Huo Raymond: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
Huo Raymond: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
[Volume:674;Page:20104] 
RAYMOND HUO (Labour) 
: 
 The purpose of the Taxation (Tax Administration and Remedial Matters) Bill is to abolish gift duty and among other things amend the Tax Administration Act 1994 in order to improve the ability of the Inland Revenue Department to disclose information in the course of good tax administration practice. 
There are two main reasons why Labour opposes this bill. Politics is all about priorities but under National hard-working Kiwi families have been struggling to keep up with the increasing cost of living and their power bills and food prices are increasing as the cold of winter bites. 
Mr DEPUTY SPEAKER 
: This is a second reading debate—like last night’s debate was a third reading debate. We must confine ourselves to what is in the bill. Other things are irrelevant and should not be discussed. 
RAYMOND HUO 
: Thank you Mr Deputy Speaker. The reason I decided to say this was that I wanted to share with members and demonstrate that the National-ACT Government has its priorities wrong. 
The second reason we oppose this bill is more of a technical nature. It is wrong to use a bill that is supposedly for administrative and remedial matters to push through the abolition of a tax. Such legislation should be reserved for technical changes and would usually be non-controversial. Therefore apart from the provisions relating to gift duty Labour supports the content of this bill and in the normal course of events would vote for it. However due to those concerns we have to vote against the entire bill. 
The Law Society and a number of other submitters raised a further concern that the abolition of gift duty would create problems for the enforcement of claims under the Property (Relationships) Act 1976 and the Family Protection Act 1955. Poorly thought-out legislation will simply require further amendments in the future. It is a waste of this Parliament’s time and will create huge legal uncertainties. 
Further the abolition of gift duty may create just another avenue for tax evasion. The submission from the Institute of Chartered Accountants of New Zealand noted a number of tax avoidance opportunities that may arise in the absence of gift duty. Even the Inland Revenue Department officials cautioned in the regulatory impact statement that tax avoidance could increase in the absence of the duty. It is no wonder that New Zealand Trustee Services called for any changes to gift duty to be delayed until the Law Commission’s review of trust law is completed. 
The Law Commission has embarked on an in-depth review of trust law in New Zealand. The first issues paper was released in November 2010 and this year the Law Commission will release its fourth and final part on trust law. As Labour spokesperson for the Law Commission I find it a bit odd that the Government has ignored the fact that the review of our trust law is under way and has still decided to go ahead and abolish the gift duty that has existed for 125 years. 
I note that the reason for the decision is that the revenue from gift duty is about $1 million a year but it costs the Inland Revenue Department about $500000 to administer. On the other hand the compliance costs on the private sector amount to $70 million each year. The fact that people currently spend $70 million every year on gift duty compliance to achieve something is no reason per se for removing it. I acknowledge that the original purpose was to protect the estate duty base by discouraging the gifting of assets prior to death and to raise revenue and it has applied in some form since 1885. But again I am not convinced that gift duty should be removed on the basis that the original rationale is no longer relevant. More important gift duty actually exists to prevent tax avoidance and so-called structuring. The scrapping of gift duty opens the way to tax avoidance and structuring. 
Estate duties were abolished in 1992 but gift duties remained in place to prevent people from hiding assets in order to defeat creditors avoid tax liabilities and obtain access to Government benefits such as rest home subsidies. This was one of the major concerns in reviewing whether gift duties should be abolished at all. But the Minister Peter Dunne in his speech earlier assured us that adequate measures are in place to prevent such manipulations and protect creditors. The Government will monitor the effect on the economy and the tax system to ensure there are no unintended effects or unexpected oversights that arise. I invite the Minister to advise us in more detail of the “adequate measures” at some later stage of the development of this bill. Naturally once gift duty is abolished new assets can be transferred to a trust without the need for a gifting programme and existing debts can be forgiven in full. 
According to George Tanner QC who is in charge of the Law Commission’s inquiry into trust law which I wish was granted the attention of this House New Zealanders must have a solid reason why they are so passionate about establishing trusts. In New Zealand there is one trust for every 18 people in Australia it is one for every 34 people in Canada it is one for every 148 people and in the United Kingdom it is one for every 294 people. 
The abolition of gift duty will have far-reaching consequences. The bill as introduced by Minister Dunne is very simple but the change will have ramifications in other areas of law as I covered earlier—for instance relationship property creditor protection and insolvency. The Law Commission has proposed that the existing Trustee Act which was passed in 1956 be reviewed and modernised. One of the outcomes is likely to be stricter compliance requirements for trusts. Here again are “stricter compliance requirements”. Will the stricter compliance requirements for trusts be warranted for the Government to reject those recommendations? We will see. 
We also learnt according to the Minister who introduced this bill that Government agencies such as Work and Income and the Inland Revenue Department could potentially establish new rules and procedures for how gifts to family trusts are treated. This could mean a trust settlor may not be able to simply gift the assets in one transaction then expect wider benefits to accrue as a matter of course. Again I invite the Minister to advise us of those possible measures especially how gifting to family trusts is to be treated. As I said given that the Law Commission’s review of trusts is in progress will the Government implement the Law Commission’s recommendations especially those recommendations that are contrary to what the Government has already done? 
Some legal experts have already argued that if the Government abolishes gift duty then it must amend the law to allow the courts to order a division of trust capital to achieve a fair and equitable settlement. My question to the Minister again is whether his Government will amend relevant law to achieve that purpose. I have outlined what George Tanner QC cited as why New Zealanders are so passionate about establishing trusts. This is all about trusts. Indeed the general election this November is about trusts. Thank you.