Cunliffe David: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — First Reading 
Cunliffe David: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — First Reading 
[Volume:616;Page:12493] 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
 on behalf of the 
 Minister of Revenue 
: I move  
That the Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill be now read a first time. 
 Later I shall be recommending to the House that the bill be referred to the Finance and Expenditure Committee for consideration. This omnibus bill reflects several important themes of the Government’s tax policy work programme: measures to promote growth and innovation; to simplify the tax system especially for small business; to reduce compliance costs; and to protect the revenue base. 
The bill aligns New Zealand’s venture capital tax rules more closely with those of Australia removing a tax barrier to unlisted New Zealand companies gaining access to foreign venture capital. This will help New Zealand to compete more effectively with Australia for international venture capital supply. The change targets foreign investors who because they are tax exempt in their own countries cannot claim or make use of credits for any tax they may pay in New Zealand. They will be exempted from the New Zealand income tax on the sale of shares in certain unlisted New Zealand companies. The change will apply to foreign investors who are resident in one of 26 countries with which New Zealand has a double-tax agreement and who are unable to claim credits for any tax they pay in New Zealand. It will not apply to residents of Switzerland because that country has a limited exchange of information with us under our double-tax agreement. The change will also apply to foreign funds from countries representing our main investment partners who invest on behalf of foreign venture capital investors who are generally exempt from tax at home. 
The bill also introduces a business-friendly 6.7 percent rebate or discount to encourage people who begin receiving self-employment or partnership income to make voluntary payments of income tax during their first year of business. As members know businesses do not have to pay tax on income earned during their first year of business until the second year but both years’ payments can be due at about the same time. Paying two lots of income tax very close together can create real financial hardship for some small businesses and the measure proposed in this bill is designed to relieve that problem. The rebate or discount is one of a series of proposals canvassed last year on ways of making tax easier for small business and is the first to make it into legislation. 
 It received significant support from submissions and from consultation with small and medium sized businesses. Further announcements on the other major proposals canvassed in that package will be made later this year. 
Also introduced in this bill are changes to improve the legislative framework within which disputes between taxpayers and the Inland Revenue Department are resolved. The changes seek to ensure that the current process for resolving disputes introduced in 1996 is doing what it was intended to do—namely deal with disputes fairly efficiently and quickly before they get to court. Several amendments fine tune the legislation in this regard or reduce the costs involved in preparing the necessary documentation. Other changes affect time frames for both taxpayers and the Inland Revenue Department. 
The bill allows costs associated with patent and resource management consent applications that are not granted or are withdrawn to be tax deductible. Under current law those costs cannot be claimed because they are regarded as a capital expense nor under common law can they be depreciated because no depreciable asset is involved. The tax treatment of replacement plantings of fruit trees and vines is a subject of other changes introduced in the bill. They follow Government consultation with the fruitgrowing industry over a proposal to allow a limited proportion of replacement planting to be deductible in a current income year. That will make the tax treatment more flexible and encourage the planting of the most commercially desirable varieties. 
To prevent a potential and significant revenue loss the bill closes a loophole involving the sale and lease back of intangibles such as trademarks and newspaper mastheads. The proposed changes target transactions that could result in participants claiming tax deductions for what are in substance repayments simply of loan principle. The changes will not affect normal sale and lease-back transactions entered into for commercial reasons. 
Finally an annual event the bill sets the income tax rate that will apply for the 2004-05 income year. Changes introduced in the bill are described in detail in the 77-page commentary which has been distributed to members of the House and I recommend it to members. I commend the Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill to the House.