Woodhouse MichaelTAXATION (BUSINESS TAX EXCHANGE OF INFORMATION AND REMEDIAL MATTERS) BILLFirst ReadingHon MICHAEL WOODHOUSE (Minister of Revenue): I move That the Taxation (Business Tax Exchange of Information and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. It is my great pleasure to bring this bill before the House which is the second bill containing the Government's proposed measures to simplify tax administration in New Zealand. The centrepiece of the bill proposes a major shift in the way small businesses currently pay their tax making these processes simpler and easier. These changes were announced in April by the Government as part of Budget 2016. Small businesses are the backbone of our economy and we want the tax system to fit around how businesses operate not the other way round. The packages of changes included in this—Fletcher Tabuteau: I raise a point of order Mr Speaker.The ASSISTANT SPEAKER (Lindsay Tisch): Order! Sorry to the Minister—before I deal with the point of order I would like to hear what is being said and to those who are leaving the Chamber please do so expeditiously so as to give courtesy to the speaker. Now there is a point of order from Fletcher Tabuteau.Fletcher Tabuteau: Mr Assistant Speaker you have addressed my point of order. Thank you very much.Hon MICHAEL WOODHOUSE: The package of changes included in this bill will make paying tax easier and more certain reduce the burden of interest and penalties and help small businesses tailor payments to their circumstances. Most businesses aim to do the right thing and pay their tax as best they can. For most businesses that means paying income tax in three instalments of provisional tax throughout the year. Provisional tax was by far the single most commented on aspect by taxpayers in the public consultation on the Government's green paper on tax administration released in March 2015. Many found it onerous and unfair. In particular the application of use-of-money interest was a key concern of taxpayers.The Government agrees that processes can be improved and feedback from business since that Budget announcement has been overwhelmingly positive. I have had feedback just recently from a caucus colleague who was speaking to a hairdresser an owner of a hairdressing salon for about 15 years. One would think that a hairdressing salon had a reasonably steady taxable income flow but this particular owner had a variation in the number of chairs that operated and the number of staff that worked for her of between 10 and 16 at any one time. That created a huge challenge for her in estimating her taxable income and therefore her provisional tax obligations. She fed back to my caucus colleague what an absolutely fantastic initiative this was. Even in hairdressing we are hearing that. It is not a seasonal occupation or business so much but many of New Zealand's tens of thousands of small businesses are seasonal and they will all benefit from the changes we plan to make.The bill seeks to remove the application of use-of-money interest to a large number of them. It introduces a new calculation method to better match tax payments with income earning. The proposed new calculation approach the accounting income method takes advantage of technological advances to smooth the process. It more closely matches income earning with tax payments and reduces compliance costs for small business. The objective is to simplify tax processes so that rather than imposing a stand-alone tax process tax would become a part of the normal everyday accounting work that businesses already do in managing their finances. Because tax will be paid as income is earned businesses using the accounting income method will have more certainty that they are paying the right amount of tax.But this is not a case of throwing the baby out with the bathwater. Although the current calculation methods do not meet everyone's needs there are certainly businesses for which the current provisional tax methods work adequately well. There is therefore no intention to do away with other methods for calculating provisional tax. The proposal is for the accounting income method to be a fourth option for calculating provisional tax.The Government appreciates that the current system can be unfair. Even if a business ends up paying the right amount of provisional tax during the year it can still incur use-of-money interest. So for those taxpayers who use the standard uplift method the Government is proposing two changes to minimise the impact of use-of-money interest: firstly to increase the safe harbour as to when use-of-money interest will apply from $50000 of residual income tax to $60000. The bill also proposes extending the safe harbour to non-individuals. Combining these proposals will remove some 67000 additional taxpayers from the impacts of use-of-money interest.Secondly for the standard uplift taxpayers who are outside the new safe harbour rules and who make the required instalments use-of-money interest will apply only from the last instalment date. This means a taxpayer can pay their entire tax for the year with no use-of-money interest being applied. For those using the new accounting income method and who pay the required instalments use-of-money interest will also not apply. The effect of the proposals will be that use-of-money interest will be eliminated or reduced for the vast majority of taxpayers. I believe that the proposed measures will provide greater certainty as well as peace of mind particularly for smaller businesses. The bill also proposes flexibility for businesses that could trade their way out of debt. It proposes to reform the late payment penalty by no longer imposing the monthly incremental penalty from new GST income tax and overpaid Working for Families tax credits. These and other proposed business tax simplification changes were driven in part by a desire to make it easier for taxpayers to comply.In fact the vast majority of people do comply with their tax obligations but there is a small group of people who seek to evade their tax obligations and hide their taxable assets offshore. This is not a problem confined to New Zealand alone and it has become the subject of an international effort spearheaded by the OECD. New Zealand works closely with the OECD on a number of matters and we take our global responsibilities very seriously. That is why the second major component of this bill proposes enabling legislation requiring New Zealand financial institutions—unless exempted—to review their accounts and collect and report information to the Inland Revenue Department (IRD) on accounts held or in certain circumstances controlled by non-residents. Where necessary the IRD will then share that information with other tax jurisdictions in specific countries. The objective is to help eradicate tax evasion.Generally the legislation aims to allow the reporting financial institutions to take advantage of options outlined by the OECD and to not require reporting financial institutions to collect further information than is required by the OECD standard. This approach should help to minimise the compliance costs for financial institutions. The overriding principle in this proposal is the desire to bring more transparency into international tax matters.This is true for one other item in this bill: the proposed amendments to our foreign trust rules. Although our tax settings are very sound by international standards the Government has always been open to making improvements to New Zealand's already strong tax settings if that was warranted. That is why the Government agreed to act on all of the recommendations from the Shewan inquiry to ensure our disclosure rules are fit for purpose. The proposed amendments to the foreign trust disclosure rules included in this bill will strengthen our rules and help make sure that we maintain our reputation in the context of best practice of international exchange of information. This includes the proposal to require a register that is searchable by the Department of Internal Affairs and the New Zealand Police and for annual disclosure requirements.The remaining changes in the bill are of a practical nature and ensure that the tax rules are applied consistently that they are clear and that they achieve their correct policy purpose. Finally the bill includes a range of other remedial amendments to give greater certainty to taxpayers. Together these measures will help strengthen our tax systems and make it easier for taxpayers to comply with their obligations and be fairer for taxpayers more generally. These are good proposals for New Zealand and good for the tax system. I commend this bill to the House.