Dunne Peter: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
Dunne Peter: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
[Volume:629;Page:1888] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill be now read a second time 
. This bill introduces a package of tax measures that is designed to promote economic growth—in many cases by reducing tax-related impediments to that growth. Other changes in the bill aim to ensure that investment is as productive as possible in order to increase New Zealand’s access to worldwide labour skills and capital or to reduce business compliance costs. 
The Finance and Expenditure Committee has considered the bill and recommends a number of amendments to the proposed legislation to ensure that it operates as intended and as well as possible. One of the most important features of the bill is a series of changes to the tax depreciation rules. Those changes are designed to better reflect our assets decline and value and to ensure more productive use of capital. The bill lowers the depreciation rate for buildings while it raises the rate for short-life plant and equipment. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I am sorry to interrupt the member but there is just far too much noise. I ask members to please leave quietly and not talk to others on the way out. 
Hon PETER DUNNE 
: To reduce some of the compliance costs associated with depreciation the bill raises the low-value threshold for depreciable assets. To reduce compliance costs further the committee has recommended that taxpayers be given the option to apply for the new depreciation method for plant and equipment that is acquired from their 2006-07 income year in order to prevent taxpayers from having to adjust depreciation rates that have already been entered into their asset register. 
The committee has recommended that relief from the new building depreciation rates be allowed for transfers of buildings between companies where there is a 100 percent common ownership and that the same rules apply to transfers of relationship property—buildings—between husbands and wives de facto partners and same-sex partners. This will result in a more even-handed application of the law and will reduce a possible tax consequence that may affect decisions about the reorganisation of assets within a group of companies. The committee considered the compliance cost implications for businesses that for depreciation purposes must attract large numbers of assets that have very low values. Instead of an amendment to the proposed legislation the committee would like to see other options to reduce compliance costs in this area explored between small business and officials. I share the committee’s concern about the need to ensure that compliance costs are kept to a minimum. The challenge will be to come up with options that address taxpayers’ concerns without costing a fortune. 
The bill also introduces measures to make tax matters easier for small businesses and to lower some of their compliance costs. It aligns the payment dates of GST and provisional tax in order to reduce the number of payment dates that businesses have to cope with. It will now also be possible for small businesses to make more frequent payments of provisional tax if they want to to help with their budgeting. Businesses may also choose to base their provisional tax payments on a percentage of their GST turnover which will suit those businesses that have seasonal income and want a closer alignment of tax payments and income flow. 
The third key element of the small-business package is the introduction of a subsidy to encourage small businesses to avail themselves of the help that payroll agents can give them in dealing with PAYE child support and student loan deductions from staff wages. The application date for two of those small-business changes—the alignment of payment dates and the payroll agent subsidy—was to have been 1 April this year. The alternative method of calculating provisional tax would have been available from the 2007-08 income year. However the delay in the passage of the bill which was originally expected to have taken place last year has meant that a 1 April 2006 application date is now unrealistic. The committee has therefore recommended later application dates for those measures in order to allow time for information on the proposals to be distributed to businesses and for businesses to prepare for the changes. 
The committee has recommended deferring the application dates of the proposed GST due date from 1 April 2006 to 1 April 2007 deferring the payment dates alignment and use of the provisional tax ratio method from the 2007-08 income year to the 2008-09 income year and deferring the proposed payroll subsidy from 1 April 2006 to 1 October 2006. The committee has also deferred the application date for the Accident Compensation Corporation (ACC) attendant care proposal from 1 April this year to 1 April next year in order to allow sufficient time for the regulations to be drafted following the enactment of this legislation and for the Inland Revenue Department and ACC to make the necessary systems changes. 
This bill also proposes changes to the fringe benefit tax (FBT) rules which are designed to reduce compliance costs and remove anomalies in the legislation that have developed over time. Although several submissions favoured retaining the current treatment of nine-to-five and flip-flop leases of motor vehicles the committee has recommended that the proposed changes proceed. That recommendation has been made on the basis that the proposed changes are necessary to achieve the intention of the current law which is that shareholder-employees should come within the ambit of the FBT rules rather than the rules that apply to sole traders and partners. The committee has however recommended that a full deduction of both business and private motoring costs be allowed in relation to the vehicles covered by the “nine-to-five” and “flip-flop” leases—the same as already occurs in other situations when FBT is applied. The committee has recommended a number of other changes to the proposed FBT legislation which are intended to further reduce compliance costs including several technical and drafting changes to improve the clarity of the legislation’s intent and to better align it with the intended policy objective. It has been recommended that this proposed application date remain at 1 April this year. 
To remove a tax barrier to international recruitment to this country the bill introduces a tax exemption for certain types of foreign income to be made available to migrants or returning New Zealanders who have been non-resident for tax purposes for 10 years. The committee has recommended that instead of having a two-tiered exemption distinguishing between employees and others there be one class of exemption for all and that it apply for the first 48 months following someone’s arrival. The concern behind that recommendation was that a two-tiered exemption might signal that New Zealanders are interested in attracting only employees not the self-employed which is wrong. The committee has also recommended that the exemption be extended to cover dividends interest and bonus payments from employment that was carried out overseas before coming to New Zealand. Australia intends under a similar proposal to exempt dividends and interest and the committee sees merit in aligning our proposed exemption with Australia’s. 
This bill updates the tax rules on share-lending transactions in order to bring them into line with the rules on other commercial transactions and with those of countries such as Australia. These changes are intended to remove tax barriers to securities lending transactions and to make New Zealand more attractive to international investment while preventing the use of securities lending for tax avoidance purposes. The key change recommended by the committee is the adoption of a single application date for the share-lending legislation. Otherwise having different application dates that depend on a person’s balance date would mean that certain taxpayers would be given a commercial advantage. The committee has recommended a new application date of 1 July this year in order to give the industry time to comply with the new rules. It is also recommended that the proposed non-resident withholding tax share-lending rule be removed until the Government’s current review of non-resident withholding tax is completed. 
 This bill introduces new tax rules on corporate migration to ensure that companies that migrate from New Zealand pay tax on the worldwide income they earned while they were resident in New Zealand. The committee has recommended the inclusion of a grandparenting provision for companies that had done everything within their control to migrate by 21 March 2005—the date of application—but had not yet become non-resident by then. As it would be unreasonable to apply the new rules in such cases the companies in question would not be subject to them. 
These are the main changes that the committee has recommended be made to this legislation. The bill contains a number of other important changes to which the committee has recommended that there be no amendment. At the Committee of the whole House stage I shall release a Supplementary Order Paper relating to the operation of the shortfall penalty for taking an unacceptable tax position—a measure that I announced earlier this month. In addition my colleague the Minister for Racing will be releasing Supplementary Order Papers relating to the reduction in gaming duty for racing and an accelerated write-down regime for bloodstock—measures that he announced last week. I express my thanks to the Finance and Expenditure Committee for its very careful consideration of this rather technical bill. I commend the committee’s report and the bill to the House.