Dunne Peter: Taxation (GST and Remedial Matters) Bill — First Reading 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (GST and Remedial Matters) Bill — First Reading 
[Sitting date: 18 August 2010. Volume:665;Page:13277. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (GST and Remedial Matters) Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Finance and Expenditure Committee that the committee report finally to the House on or before 15 November 2010 and that the committee have authority to meet at any time while the House is sitting except during oral questions during any evening on a day in which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 187 and 190(1)(b) and (c). 
Since its introduction in 1985 New Zealand’s GST system has been internationally praised for its simplicity its efficiency and its transparency. Overall our system operates very well. The overwhelming majority of taxpayers find the GST process straightforward and GST itself is an efficient means of raising revenue for the Government’s various economic and social programmes. But over the passage of time and with the growing complexity of our business environment in this country some parts of the GST system have been identified as a cause for concern for taxpayers and the Government alike. The purpose of this bill is therefore to address those concerns by strengthening certain rules to maintain the integrity and the fairness of the GST system and by simplifying others where taxpayers have told us that they are no longer certain about how those rules should be applied. 
In order to protect the integrity of the taxation system and the revenue base the bill introduces new rules to prevent so-called phoenix fraud schemes. These schemes involve the Inland Revenue Department refunding GST to a registered purchaser when there is no corresponding GST payment made by the supplier of the transaction. This is because the company is deliberately wound up to avoid the paying of GST. This particular practice has been of special concern in the property sector when the amount of GST involved is often quite substantial. In order to prevent this practice new rules will require GST-registered vendors to charge the GST at a zero rate on most transactions involving land or in which land is a component if the purchaser is also GST registered. That is a straightforward solution to a growing problem that has allowed a minority of taxpayers to avoid paying the tax that they should pay. 
As members of the House will recall the closing-off of this loophole was signalled by the Government in Budget 2010 as part of the reforms to promote fairness and integrity across the taxation system. It also follows from a consultation process that was undertaken from the latter point of last year onwards on these very matters. 
The second part of this bill aims to bring greater clarity to certain parts of the GST rules to make it easier for taxpayers to understand their particular GST obligations. In turn that will help to reduce compliance costs for businesses. The purpose of these measures is to clarify those parts of the GST rules where taxpayers have been experiencing difficulty in accounting for GST or interpreting the legislation. For example the current change-in-use rules that apply when assets are used for both taxable and non-taxable purposes—a case being when assets are used partly for business and partly for private purposes; that mix—will be replaced with an approach that apportions the input tax deductions according to the actual use of those goods and services. The GST boundary between residential accommodation which is GST exempt and commercial accommodation which is not will also be clarified. Similarly the GST rules around transactions involving nominees where the purchaser has nominated another person to receive the goods and settle the transaction are being clarified as well. 
Finally to complete the GST reform package the bill deals with an unintended timing problem for non-profit bodies in accounting for GST when they supply a large asset such as a house for a person in need. This is an important change so that the GST rules do not act as an undue impediment to the decisions that non-profit bodies must make in the course of undertaking their work for others. 
The remaining amendments in the bill are wide ranging and largely remedial in nature. They include allowing portfolio investment entities a deduction for credit impairment provisions clarifying the tax treatment of superannuation funds under the National Provident Fund clarifying the way that emissions units allocated by the Government under the emissions trading scheme are to be recognised for income tax purposes and clarifying the fringe benefit on premises exemptions. This has been a particular problem that has arisen and the law needs to be clarified to ensure that the clear intent of the fringe benefit tax legislation is being recognised in the law as it stands. 
Overall the bill presents a sound package of measures that will help to protect the integrity of the GST system promote greater fairness across the taxation system generally and give greater comfort to those who enter certain business transactions that the decisions they make will be compliant with the law. I need to make the point that this bill is not about the increase to the GST rate that comes into effect on 1 October nor is it about whether certain suppliers—for example of food—should be exempt from paying GST or zero-rated for GST purposes. Those matters were decided by this House in the legislation that was passed back in May. This bill is about delivering upon the Government’s promise to strengthen the integrity of the taxation system and ensure that people cannot misuse the system to avoid paying their fair share of tax. Consequently it is with pleasure that I commend the bill to the House.