Parker David: Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill — First Reading 
[Sitting date: 29 November 2012. Volume:686;Page:6982. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 As prior speakers on behalf of the Labour Party have already said the Labour Party will be supporting this bill the Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill to the select committee. 
I want to make a contribution in respect of two issues in particular. The first is livestock valuation issues. This is long overdue for remedy. At the moment we know that one of the most successful sectors in New Zealand is the dairy sector and yet the dairy sector pays very low rates of taxation. That is for a number of reasons. One is that we have a gaping hole in our tax system—it is not fixed by this legislation—which is that capital income is not taxed in New Zealand whereas income earned through other means is and that produces distortions as well as unfairness in the tax system. This bill does not fix that despite the fact that it drives unusual and economically inefficient and unproductive outcomes in our rural sector as well as in other sectors. 
A second reason why taxable profits are reduced in the farming sector is that we have got a very unusual situation in that farming companies can opt into different livestock valuation schemes. They can switch from having livestock on capital account to having it on income account and then change that decision again in the future. 
David Bennett 
: They can’t. 
Hon DAVID PARKER 
: They cannot Mr Bennett? 
David Bennett 
: No they can’t. 
Hon DAVID PARKER 
: They cannot? Well actually I thought that is what this bill was doing. 
David Bennett 
: Listen and learn. 
Hon DAVID PARKER 
: Well the advice that I have and I thought that was advice that was coming from the Minister of Revenue was that the livestock valuation methodologies can be changed— 
David Bennett 
: You can change them but the first part of your thing is wrong. 
Hon DAVID PARKER 
: Sorry the first part of my thing? Sorry I misinterpreted what you are saying. The Government members now agree that under the existing law you can change the livestock valuation methodology and as a consequence you can change the tax consequences. As I understand it and I might be wrong here but I was informed that under current law you can effectively treat increases in your livestock as being on capital account for which you are not liable for tax and then the taxpayer can change it and put livestock on income account even capital stock and they can claim a deduction for a decrease in the value of that stock. That is my understanding of the current legal position but Mr Bennett I think is suggesting that it is not. 
Dr David Clark 
: That’s what the changes in the Budget were all about addressing. 
Hon DAVID PARKER 
: I thought that is what the changes referred to in the Budget were about changing and that is what this legislation is meant to do. If my understanding of that is wrong— 
Dr David Clark 
: The legislation refines that. 
Hon DAVID PARKER 
: This legislation refines that and if I am wrong then I will learn about that at the select committee. That is a good thing because that should be fixed. 
In respect of mixed-use assets this again is a bit of a rort at the moment. This can be used for things like superyachts. A superyacht could be used mainly for private purposes but it could have a sign put on it that says it is available for rent. It might be used by someone who rents it for 1 or 2 days a year. It might be used by the owner who has it for mainly recreational purposes for 30 days a year. The rest of the time i.e. 11 months of the year it could lie idle. Under current tax law the rental income for those 2 days is fully taxed but 11/12ths of the expenditure 92 percent of all costs relating to the yacht are deductible resulting in a very significant loss for tax purposes. So in effect taxpayers at the moment under current laws are subsidising superyachts. 
Dr David Clark 
: It’s a rort. 
Hon DAVID PARKER 
: It is called a rort. That is just unfair and it needs to be closed down as a loophole. What this legislation does is address that problem by effectively apportioning what can be deducted as an expense so that there would not be significant losses that could be offset against other income. 
This will apply also to holiday homes. I am informed that many people do this even though it is a pretty disreputable thing to do. This is an example of where this Government beats up on beneficiaries—and of course beneficiaries who act fraudulently ought to be brought to account but so too ought wealthy people who effectively use tax devices so that they do not pay their fair share of income tax. Indeed some of the wealthiest people in New Zealand currently pay lower rates of tax than a single person on the minimum wage. 
We agree with both of those intentions. We are not sure whether the mechanism being used in respect of mixed-use assets is correct. I think there is a proper question to be asked as to whether the fringe benefit tax arrangements or the principles that lie behind fringe benefit tax would be a better method of remedying this than the approach that is being used. 
 There are other changes made by this bill including changes to the period for which you can claim a refund. At the moment that period is longer than the Inland Revenue Department would like it to be; it would like to limit that to a period of 4 years. At the moment refunds can be claimed for up to 8 years where there is a clear mistake or an oversight. We are not sure why this change is being made and I am not sure that it is fair. I do not know how it relates to the reciprocal right of the department to go back and claim underpaid tax—whether it can go back further than 4 years—but I thought there should be some reciprocity in respect of that requirement. 
There are changes to cross-border GST transactions. I have not got my head around those properly and that is one of the things that we will be looking at in the select committee. 
The general direction of this bill is a good one. The quarantining of some interest deductions that are being used on mixed-use assets is appropriate. I look forward to considering the detail of this bill at the select committee.