members look at the wording right at the start of that fifth regime at clause DN 6 they will see that the whole clause of the bill is rewritten and that this Committee has no idea whether all of the wording of that is free of any controversial words and structures. So I think we need the Minister to give us very clear assurances on the exact status of this Supplementary Order Paper the extent of consultation and whether there are any wordings in it where officials and taxation professionals are in disagreement. 
If they are in disagreement I do not believe that we should be completing this Committee stage. The provisions in Supplementary Order Paper 136 are too important simply to hope that it will be OK. Many many New Zealanders’ tax affairs are caught up in Supplementary Order Paper 136 and I would certainly appreciate the Minister’s assurances on that.