Dunne Peter: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — First Reading 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — First Reading 
[Sitting date: 28 July 2009. Volume:656;Page:5159. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Consequential Rate Alignment and Remedial Matters) Bill be now read a first time. 
 Later on 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 16 November 2009 and that the committee have the authority to meet at any time when the House is sitting except during oral questions and during any evening on 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). 
The purpose of this motion is to bring forward the report back of the bill to ensure that the bill can be enacted before Christmas. The reason for that is to ensure that financial institutions that are affected by measures contained in the legislation will have the time they need in order to implement the changes by 1 April next year. 
At the outset I tell the House that this bill will not be as complex in its size as the similar bill that I introduced last July 2008. In the future we will have two tax bills a year if required. One will be essentially a remedial matters bill and the other will be a major policy bill. The Taxation (Consequential Rate Alignment and Remedial Matters) Bill comes into the former category. 
Although most of the changes and updates it proposes are in the nature of good housekeeping together those changes and updates are designed to give clarity and certainty for taxpayers particularly when dealing with the recent changes to the personal tax rates. With this in mind the main feature of the bill is the alignment of the resident withholding tax rates on interest and portfolio investment entity tax rates with the personal tax rates as they currently apply and the 30 percent company tax rates introduced in 2008. 
The alignment of resident withholding tax and portfolio investment entity tax rates with the new personal and company tax rates was deliberately delayed to allow time to consult with the financial institutions that have to implement changes to their systems as a consequence. The resulting application dates that are contained in the bill reflect the outcome of the consultation process and are designed to give banks and other financial institutions enough time to update their systems. 
The new resident withholding tax rates on interest paid to individuals as introduced in the bill are 12.5 percent 21 percent 33 percent and 38 percent depending on a person’s income. The bill also introduces a new default rate of 38 percent for people who do not choose a rate with their bank. This new default rate will apply to accounts that are opened on or after 1 April 2010. For those who already have a bank account at 1 April 2010 and who are on the current default rate of 19.5 percent the default rate will move to 21 percent from 1 April 2010 in line with the new personal tax rates. Those people will then be given 1 year in which to contact their bank to confirm that 21 percent is their correct rate or if it is not correct to choose another resident withholding rate. If they fail to confirm either the 21 percent rate or to choose another rate their resident withholding rate will automatically go up to the 38 percent default rate from 1 April 2011. 
The idea behind setting the default rate at the highest personal tax rate is to motivate people to contact their bank or financial institution and to choose a resident withholding tax rate for their interest income that aligns with their correct personal tax rate. Using the highest rate as the default rate is the same approach we have used for investors’ portfolio investment entity tax rates since 2007. It has worked well for investors and for managed funds and I am confident it will work equally well in this instance. 
In a tandem measure the bill also introduces a new 30 percent resident withholding tax rate on interest for companies that invest in financial institutions again to reflect the 30 percent rate for companies introduced in April 2008. This new rate will be optional for financial institutions for 1 year from 1 April 2010 and after that time the 30 percent rate will become compulsory. 
Similarly the bill brings the portfolio investment entity tax rates into line with the new personal tax rates so that investors in portfolio investment entities are not disadvantaged compared with those who invest directly. Those rates will also apply from April 2010. Again this is designed to give portfolio investment entities sufficient time to update their systems. 
To complete this suite of changes a new 12.5 percent secondary tax code and a new 12.5 percent withholding tax rate for extra pays are being introduced to be consistent with the new personal tax rates structure. These changes are the cornerstones of the bill. Together they will give greater certainty both for earners and for payers of interest income and will ensure that the correct amount of tax is paid on that income. 
As I mentioned earlier the bill also introduces several measures of a housekeeping or technical nature. The first of those measures is designed to support the Inland Revenue Department’s drive towards greater administrative efficiencies by moving much of its current paper-based communications with taxpayers to electronic means. Under the current tax rules taxpayers must consent for the department to provide a communication electronically. The bill introduces changes that will allow notices to be sent electronically to taxpayers if the department has reasonable grounds to believe that the communication will be received by the taxpayer. That will clearly allow better communication between the department and the taxpayers involved. 
Another measure will give the department the discretion to allow taxpayers who have made a minor error in their return that involves $500 or less in tax to correct that error in a subsequent return. This taxpayer-friendly change will result in lower compliance costs for taxpayers and will certainly reduce their exposure to use-of-money interest. 
Reducing compliance and administrative costs for taxpayers and the Inland Revenue Department is also behind a new measure to give the department more flexibility when it comes to issuing personal tax summaries. Currently the department is required to automatically issue end-of-year personal tax summaries to several categories of taxpayer including those with more than $200 of employment income withheld using certain tax codes. Changes proposed in the bill will remove this requirement so that the department will not have to issue as many personal tax summaries. 
Again in the interests of smoothing the administrative functions between the department and taxpayers the bill addresses a longstanding difficulty for tax agents in the timing of distributing income to the beneficiaries of trusts. Under current law trustees have a fixed 6-month period after the balance date to allocate income to beneficiaries. For tax agents this timing requirement can create undue pressure at a time when their client’s business tax requirements must also be met. To help alleviate this pressure the bill introduces changes that will allow tax agents more time to allocate beneficiary income. 
The remaining measures in the bill cover a range of technical changes to clarify the rules for taxpayers and to correct minor errors in the Income Tax Act 2007 as recommended by the Rewrite Advisory Panel. Among these measures is a change to clarify the tax treatment of expenses incurred by participants in the climate change - related Permanent Forest Sink Initiative so that they receive the same tax treatment as other foresters. A further technical change clarifies the GST treatment of the new waste disposal levy that was introduced on 1 July this year. 
Those and other changes in the bill are described in detail in the separate commentary on the bill which I understand has been distributed to all members. On that basis I commend the Taxation (Consequential Rate Alignment and Remedial Matters) Bill to the House.