Dunne Peter: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
Dunne Peter: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
[Volume:657;Page:6650] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (International Taxation Life Insurance and Remedial Matters) Bill be now read a third time 
. The bill introduces a number of major business tax reforms the most far-reaching of which is the reform of the tax rules relating to the offshore income of our controlled foreign companies. Our present system taxes the offshore income of those companies as it is earned and it is being replaced by one that exempts that active income. The result will be better alignment of our international tax rules with those of comparable companies—Australia in particular. That will mean removing a taxed cost for our controlled foreign companies that similar companies in many other countries do not face. These changes are intended to encourage businesses with international operations to remain in New Zealand and to enable them to compete more effectively overseas. 
Modernisation of the tax rules relating to the life insurance business is another important reform that the bill introduces. The rules are being updated to ensure that the term insurance business is taxed on actual profits as other businesses are taxed and that the tax benefits of the portfolio investment entity rules are also available to people who save through life products. The bill also introduces the new payroll giving system for charitable donations which will operate through the PAYE system. It is an initiative from United Future and it means that employees who donate through their payroll will receive the tax benefit of their donations each pay day without having to present donation receipts. The initiative has been warmly welcomed throughout the charitable sector and was generally applauded during the Committee of the whole House stage. On a similar theme the bill also clarifies the tax treatment of volunteer reimbursements and honoraria to make it easier for volunteers and community organisations to comply with their tax obligations and to reduce their compliance costs.  
Other important reforms in the bill that attracted some attention during the Committee stage include changes that strengthen and rationalise the definition of “association persons” in the Income Tax Act as a revenue protection measure. These measures are generally used to counter tax practices that could undermine the intent of the law because of the closeness of the relationship of the parties involved. The bill also seeks to clarify the law to ensure that the employer payments for relocation overtime and meal allowances remain tax free. These changes are designed to remove longstanding uncertainty and to simplify the law which will save time and money for everyone involved and generally allow people to carry on doing what they have always been doing but now in accordance with the law.  
The bill also updates the petroleum mining tax rules in order to remove possible disincentives to further investment in oil and gas exploration and development in New Zealand. As a revenue protection measure it gives effect to changes to ensure that New Zealand receives its proper share of the benefits from our petroleum mining industry which is growing rapidly. The point was made during the Committee stage by more than one speaker that the somewhat perverse situation at the moment could allow the case where a company could in effect offset all of its expenditure offshore against the New Zealand tax base and for various reasons pay very little tax in New Zealand. The net effect of that situation could be that the New Zealand taxpayer is simply subsidising offshore exploration. That is a very peculiar situation and we are closing it off. We are actually the only country in the world as I understand it that currently has a provision of that type in place.  
This speech is a brief summary of the major reforms that are proposed in the bill. There are a number of other changes that I will not go into because I do not have time this afternoon. Various Supplementary Order Papers have been added to the bill since I introduced it in July 2008. One of the members during the latter stages of the Committee stage made reference to stapled stock; we introduced a Supplementary Order Paper in August of last year to ensure that stapled stock instruments are treated as equity for tax purposes. That measure is designed to prevent a loss to the revenue through the increased use of that mechanism. Earlier this year in August I introduced another Supplementary Order Paper which made a number of remedial changes as well as other taxpayer-friendly policy changes to the bill. In that latter category are specific measures that apply to a small number of taxpayers and that needed to be legislated for as soon as possible. One of those measures that I should refer to relates to finance company workouts. A slight wording change is required to ensure that the law also applies to compromises not done under the Companies Act. That adjustment will be made in later legislation and once enacted will apply from the 2008-09 income year.  
I conclude by saying that the bill had a number of interrelated aims: to help New Zealand - based companies compete more effectively overseas to update tax law to reflect today’s commercial environment to clarify legislation to ensure that it works as intended to protect our revenue base and to strengthen the country’s culture of charitable giving. It is a long and technically complex bill. It has required an enormous amount of effort on the part of many people who have taken part in its passage through Parliament: the Finance and Expenditure Committee members the drafters the policy officials the submitters and all of the members of the House. I acknowledge the contribution that all have made to bringing this very big bill to this stage this afternoon. It is a significant point to have reached and I record my thanks to everyone who has made it possible. On that point I commend the bill to the House.