Parker DavidTAXATION (ANNUAL RATES FOR 2021-22 GST AND REMEDIAL MATTERS) BILLFirst ReadingHon DAVID PARKER (Minister of Revenue): Thank you Madam Speaker. I present a legislative statement on the Taxation (Annual Rates for 2021-22 GST and Remedial Matters) Bill.ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon DAVID PARKER: Thank you again Madam Speaker. I move That the Taxation (Annual Rates for 2021-22 GST and Remedial Matters) Bill be read a first time.As we continue to deal with the unfolding COVID situation the Government is doing all it can to protect the lives and livelihoods of New Zealanders. This bill is about ensuring the Government's support for the community can continue. Managing the tax system is an important function of any Government at any time. But at a critical time for the health of our people and our economy this is absolutely vital. Although New Zealand has relatively strong tax settings it's important to maintain the tax system and ensure that it continues to be fit for purpose. Maintaining the tax system helps maintain the revenue base which helps fund the services and functions many New Zealanders depend upon. It also provides clarity and certainty. Changes in the interpretation of the law can introduce unfairnesses inefficiencies complexities and uncertainty which the tax system should respond to. Proposed changes in this bill will uphold the integrity of the system.Changes can also arise as circumstances change. The tax system must for example adapt to changing technology. Business practices change too; so must the tax system if we want to minimise compliance costs for businesses. So some proposals in this bill relating to this generally aim to make life a little easier for businesses. A good example is that of cryptoassets. The designers of our tax system never contemplated cryptocurrencies and other types of cryptoassets. We want to ensure fairness in the tax system. We recognise that cryptoassets have a growing role in the economy so we want to ensure that people using cryptoassets to invest develop new products or raise capital are not obstructed from doing so because of our GST rules.We also strive to remove distortions in the tax system and the bill therefore proposes that cryptoassets be excluded from GST imposed by the GST Act and from the financial arrangement rules within the Income Tax Act. Cryptoassets may of course still be subject to income tax on disposal. The bill also proposes allowing GST-registered businesses who raise their funds through issuing cryptoassets with similar features to debt or securities to claim input credits for their capital raising costs.A further measure aimed at removing a distortion is a proposal to zero rate the domestic leg of cross-border transportation of goods. Currently the transportation of goods to and from New Zealand is zero rated as is the transport of goods within New Zealand provided this is part of the international transport of goods and done by the same supplier. The bill expands the zero rating to accommodate subcontracting arrangements for transport within New Zealand. This levels the playing field and removes incentives to pick one transport carrier over another. This change will broadly align New Zealand rules with those of Australia.The bill also proposes improvements to the GST apportionment rules. These rules are used to determine GST input tax deductions where an asset is used partly to conduct a GST-registered business and partly for a private or exempt use. The current rules prescribe a formula for apportionment. One proposed change would reduce compliance costs for smaller GST-registered suppliers by allowing them to apply to the Inland Revenue to use an alternative apportionment method.Another proposal is aimed at avoiding overtaxing the sale of appreciating assets that are used for both business and private purposes. This would be achieved by allowing a deduction that more correctly reflects the non-taxable use of that asset.In striving to maintain the tax system and ensure it imposes minimal compliance costs it's necessary to keep up with current business practice. Current GST rules stipulate that invoices must be a document and they prescribe a format for that document. The rules also require registered persons to create and retain tax invoices for taxable supplies and also credit notes and debit notes for adjustments to taxable supplies. We're proposing to replace the requirement for the issue of documents with the requirement for the provision of information with no prescribed formats. This better aligns with the electronic invoice and record systems that modern businesses use.The bill proposes amendments to the rules relating to groups of companies. An amendment introduces the term GST group" for a group of companies that choose to register as a group under the GST Act. Other amendments clarify that the application of GST rules for the representative member is the maker and receiver of supplies for a GST group.Also on the theme of clarification the bill proposes a series of technical amendments to the fair dividend rate foreign currency hedge rules to improve their functionality from a practical perspective and reduce compliance costs for eligible taxpayers with a large number of hedges.Circumstances change as I said earlier and the tax system must move to reflect that. An obvious example is that of course of COVID-19 and now the Delta variant. The bill consequently proposes removing the time limit from the COVID-19 information-sharing provisions that apply between the Inland Revenue Department and other agencies. This is designed to ensure that agencies are able to continue sharing necessary information throughout the pandemic. This of course enables initiatives that support New Zealand's recovery. An important part of the tax system is to uphold the integrity of the tax system. The bill proposes a series of measures to improve the integrity and fairness of local government taxation. It will prevent local authorities effectively transferring the benefit of their tax exempt status to their sometimes trading taxable council-controlled organisation. If you don't remove that you create a competitive disadvantage for companies that are competing with those council-controlled organisations.The bill proposes allowing the use of tax pooling to satisfy a tax obligation where there is no existing tax assessment or the tax obligation has not been quantified. The proposal includes safeguards to avoid incentivising the non-filing of tax returns by taxpayers.The bill also introduces penalties on the sale and acquisition of sales suppression software. I didn't until recently even know that this existed. But sales suppression software changes the point of sale data collected by a business to understate or hide sales revenue. This enables businesses to avoid paying the correct amount of GST and income tax. Such software poses a serious risk to the integrity of the tax base and is unfair to other taxpayers.Moving on to other matters the bill proposes 11 New Zealand charities with overseas charitable purposes be granted overseas donee status and be listed in schedule 32 of the Income Tax Act 2007 with effect from 1 April 2021. It also extends the donee status of an existing trust until 31 March 2025. The bill also removes eight charities whose activities have ceased.The annual task of setting the income tax rates for each year is perhaps the most fundamental aspect of managing the tax system. It's necessary to provide clarity and certainty to taxpayers employers and payroll developers. We're not proposing any change to the annual rates of tax for the 2021-22 tax year as currently specified in the Income Tax Act 2007.In conclusion the bill we are considering today makes crucial improvements which will ensure that the machinery of the tax system continues to run efficiently. It is a bill about the prudent management of the tax system. I nominate the Finance and Expenditure Committee to consider the bill and I look forward to the House considering the bill and examining it and I commend it to the House.ASSISTANT SPEAKER (Hon Jacqui Dean): The question is that the motion be agreed to."