Dunne Peter: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — Second Reading 
Dunne Peter: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — Second Reading 
[Volume:659;Page:7860] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Consequential Rate Alignment and Remedial Matters) Bill be now read a second time 
. This omnibus bill consists of a good deal of catch-up legislation that makes changes to the law that flow on from earlier tax changes that have been made. It also generally updates the law in a number of areas to give taxpayers greater certainty. 
The main feature of this bill is the alignment of resident withholding tax rates on interest and portfolio investment entity tax rates with the recent changes to personal tax rates and the 30 percent company tax rate that was introduced last year. This alignment was considered at the time of the October 2008 personal tax cuts but was postponed until this year to allow time for consultation with the financial institutions that must make the necessary changes to their systems. The new resident withholding tax rates on interest as introduced in the bill are 12.5 percent 21 percent 30 percent 33 percent or 38 percent depending on income levels. As introduced the bill proposed a new default rate of 38 percent for people who do not choose a rate with their bank. The idea of using the highest personal tax rate as the new default rate was simply meant to motivate individuals to choose a resident withholding tax rate for their personal income that correctly reflected their personal tax rate and then to communicate this to their bank. The thinking was that if they failed to do so their interest would automatically attract the highest resident withholding tax rate which would be a powerful incentive for taxpayers to communicate the right rate to their banks and not repeat the painful experience. 
The main recommendation from the Finance and Expenditure Committee on these proposed changes is that the default rate for existing bank accounts should not automatically rise from 21 percent to 38 percent from 1 April 2011 as was originally proposed. The committee reported its concern that if the default rate for existing bank accounts was raised to 38 percent many taxpayers who had lower marginal tax rates might be overtaxed. They would not know that they would be entitled to resident withholding tax rates lower than 38 percent. In turn that would mean low-income earners would be taxed at the same resident withholding tax rate as those in the highest tax bracket which the committee reported would not be fair. 
The committee also thought that shifting the rate for existing bank accounts would impose significant administrative cost on the banks and on the Inland Revenue Department since banks would have to notify their customers of the new default rate and the department would have to issue extra personal tax summaries. So instead the committee argued that the Inland Revenue Department should instruct banks to change individuals’ resident withholding tax rate when it determines that they are using a rate that is not consistent with their marginal tax rates. This new proposal should result in the 38 percent rate generally applying only to those people for whom it is appropriate therefore reducing compliance costs for banks and other interest payers. However the committee recommended that the default resident withholding tax rate should remain at 38 percent for individuals who open new bank accounts from 1 April 2010 in order to encourage those individuals to select a resident withholding tax rate that is consistent with their marginal tax rate. Having considered the changes recommended by the committee I am satisfied that they will help make for better more effective tax law. 
As a complementary measure the bill also aligns the portfolio investment entity tax rates with the new personal tax rates so that portfolio investment entity rates will now be 12.5 percent 21 percent and 30 percent. The bill also raises the income thresholds at which those portfolio investment entity rates apply. These changes will ensure that people who invest in portfolio investment entities are not disadvantaged relative to direct investors. The bill also proposes a number of other measures including the introduction of a new 12.5 percent secondary tax code and a new withholding tax rate for extra pays that brings the withholding rates on employment income into line with new personal tax rates and will thus help ensure that low-income workers do not have too much tax withheld. Further proposed changes in the bill will allow the Inland Revenue Department to accept corrections of minor errors in subsequent returns in order to reduce costs for taxpayers. Another measure ensures that the Inland Revenue Department does not need to issue a personal tax summary automatically if a taxpayer is likely to have paid the correct amount of tax. This is intended to reduce compliance costs for taxpayers and administrative costs for the Inland Revenue Department. The bill also proposes changes to allow tax agents more time if they need it to allocate beneficiary income. 
Together the changes proposed in this bill will give effect to some necessary catching up on earlier tax changes. They will give greater taxpayer certainty and help the tax system to operate more effectively. Finally as part of a long-term project the bill contains an amendment to ensure that the Inland Revenue Department can issue notices and other information by email while making the tax administration rules for sending information electronically more consistent with the rules for sending information by post. 
I advise the House that before the Committee of the whole House stage I will be introducing a Supplementary Order Paper that adds further measures to this bill. A number of them are minor remedial amendments but all of them need to be legislated for as soon as possible. One group of substantive amendments contained in the Supplementary Order Paper will clarify the tax treatment of the facilitation fees charged by inbound tour operators. The Prime Minister and I announced earlier this year that such a law change would be made and I subsequently instructed officials to consult with the industry on the draft legislation to ensure that it achieves its objective. That consultation was completed very recently and given the lengthy history of this issue and the uncertainty it has engendered it is very important that the lack of legislative clarity on the matter be resolved soon. That is why these amendments are being included in this bill which is the first available legislative opportunity. 
The second set of substantive amendments relates to recently signed tax treaties with Australia Singapore and the United States and deals mainly with the taxation of outbound dividends. The new treaties reduce the rate of withholding tax on non-portfolio dividends paid to non-residents from 15 percent to either 5 percent or 0 percent depending on circumstances. These reductions affect the supplementary dividend rules in the Income Tax Act and they need to be amended before the reduced treaty rates can take effect. To prevent delays to the coming into force of these important tax treaties the necessary amendments are being added to this bill. 
The third set of substantive amendments arise from recent changes to portability arrangements for New Zealand superannuation and veterans pensions which the House dealt with just a little while ago. These changes will ensure the correct taxation of recipients of New Zealand superannuation and the veterans pension so that the tax-free status of the pension is retained when recipients decide to live overseas. However if recipients are simply travelling overseas the pensions will remain subject to New Zealand tax. 
I thank the select committee for its careful consideration of this technical tax bill. I know it had a lot of things on its mind at the time that this bill was before it. I am grateful for the work it has done. I commend the select committee’s report and I commend the bill to the House.