Nash Stuart: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In Committee[Sitting date: 10 May 2016. Volume:713;Page:10951. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): This is an interesting bill and it is one we support. It is the Taxation (Transformation: First Phase Simplification and Other Measures) Bill. It is one of those bills where you would think that with everything going on in the tax world at the moment there would be a much broader agenda that the Government would be concentrating on instead of little nuances. But this is important in terms of the integrity of the tax system and in terms of bringing it into the 21st century—of that there is no doubt—as a lot of our other tax law should be brought into the 21st century around overseas trusts and all that sort of carry-on. We all know about that. I am assuming that my colleague Grant Robertson is going to talk a little bit more about that at a certain point in time.As mentioned this bill—or part of it; Part 1 certainly—is about bringing the tax law into the 21st century. Let me give you just one brief example. What we talk about in this bill are things like—in the past the legislation has talked about “in writing”. In the past what a taxpayer has had to do if they required anything from the Inland Revenue Department (IRD) or the Commissioner of Inland Revenue was they had to put it in writing. It was not counted as valid I suppose—for want of a better term—unless it has been in writing and therefore if it is not then I suppose it is challengeable.Let me just give you just one brief example or maybe a couple of examples. Clause 23 relates to section EI 1 of the Income Tax Act 2007 and it is just an example of the sort of thing I am talking about. Section EI 1 (1) “Spreading backward of income from timber” says: “A person who wants to make an allocation under subsection (2) must apply in writing to the Commissioner no later than 1 year after the end of the income year in which they derive the income.”What this section of the Income Tax Act will change to is “A person who wants to make an allocation under subsection (2) must apply to the Commissioner no later …”. What we have done is we have taken out the term “in writing”.There are a whole number of pieces of legislation that are being amended—the Income Tax Act the Tax Administration Act and a whole lot of other Acts—that are covered by this bill. There is one interesting thing though that I would like to talk about which I think is in the context of where we are in this day and age and is an interesting example. It did not come up at the Finance and Expenditure Committee and I consider myself slightly remiss because I did not pick it up to be honest. But this is clause 47 in Part 1 of the bill we are talking about and this is talking about repealing sections LZ 9 to LZ 12 of the Income Tax Act. These sections are being repealed.Let me tell you what sections LZ 9 to LZ 12 relate to. They are about credits for savings in special homeownership accounts. This provision is being deleted so now there is no such thing as a tax credit for a homeownership account. What that actually did was it meant that if a taxpayer put money into a special homeownership account as set up by the bank then they got a credit of 4.5 percent. It was a very simple formula but what it actually did was it provided another vehicle for New Zealanders to save for their first home. We have heard many times in this House how hard it is for New Zealanders to get into that home. What section LZ 10 did was it gave a maximum amount for a special homeownership account for 1 year. It is quite insightful because what section LZ 10 actually says is: “For the purpose of calculating the amount of a credit under section LZ 9 the maximum amount of a single increase in savings for a special home ownership account for a tax year is”—wait for it—“$3000.”Section LZ 11 talks about the maximum amount that you can have to get this credit which is $10250. This is the2007 Income Tax Act so it is only 9 years ago and 9 years ago we thought—when I say “we” I am talking about Parliament—that having $10250 in a homeownership account was actually a lot of money. In fact we made that the maximum amount you could have in an account in order to get the tax credit. Now we look at homeownership and if you have got $10000 in an account you do not even get a meeting with the bank manager—in fact the bank manager will not even open your email. In fact I suspect that the reason why we are repealing this section of the legislation as opposed to amending the amount of money that you can have is (a) because homeownership accounts do not exist and (b) because if we did think they were a good idea we would amend that amount from $10250 to $100000 because $100000 is the sort of money you do need in a homeownership account to have any chance whatsoever certainly in Auckland of getting a foot in the door. So we have repealed this section.We have repealed section LZ12 “Meaning of increase in savings” but it is just one of those anomalies I suppose. It is interesting to look at from a historical perspective because only in 2007 we thought this was important for New Zealanders to be able to save for their home. Now we have decided there are other vehicles or we have probably decided—what is the point of having $10000 in an account? It is just not worth it.Back to what we are doing—the proactive side of this legislation. What we have actually said as mentioned is that we have taken out by and large—when I say “we” I am talking about the select committee and I suppose Parliament as a whole—the sort of archaic term where you have got to apply “in writing”. Let me give you quite a salient example of this. Just this evening I had dinner with a couple of tax experts and I said to them: “Your office is based in Lower Hutt isn’t it?”. They said: “No no we are in Featherston Street.” I said: “But your PO Box is in Lower Hutt.” They said: “Oh yes no it is. It is down there.” I said: “How do you collect your mail?”. They said: “Literally we collect it once every 3 months because no one writes us letters any more. We have had three letters in about 3 months.” One of the letters was a card from me another of them was a cheque—Peeni Henare: Bit old school.STUART NASH: —yes—from the IRD. I am not too sure how much it was. The third letter was a bill. This reflects the 21st century. No one does anything in writing anymore. What we have done is replace the words “in writing” with words like “ask” “request” “reply” or “notify”. These verbs have been defined to allow a freer interpretation of actions and how people work in the 21st century. What this has done is it has put emails on the same footing as paper letters delivered by post.There was some concern—well no there was not a concern. There was a query in the Finance and Expenditure Committee about how we would actually determine whether someone had received one of these emails but in a way if you think about it it is the same as if a letter was posted. How do you actually know whether a person has received that letter? It is actually I would argue—and I think we argued—easier to determine whether a taxpayer has received an email as opposed to whether a taxpayer has received a letter.This just improves the integrity in a way of the tax system. What it also does is it is part of the IRD’s Business Transformation process which we hope is going to make things a lot more efficient and make it easier for taxpayers to engage with the IRD but also make it easier for the IRD to engage with taxpayers because what we certainly require is for taxpayers to work with the IRD. If they can do that through electronic means it is by far the easiest way to do it. It would be interesting to know—and I do not know this; I doubt the Minister in the chair knows—how many transactions or how many interactions have been deemed null and void because what happened was done through an email conversation and then someone said: “Ahbut you are not allowed to do this via email. It is got to be done via writing via the Act.”I am assuming that what the IRD has done when it has communicated via email is it has taken the pragmatic approach and said: “Well technically—technically—by legislation you have got to deliver something to us in writing. You have got to notify the commissioner in writing but because it is an email and we have received it it is all good.”So as mentioned probably all we are doing with Part 1 of this bill is actually just legislating a practice that has gone on ever since email has been in common usage I suspect. But what this does do is it is a simplification process I suppose. We always like to make tax law simplified. I know that sounds a little bit of an oxymoron—tax law and simplification—Dr David Clark: The Government likes a bit of complexity.STUART NASH: —we do like a bit of complexity Dr Clark—but what this part is about is it aims to provide a greater use of digital channels for increased convenience and reduction in compliance costs. Would that not be great? There isa reduction in compliance costs as well. I suspect that one of the major reductions in compliance costs will not necessarily benefit the taxpayer; it will benefit the IRD.I think it was one of the largest customers of New Zealand Post until recently because of course everything had to go out in writing and it complied with the law so there was a lot of money spent on stamps. What has sending a letter gone up to these days? I think it costs $1 to send out a letter and they deliver only 3 days a week. So this is sort of a pragmatic perspective from that—there is no doubt about that.Because we are going to make this very simple these terms are going to be relevant are going to be part of law and are going to be part of common practice from the day this legislation receives Royal assent. We are not going to wait until the end of the fiscal year just so the Government can get every last little bit out of it. As mentioned it is part of the pragmatic process.