McClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeMcClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In Committee[Sitting date: 17 June 2014. Volume:699;Page:18588. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue):It is a pleasure to take a call at this stage in the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. I am certainly happy to provide some clarification and answer a few of the questions that Darien Fenton raised. Can I start though by saying that in particular Part 2 of the bill is where most of the change in the tax system held in this bill will take place. I am pleased to hear that the Opposition is supporting it because this is about fairness both to those taxpayers who will be provided greater clarity and in some cases will not need to pay tax where they are currently but also to other New Zealand taxpayers who now will be sure that everybody is paying their fair share of tax. I thank David Clark for his contribution. His heart did not seem quite in it though because I know he is very supportive of this part of the bill but I guess that when one is in the Opposition one needs to oppose more than one supports. At least the votes will be on the right side of the ledger when it comes time to vote on this bill.There are just a couple of points here for Darien Fenton and for others around accommodation. Largely the tax system says that when one earns income one must pay income tax on it. If you receive something in kind instead of a cash payment in lieu of the income you would have earned then that is also taxable. So somebody who earns a set amount every week but has an employer who says: “Well you can have accommodation and I’ll pay you a little bit less and you’ll be better off because you won’t be declaring the accommodation because I’m giving it to you rather than cash and charging you for it so you won’t pay tax on it.”—well that may be of benefit to that worker but not to all other workers who are not in that situation. They just receive their wages and have to pay tax on it. When they go home and pay their mortgage or rent they are paying from the position of using money that is already taxed. So what we do is say that when you look at all of the income you earn be it cash that is received weekly or fortnightly or other things that are given in kind instead of receiving that cash payment it is treated as if it was cash and must be taxed. As Ms Fenton has said that is fair to taxpayers who may not receive some of these benefits—although I am not sure they will always be benefits—that some other workers or taxpayers will.The challenge we have though is what happens if you are living in a house you are receiving a wage you are paying tax on it you are paying your rent from income that has been taxed and your employer says: “We need you to go away for 6 months and work away from your home.” Well you would have two places of work and therefore you would have to pay tax twice or your employer says: “I’m sending you away for 6 months; I will meet the cost there.” Well we do not want to double tax that person because they still have their home that they are paying for. They will often have their family there. So what we are doing with this bill is providing clarification that if they are away for up to 2 years if the employer is providing them with an accommodation benefit and it is to meet the actual cost of accommodation—no more than that—then that will not be taxed. We do not want to tax them twice; that would be unfair to them.The reason we have said 2 years is because that is a reasonable period of time. There is enough flexibility so that the employers and employees will not be overburdened with having to deal with the tax system. We also believe that after 2 years if you are still away working coming back on the odd weekend actually at that point your relationship with the place where you work has probably changed and therefore to be fair to other taxpayers there could or should be a tax implication there. But we have also recognised that there will be situations where maybe somebody does need to be away for more than 2 years and if it is a special project it can be up to 3 years. This will change during that period of time if you move your family and that becomes your new place of residence or if you actually say: “I am living here now not at the last place.” Then your situation will change and you would be taxed on that and that is an obligation the employer has.We have also recognised the great challenges in Canterbury. This is a unique and different situation—very difficult—and we have put in place rules that say that for up to 5 years workers who are involved in the rebuild in Canterbury can be tax exempt for their accommodation. It steps down over a period of time.Darien Fenton: Does that include migrants?Hon TODD McCLAY: That is anybody who will be in Canterbury for the rebuild purposes—not if you are there selling a car but if you are part of the rebuild; anybody employed there will be availed of this.Where it is slightly different though is the Recognised Seasonal Employer Scheme which was raised. Somebody who comes to New Zealand on a Recognised Seasonal Employer Scheme will have a place to reside and work from and that is their place of residence while they are in New Zealand. As with any other taxpayer in New Zealand if they are receiving accommodation instead of income it must be taxed. In this case if they then have to move down the road to work and there is overnight accommodation they are put in a motel they say they have to go for a conference—I know they would not but it is the same principle—we would not expect them to be taxed twice in that case if the employer is providing them with a benefit. They are not earning extra income; they are just having some of their costs met.When it comes to valuation it is very fair. We have said it is fair rental value. We do not want the Inland Revenue Department to overestimate or the taxpayer or their employer to underestimate; we want to strike a balance that is fair to all taxpayers and I believe that has been done. Two other changes particularly are specific valuation rules for ministers of religion. They have relied upon an accommodation or an agreement with the Inland Revenue Department for many years. We have decided to take any uncertainty away and to put that into law—to codify it for them—and we have also provided clarification for the New Zealand Defence Force.When it comes to meal payments if you are provided with meals or you are provided with an allowance for meals for up to 3 months because of work-related travel or something else that is different that is tax exempt but thereafter it would not be. The reason for this is that if you are at a conference and you have to have a meal we would not expect you to pop home and make your lunch. But after 3 months I think that is fairly reasonable. When it comes to clothing the Inland Revenue Department and the Income Tax Act are interested in the tax situation. So whether or not an allowance is provided is secondary. If it is we now have clearer rules that will decide where taxation is appropriate and where it is not. Primarily if you are provided with an allowance or a uniform for that allowance then actually that is part of the nature of your work and you are not taxed on that. It is a tax-free allowance.There are some exceptions to this though and certainly in the case where somebody is provided with an allowance for plain clothes where they might also have a uniform or they have the uniform they are tax exempt for that but they are provided with a plain clothing allowance. Previously there has been uncertainty about whether if you have a uniform and receive funds for other clothing it should be taxed but there will be situations including with the New Zealand Police where I think that is not appropriate so we are providing clarification there so that only those who should be paying tax will be.The final point I want to raise is around deregistration of charities. There has been a lot of confusion. This too is about providing certainty to charities so they know their obligations should they be deregistered choose to be deregistered or are deregistered because they are no longer of charitable purpose. This really goes to what those obligations are. Primarily the most important thing for other taxpayers is if there are a number of assets that have been acquired by that charity that had a tax-free status and is no longer a charity what happens to those assets? Well simply they either have to be passed to another charity or tax must be paid on them and so this just clarifies that.This is an important part of the bill. It is extremely taxpayer-friendly and in many cases reduces red tape in compliance but in providing certainty it also provides fairness to those who avail themselves of some of these tax concessions. Equally it will also be fair to taxpayers who do not so they can be sure that those who are receiving those allowances are only doing so specifically because it is different in their everyday life and where it is not we expect them to pay tax and they will be paying tax. Thank you.