Parker DavidTAXATION (ANNUAL RATES FOR 2020-21 FEASIBILITY EXPENDITURE AND REMEDIAL MATTERS) BILLSecond ReadingHon DAVID PARKER (Minister of Revenue): I present a legislative statement on the Taxation (Annual Rates for 2020-21 Feasibility Expenditure and Remedial Matters) Bill.Legislative statement published under the authority of the House.Hon DAVID PARKER: I move That the Taxation (Annual Rates for 2020-21 Feasibility Expenditure and Remedial Matters) Bill be now read a second time. This bill was first introduced in June 2020 which wasn't long after the national COVID-19 level 4 lockdown. Although this contains measures that are helpful in the economic response to COVID its main purpose is broader than that. It contains for example the annual setting of income tax rates. We of course have to do that every year in Parliament in order to authorise the expenditure that is funded through the tax that we collect through the tax legislation. I'm going to explain some of the other measures but before I do so could I thank the Finance and Expenditure Committee for its careful consideration of the bill. There are a number of recommendations as to changes in the bill compared with that which was introduced which we have adopted. Can I also thank the individuals and organisations who took the time to submit on the legislation. These are extraordinary times that we're living through but everyone is still trying to do their bit in society and I think just about everyone accepts that we have to have a tax system that runs efficiently and fairly. So I appreciate the input from accountants from businesses from other organisations who helped the select committee come to the conclusions that they came to.There are a number of integrity measures in this bill to close gaps. Every Government does this where there are gaps identified in the tax statutes. We endeavour to fill them where necessary. In the immediate response to the pandemic of course the Government was able to swiftly provide relief to keep New Zealanders in jobs and to help New Zealand businesses stay afloat. Of course that support was only possible because we've got a strong tax system that was able to fund over time the cost of those measures. A large part of this bill is about the important task of just carefully managing that tax system up top holding its integrity all of which is important to New Zealand's economic recovery. There are measures in the bill which also support and encourage growth and a good example of that is one named in the heading of the bill relating to feasibility expenditure. The Government's objective is to grow the economy and encourage productive investment and we had previously heard from businesses that the non-deductibility of feasibility expenditure for ventures that didn't proceed was an impediment to that business investment. The changes to the tax treatment of feasibility expenditure aimed to remedy this aspect of our tax rules which otherwise can deter productive investment. Businesses looking to innovate and grow might invest funds in determining the practicality of new projects and ideas and where that investment doesn't proceed at the moment in some cases that feasibility expenditure is not deductible—sometimes known as black hole expenditure. This is one of a number of measures that this Government in the last three-year term has advanced to improve innovation and productive investment. The research and development tax credits are another example as is the support that we've given to the venture capital investment to try and stimulate capital investment by the private sector in early-stage ventures.In the case of this feasibility expenditure this bill proposes to allow deductions for unsuccessful feasibility expenditure which will in turn encourage business innovation and investment. We're proposing that businesses can deduct unsuccessful feasibility expenditure over five years from when the project is abandoned. We think this is a good measure for business and good for our economy and we weren't surprised that there was broad support for this proposal in submissions. A feature of the original proposal was to claw back past deductions for unsuccessful feasibility expenditure if an abandoned project was later reinstated. The committee recommended that that clawback period be limited to seven years. We agree that this is practical because that aligns with the business records rule in the current law. So businesses will have records that go back that far and we agree with that recommendation. The clawback measure is an integrity measure necessary to protect the integrity of the tax system but we don't really need to go back any further than five years.On purchase price allocation the proposal in the bill is another significant integrity measure. The objective of these amendments is that for parties to major sale and purchase agreements to adopt the same sale or purchase price allocation on both sides of the transaction so that their respective tax accounts show the same allocation of price. This is because the purchase price that buyers and sellers attach to assets can have significant tax implications. The mischief that this amendment seeks to address is the incentive that there is sometimes for each side of the transaction to come up with a different allocation in both cases to advantage their own tax position.Hon Michael Woodhouse: Oh really!Hon DAVID PARKER: Oh really!" said the former Minister of Revenue.Hon Michael Woodhouse: Oh they're allowed to.Hon DAVID PARKER: I'm surprised that particular loophole wasn't filled earlier. But the proposal aims to encourage parties to major sale and purchase agreements to agree on the allocation of the sale price and if they don't then it sets out rules that must be followed that determine who can allocate the sale price which must then be followed by both sides. The Finance and Expenditure Committee has recommended several improvements to simplify the rules. Significantly they've recommended a delayed application date of 1 July 2021. We agree that more time is needed to allow businesses and their advisers to prepare for the new rules. The committee also recommended repealing the $100000 threshold and a significant increase in the threshold that applies to residential property transactions. We agree that for simplicity and so as to remove unnecessary compliance costs these recommendations are improvements applying as they do where the scope for tax minimisation is low. Another integrity measure relates to the taxation of land and the bill proposes amendments in relation to investment property which we believe are necessary to ensure that the current tax ceilings are fair balanced and support productive investment which will be relatively better off as a consequence of these amendments. Currently there are exemptions from land sales tax rules for taxpayers who sell their home or business premises. These exemptions are not meant to apply to people with a regular pattern of buying and selling their home or business premises. The bill proposes to make that clearer by extending the regular pattern restriction rules so that habitual buyers and sellers are taxed on their property sales. Again the committee's recommended a number of improvements to these amendments clarifying in the legislation the meaning of "significant involvement or control" and also that unoccupied property is within the scope of the Act. The second to last issue I'll mention relates to Australian retirement savings schemes where New Zealanders have got money invested in them. There's a current gap in the trans-Tasman retirement savings portability settings which means that some New Zealanders' savings in Australian retirement savings schemes that are held by the Australian Tax Office are unable to be transferred to a New Zealand KiwiSaver account. The proposed measure will remove this barrier to repatriation and therefore allow New Zealanders to access their Australian-based savings and bring them over to New Zealand. We know there are many New Zealanders who've lived and worked in Australia and are affected by this issue and once normal travel resumes no doubt there'll be more people in that situation. So that's a good thing to fix.The final measure I want to mention relates to GST on outbound mobile roaming. There's now guidance from the OECD on how we should do this and this measure looks to modernise the GST rules. Under current rules outbound roaming by New Zealanders are not taxed for New Zealand GST. Similarly visitors to New Zealand are generally not subject to GST on roaming services consumed in New Zealand. Now these rules have become out of step with the updated guidance from the OECD which has recommended changes that have been adopted in a range of other countries and we're now doing the same thing. The guidance recommends taxing these services on the basis of a person's residence rather than where they are—their residence—and it's intended to avoid situations of double taxation and to avoid situations of double non-taxation of cross-border services. As I've said this aligns our rules with OECD guidance and results in GST being charged on all mobile roaming services consumed by New Zealand residents whilst here or abroad.I'll conclude by saying that maintaining a coherent tax system is important for supporting our economic recovery and helping New Zealanders as the world recovers from impact from COVID-19. Accordingly I'm pleased to commend this bill to the House."