McClay Todd: Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill — First ReadingText is incorporated into the Bound VolumeMcClay Todd: Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill — First Reading[Sitting date: 11 June 2013. Volume:691;Page:10985. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue):I moveThat the Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider this bill. The Government is committed to fostering growth and building on the gains we have already made towards a more secure economic future for New Zealand. The tax system plays a part by ensuring that the Government can continue to perform its function by efficiently and fairly raising revenue. The Government aims to raise the revenue it requires not through raising tax rates but by ensuring that the existing tax bases are fairly applied. An important aspect of fairness in the tax system is that taxpayers must be able to understand and comply with rules and it is necessary for tax rules to be cohesive fair and applied consistently.This bill aims to continue with the work of further rationalising the tax system. For New Zealand residents with interests in foreign superannuation schemes the current tax treatment of withdrawals from such tax schemes can be complex. It is not always clear that the rules result in a fair outcome particularly for lump-sum amounts. For example a person with an interest in a foreign superannuation scheme might be taxed on accrual under the foreign investment fund rules. In other cases a person may be taxed when they withdraw or transfer funds from their foreign superannuation scheme. As a result some people pay more tax than others depending on how the foreign scheme is structured. This bill provides a much simpler and more even-handed approach to taxing foreign superannuation interests held by New Zealand residents.From 1 April 2014 a new cohesive set of rules will replace the current rules. Under the proposed changes the foreign investment fund rules will no longer apply for foreign superannuation schemes. Lump sums from foreign superannuation schemes will be taxed only when they are received or ultimately transferred to a New Zealand or an Australian superannuation scheme. The proposed rules for lump sums aim to tax only the investment gains that the person would have made during the time they were resident in New Zealand. Periodic pensions will continue to be taxed in full on receipt as most periodic pensions currently are. The rules will make it easier for people to transfer their superannuation. In general no tax will need to be paid if the person is simply transferring from one foreign superannuation scheme to another foreign superannuation scheme. The KiwiSaver rules will also be amended to make it easier for taxpayers who transfer their funds to New Zealand to pay their tax on the transfer. The bill contains a limited amnesty for migrants who have transferred their superannuation funds to New Zealand in past years but not complied with existing tax rules. They will be able to pay a tax on only 15 percent of the value of the transfer which equates to an effective tax rate of 5 percent. This strikes a balance between helping these taxpayers meet their tax obligations while being fair to those taxpayers who did comply with the rules.The bill also addresses another aspect of the tax system in need of rationalisation. The current tax treatment of the mining of specified minerals such as gold and silver and ironsands activities is concessionary. Although the Government acknowledges that mining is an important sector and part of our economy we must ensure that tax ratesapplied here do not advantage one sector over another. It has been a particular focus of the Government to remove distortions in the tax system. The current tax rules allow mineral miners a tax deduction for prospecting exploration and development expenditure including expenditure on capital items such as plant machinery and production facilities. The rules also allow for amounts set aside for mining exploration or mining development to be deducted in advance. Deductions for expenses of this nature are not in line with business expenses for other industries. The proposals in the bill therefore will make the tax treatment related to the mining of specified minerals broadly consistent with the rules that apply to other business activities while still recognising some of the more distinctive aspects of the mining industry. The proposed changes to mineral mining will apply from the beginning of the 2014-15 income year.This bill also proposes amendments to the financial reporting that dovetail with the proposals in the Financial Reporting Bill. The Financial Reporting Bill proposes that most small and medium sized companies will not need to prepare general purpose financial statements. However as New Zealand’s biggest user of financial statements the Inland Revenue Department does have some financial reporting requirements. This bill therefore proposes a framework for minimum reporting requirements for companies and potentially other taxpayers that meets the department’s requirements but minimises the compliance costs.Other measures in the bill include changes to the tax rules relating to bad debt deductions for holders of debt to make them fairer changes to the general and life insurance business tax rules to ensure that they work as intended and further improving the integrity of the Working for Families tax credit provisions.In addition donee status is proposed for three new charitable organisations—namely the Kailakuri Health Care Project’s NZ Link Group Marama Global Education and Marama Global Health. Donors to these charities will be eligible for tax benefits on their donations.I commend the Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill to the House.