Nash Stuart: Taxation (KiwiSaver HomeStart and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Taxation (KiwiSaver HomeStart and Remedial Matters) Bill — In Committee[Sitting date: 25 March 2015. Volume:704;Page:2614. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier):This has been brought up before but not in the way that I think is important. We have talked about veterans pensions and what has happened to them and what is going to happen but what I would like to do is actually highlight the pieces of legislation that enforce this. I think it is a little bit disingenuous to be honest but if I may say just one thing it did make me smile Jami-Lee Ross’ conversation about the Government’s policy. He did not even know the piece of legislation that was giving force to that policy. It is new section 239 to be inserted in the KiwiSaver Act Mr Ross.What we have got here in clause 11 of the Taxation (KiwiSaver HomeStart and Remedial Matters) Bill is an amendment to section RD 5 of the Income Tax Act. This is the definition of salary and wages. What clause 11 does in this bill is it amends section RD 5 in the Income Tax Act. What it actually does is it inserts—and I am going to read the words that it inserts—the definition of wages or salaries: “a retirement lump sum paid under Part 5 subpart 7 of the Veterans’ Support Act”. That was not in here. All it said about veterans was “a veteran’s pension”. It did not mention anything about a retirement lump sum. So before this piece of legislation came through—remember that the legislation governing this was passed only last year. If you go out in the hall to find the legislation to do some cross-referencing it is not even there. I suspect that what happened is that the RSA did a whole lot of work around this with its members and said: “If you have received a retirement lump sum then you are not subject to tax.” What this bill is doing less than 12 months after that piece of legislation was passed is saying to our veterans: “Sorry you’re wrong. You are going to have to pay tax on it.”I would like to go to clause 10. This talks about incapacity. I suppose this is where what happened is that the Government likes to draw the analogy of a veteran’s retirement lump sum compared with someone on ACC who has had an accident which I think is quite a long bow to draw in my view but this is what it has tried to do. Again in the Income Tax Act in section MA 7(3) it talks about incapacity. It is not a long section—it is three and a bit lines—but the Government has added a whole lot more into it: “The incapacity referred to in subsection (2)(b) and (d) is an incapacity due to personal injury by accident for which—(a) an accident compensation earnings-related payment has been is being or will be paid: (b) a payment that has been is being or will be paid under the Veterans’ Support Act 2014”.I am not suggesting that for our brave men and women who are heading across to represent us in the Middle East this is going to change their decision about whether they will go or not but what this is actually saying is that if they are injured in the course of their employment—i.e. in the army—then in the past they would have received a lump sum and it would have been exempt from tax and now it is taxed. These are often subject to inquiries. I do not know how much a soldier would get if he or she is injured but whatever it is it is now minus 30 percent. I am assuming that our soldiers are on the top tax rate. So clause 10 has inserted this provision into section MA 7(3) as well.If we go to clause 9 now it is about pensions. It talks about section CW 28 “Pensions” of the Income Tax Act. The heading for section CW 28 in the Income Tax Act is “Income from living allowances foreign superannuation compensation and government grants” and it talks about exempt income in the Act. It lists a whole lot of things that are exempt income and income is where you pay tax. What it did say is: “The following are exempt income: (a) a pension or allowance under the War Pensions Act 1954 … other than … a veteran’s pension”. So there was always a recognition that if you received a veterans pension then it was not exempt from tax. It is like your superannuation payment; you pay tax on that. You can argue about the rights and wrongs of that till we are blue in the face but that is not part of this bill. What the Government has done is that clause 9 has added into the section that it is excluding a veterans’ pension which was always there and “a retirement lump sum paid under Part 5 subpart 7 of that Act”. [Bell rung] Mr Chair—The CHAIRPERSON (Hon Trevor Mallard): Stuart Nash.STUART NASH: Good choice. So again what it is actually doing here is closing down any loophole where a war veteran who has been injured or is receiving a lump sum or for whatever reason—and I am not too sure what the reasons are because obviously the statute book has not even been printed yet—if a veteran received a lump sum then they now must pay tax on that.And then we go to clause 8. This references section CF 1 of the Income Tax Act and this is about benefits pensions compensation and Government grants. Again it talks about what defines income. We all have an idea of what defines income but remember this is not wages and salaries; this is pensions compensation and grants. It is things like listed in the Income Tax Act an accident compensation payment an education grant an income-tested benefit a living alone payment a New Zealand superannuation payment a parental leave payment under Part 7A of the Parental Leave and Employment Protection Act 1987 and the veterans pension. Those are all the things that are counted as income under benefits pensions compensation Government grants and income tax. However what is now included under income under this bill is a retirement lump sum—nothing to do with injury or incapacity—“paid under Part 5 subpart 7 of the Veterans’ Support Act 2014”. So in effect what this bill does is if a veteran is to receive a lump sum for whatever reason whether they are retiring whether they are injured or whether as a result of an accident or anything like that they must now pay tax on it.Again we can argue about the merits of this but the thing that gets to me a little bit the thing that rankles with me actually is that the Veterans’ Support Act 2014 which is quite critical was passed less than a year ago. I would have thought that this is quite an important part of an Act whether a veteran is to pay tax. I would not mind Mr Bayly talking about this because he is a colonel in our Defence Force. I would not mind knowing what his views are because I have no doubt that some of the soldiers under that member’s command are going to come and say to him: “Goodness me! What is going on?”.But the interesting thing is that this provision is retrospective. This is retrospective. This goes back to December 2014. So there may well be soldiers veterans out there who have been given money—well not given money; they have earned it—they have been injured by accident or they have retired and they have banked that. They have paid off their Auckland mortgage they have given their grandkids money or whatever and the Government is now going to go back to them and say: “Sorry chaps we are now going to take 33 percent of that off you.” I do not think it is fair.Sitting suspended from 6 p.m. to 7.30 p.m.STUART NASH: I am not going to take a long call on this because I have already spoken quite widely on it. But one thing I would like to know one thing that concerns me greatly—excuse me for being a little bit out of breath. I was just at the Speaker’s forum most interesting actually and I had to sprint in here when I heard the bells. But anyway—Hon Ruth Dyson: What was the Speaker’s forum on?STUART NASH: About pandemics actually. We have talked a lot Mr Chair and you would have been part of this conversation about the nature of the changes to veterans pensions and lump sums. One thing that we have not talked about and it was a point I was actually making before the bell is that actually this change is retrospective. It goes back to December 2014. We do not know whether there is actually a case like this but we absolutely need to know whether in fact there are war veterans who have been given a lump sum but due to the changes in clauses 8 9 10 and 11—clause 11 which amends section RD 5 of the Income Tax Act is to do with the change in the definition of salaries and wages and what it includes is a lump sum given to a war veteran. Clause 10 is to do with a lump sum given out due to incapacity—i.e. an accident to a veteran. Clause 9 is to do with the definition of a pension or a grant. And clause 8 is to do with the definition of again a benefit a pension compensation and a Government grant as opposed to income.Basically what this has done is it has amended the Income Tax Act which means that a lump sum given to a war veteran is now due for taxation whereas in the past in the Act that went through in 2014 which was only last year obviously that was not subject to taxation. One thing that we do not know and I think we really do need to know is how many veterans are going to be affected by this. The reason I say that is this is retrospective legislation because the clauses that are subject to change actually come into force according to clause 2 of this bill on 7 December 2014. I am making an assumption here and I could be wrong that the Veterans’ Support Act actually gained Royal assent on that date. So this is bringing it into line with that. If there are veterans out there who have received a lump sum and have used that money to pay off a mortgage give money to grandkids or have spent that money is the Government really going to go after these guys and get a third of that money back in tax? I find that very difficult to believe.The other thing which is slightly more insidious is what if a war veteran did receive such a lump sum and they can as the member Mr Bayly knows be quite large especially if you have received a lump sum from a war pension or something has gone wrong. But what if a war veteran has received a lump sum and heaven forbid he or she has died between 7 December and when this bill gains Royal assent—let us say it is a month away I’m not too sure when it is—is the Government really going to go after his widow for this? I just think that this is a little unfair.There are a lot of legislative tests around why you introduce retrospective legislation. We can argue about the fairness of whether a lump sum provided to a veteran should be taxed or not. That is an argument we have sort of been having here but the real-world argument is: if a veteran has been given a lump sum and they will be taxed on it due to this is that fair? I just do not think that is fair because we have set an expectation in the Veterans’ Support Act that it would not be taxed.I have no doubt that veterans advocates around the country have gone to RSAs have addressed veterans groups and actually probably—I was not here obviously—consulted widely on the veterans’ piece of legislation and also I have no doubt submitted to the select committee. Again I am unsure what select committee this piece of legislation went to. There was a whole lot of consultation—it is the Veterans’ Support Act 2014 I should get that right. But to miss this I cannot help but feel that there must have been a reason why the Government decided not to include these lump sums in the tax regime.The reason I say that is it is so blindingly obvious because on this side we argue that capital gains should be taxed for example. So the argument about whether income should be taxed is a philosophical argument that both sides of the House have from time to time. But in this case in a bill that was passed last year it was decided that a lump sum that was given to a veteran for whatever purpose be that injury be that accident be that misadventure or be that retirement was not going to be subject to income tax. It was not classed as a benefit. It was not classed as income. But now it is being classed as income and it is being done retrospectively. I just do not think that passes the fairness test for me. I would hate to think what will happen if we go after a veteran especially a veteran’s widow or widower and seek money back from these people once they have spent it or they have died or if we go into their bank account.Soldiers do not do this for the money. They do it for a whole lot of reasons: for adventure they love the country or the public service good. These often are not wealthy people. I would like Mr Bayly to stand up and address this. I am not playing politics around this because he is a colonel or a lieutenant colonel in the reservists so he has a strong association with the military forces and I would like to know how he thinks this will play out. Thank you.