McClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — Second ReadingText is incorporated into the Bound VolumeMcClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — Second Reading[Sitting date: 27 May 2014. Volume:699;Page:18319. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue): I moveThat the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill be now read a second time. This omnibus bill continues the Government’s work to bring greater clarity to the tax rules in order to ensure that they remain fit for purpose that they are easy for businesses and other taxpayers to understand and to comply with that they support businesses and innovation and that everyone pays their fair share of tax. With those principles in mind the majority of the proposals in this bill have been shaped by earlier feedback from businesses and other taxpayers to ensure that the proposed changes are practical pragmatic and consistent across the tax system.The main features in this bill seek to clarify the tax treatment of employer-provided accommodation accommodation allowances and other payments provided by employers to employees to reimburse them for expenditure incurred. The bill provides practical rules to help determine where to draw the line between what is taxable and what is not. This has been an area of particular concern for employers and employees particularly when payments are linked to business travel secondments and projects. To deal with these concerns the bill proposes that accommodation and accommodation payments provided to employees who are required to work away from their normal workplace on secondment or capital projects will be exempt from income tax under defined circumstances. This includes an exemption for up to 5 years for people working on the Canterbury earthquake recovery projects. An exemption is also included for payments for meals on work-related travel for up to 3 months. There is a specific exemption proposed for distinctive work clothing and an exemption for plain-clothes allowances when a person has been provided with a uniform as part of their employment but because of the nature of their current duties they are required to also wear plain clothes. Together these measures should give businesses more clarity and certainty on how the employee allowances provisions should be applied.The second group of proposals in this bill will help support business growth and innovation by clarifying certain rules and removing distortions in the way some current rules apply. The first of these deals with the uncertainty and distortions arising from the current “black hole” tax treatment of certain types of expenditure. Under the changes proposed in the bill the deductibility of certain company running costs will be clarified and expenditure on abandoned applications for patents resource consents and plant variety rights will be immediately deductible.A suite of clarifications is also proposed to the GST rules to make them easier to understand and apply. These include clarifying the definitions of “dwelling” and “commercial dwelling” in the Goods and Services Tax Act 1985; an amendment to the apportionment rules so that non-profit bodies can claim all of their GST inputdeductions apart from those on inputs that relate to the making of exempt supplies; and clarifying the GST treatment of immigration and other services. The acquisition date of land and agreements for the sale and purchase of property or services in foreign currencies have also been clarified to give greater certainty to taxpayers as have the tax rules for charities that have been removed from the Charities Register. Other proposals in the bill such as changes to tighten the thin capitalisation rules and the rules relating to the tax treatment of land-related lease payments are intended to remove distortions and protect New Zealand’s tax base.One aspect of the bill has attracted attention. As you are aware Mr Assistant Speaker Robertson an intergovernmental agreement is currently being negotiated between New Zealand and the United States in readiness for changes following the enactment of the United States Foreign Account Tax Compliance Act which is due to take effect on 1 July of this year. This bill therefore contains provisions to allow our financial institutions to more easily comply with that intergovernmental agreement once it has been finalised and any future similar agreements.These are the main proposals in the bill. In addition I wish to advise that I shall be—Dr David Clark: Has it been finalised Minister?Hon TODD McCLAY: Listen. I will come to that in a moment if you listen carefully. In addition I wish to advise that I shall introduce a Supplementary Order Paper at the Committee of the whole House stage which will contain a small number of minor technical amendments to ensure that the tax rules operate as intended.At this point I would like to acknowledge and thank the Finance and Expenditure Committee for its careful consideration of these wide-ranging tax changes in the bill and for the recommendations it made to further enhance the legislation. It gives me great pleasure to commend this bill to the House.