Cullen Michael: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — First Reading 
Cullen Michael: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — First Reading 
[Volume:626;Page:21213] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I move  
That the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill be now read a first time. 
 I shall be recommending later that the bill be referred to the Finance and Expenditure Committee for consideration. 
The main feature of this bill is a package of tax measures announced in the Budget and over recent weeks designed to promote economic growth. Many of these changes take the form of reducing tax barriers and impediments to economic growth. The bill introduces changes to the tax depreciation laws that are designed to ensure more productive use of capital. That is achieved by reducing biases in the depreciation rules that distort the structure of capital investment away from the best investment opportunities—and when taxes distort investment decisions the result is likely to be lower growth. The changes are motivated by concerns that our current depreciation rates are too fast for buildings and too slow for short-life plant and equipment which can result in excessive investment in tax-preferred assets and under-investment in others. For this reason the depreciation rates of buildings will decrease while the rates for short-life plant and equipment will increase becoming consistent with the rates for longer-lived plant and equipment. To reduce some of the compliance cost of businesses the low-value threshold for depreciable assets will rise from $200 to $500. 
A number of other changes in the bill also focus on reducing the cost of tax to business and generally making the tax side of business easier for small businesses. To reduce the number of tax payment dates that businesses must cope with the bill aligns the three payment dates of provisional tax with those of GST; both will now be due on the 28th of the month. Small businesses that want to pay provisional tax more frequently to help with their budgeting may choose to make six payments a year rather than three large payments as at present. A related change will allow businesses the option of basing their provisional tax payments on a percentage of their GST turnover. This will suit businesses that have seasonal income and that want their tax payments to be more closely aligned with their income flow. The bill also introduces a new subsidy designed to encourage small businesses to take advantage of the help that payroll agents can give them in dealing with PAYE child support and student loan deductions and staff wages. Payroll agents will be subsidised for up to five employees per employer for an amount to be decided by negotiation with payroll agents. 
Wide-ranging changes to the fringe benefit rules are designed to reduce compliance costs and remove anomalies that have developed since the rules came into operation in the 1980s including the inadvertent overtaxation of some benefits. As well improved anti-avoidance measures ensure that the original purpose of the rules—to treat non-cash remuneration on a par with cash remuneration—is not undermined. 
Several of the changes relate to motor vehicles the main source of fringe benefit tax. Employers will have the option of calculating the private benefit from an employer-provided private motor vehicle on the basis of its depreciated tax value instead of its cost—a change that a lot of businesses said they wanted. At the same time the valuation rate applying to the cost price of a motor vehicle will reduce from 24 percent to 20 percent which will significantly reduce the amount of fringe benefit tax paid on motor vehicle benefits. These changes will also apply to leased vehicles as part of achieving a better alignment of the fringe benefit treatment of leased vehicles with that of owned vehicles. 
To reduce compliance costs in relation to other fringe benefits several new options and exemptions from fringe benefit tax are being introduced and the minimum value thresholds applying to miscellaneous fringe benefits are being raised substantially. As a result many small hard-to-measure unintended benefits will no longer be covered by the rules. 
Several other amendments in the bill are aimed at increasing our access to worldwide labour skills and capital. To remove a tax barrier to international recruitment a new exemption on certain types of foreign income will be made available to migrants or to returning New Zealanders who have been non-resident for tax purposes for 10 years. To help resolve problems associated with the New Zealand tax treatment of accrued entitlements for foreign job-related superannuation schemes the bill introduces changes to extend the scope of the current exemption for interest in those schemes. The Government proposes to introduce in a subsequent bill subject to further work an exemption for certain Australian superannuation schemes. These changes should resolve any recruitment problems and disincentives arising from our current tax treatment of interest in those schemes. 
The tax rules on securities lending transactions are being updated to bring them into line with the rules on other commercial transactions and with those of countries such as Australia. The changes remove tax barriers to securities lending transactions and make us a more attractive place for international investment while also preventing the use of securities lending for tax avoidance. 
The bill allows companies that bring in new equity investors to have better access to tax deductions for research and development expenditure. These changes cater for the growth cycle of technology companies in particular and remove a barrier to investment in research and development. Similarly the bill exempts non-resident investors from tax on the sale of shares in companies that they have invested in alongside the New Zealand Venture Investment Fund. The change complements earlier reforms aimed at removing tax barriers to venture capital investment in New Zealand. 
The bill introduces a number of other business tax changes. For example it clarifies the tax treatment of income from investments in what are known as foreign hybrids. The change will allow members of a controlled foreign company to access tax credits for foreign tax paid on its income. Foreign hybrids will also be eligible for the so-called “grey list” exemption of course—for as long as that lasts. The bill extends the concessionary continuity rules that apply to carrying forward losses and imputation credits to allow for the use of a concession when a smaller widely held listed company takes over or merges with a larger one. I understand that there is some concern about the proposed application date so I will be interested in what submissions to the select committee have to say about that matter. 
The bill introduces new information reporting and record-keeping requirements for New Zealand - resident trustees of foreign trusts to ensure that we can satisfy information requests from tax jurisdictions elsewhere with which we have a double tax agreement. It clarifies the tax deductibility of re-grassing and fertilising costs associated with farm conversions to provide greater certainty and reduce compliance costs for farmers. 
The bill also introduces important measures to protect the tax base. New tax rules on corporate migration will ensure that companies that migrate from New Zealand pay tax on their worldwide income earned while resident in New Zealand. The changes will apply from the date of announcement—21 March this year. A further measure prevents avoidance of GST by the use of third parties to import goods such as luxury cars that were offshore at the time of supply. Once enacted that change will apply from 19 May the date of the bill’s introduction. 
Finally the bill sets the annual income tax rates that will apply for the 2005-06 tax year. 
Those are many of the changes introduced in this large omnibus taxation bill. They and other changes proposed in the bill are described in detail in the separate 135-page commentary on the bill that has been distributed to members of the House and I am sure that all have read it with great eagerness already. I commend the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill to the House. 
I will be fascinated to see how this debate unfolds because this bill is full of good news for the business sector. I suspect that members opposite will choose to talk about something that is scarcely in the bill at all—almost everything else they can think up to try to make up a reason to vote against it. I want to see the National Party and the ACT party voting against this bill so that I can write to every chamber of commerce in the country and tell them that National and ACT voted against the biggest single set of simplification measures of the taxation system for small business that has ever been introduced into this Parliament—particularly the fringe benefit tax and provisional tax changes. I will be able to write to them to say that the National and ACT parties voted against measures to align depreciation more accurately with the actual economic cost of things that businesses purchase. I want to be able to write to them to say that those parties opposed measures designed to make it easier to recruit high-value individuals to work in New Zealand for New Zealand businesses and New Zealand corporates. 
I want in fact the National Party and the ACT party to walk into what in effect is a trap laid for them in this legislation because they have this terrible problem when the word “tax” is mentioned. They start behaving like a collection of mad hydrophobic dogs carrying on and salivating madly and trying to bite anybody in sight from the centre-left. We will see this I am sure this afternoon unless of course we are lucky enough to have Deborah Coddington speaking on these matters rather than Mr Hide; as we all know she is now a happy person and fulfilled in life and lacks the desire to be as mean and nasty as her colleagues.