Lees-Galloway Iain: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
Lees-Galloway Iain: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
[Volume:675;Page:20756] 
IAIN LEES-GALLOWAY (Labour—Palmerston North) 
: 
 I also must confess like my colleague Lianne Dalziel to not being a member of the Finance and Expenditure Committee which considered the Taxation (Tax Administration and Remedial Matters) Bill and also that this matters— 
Hon Lianne Dalziel 
: But you aspire to be a member. 
IAIN LEES-GALLOWAY 
: I do. I think somewhere deep inside we all aspire. In fact Michael Woodhouse made the transition from the Health Committee to the Finance and Expenditure Committee so maybe there is hope for all of us yet. 
Maybe it was all that talk of portfolio investment entities (PIEs)—I do not know—but I was inspired to get to my feet and make a contribution to this debate. I do not want to talk about PIEs; I thought I might talk about clause 6 which refers to use-of-money interest. Again not having followed this bill through the select committee process on just a first reading of it I have a couple of questions for the Minister in the chair the Minister of Revenue as well. They are probably easily answered by any member of the select committee actually. 
New section DB 3B which is to be inserted in the Income Tax Act 2007 by clause 6 states: “(1) A person is allowed a deduction for an amount of interest they are liable to pay under Part 7 of the Tax Administration Act 1994.” Part 7 put simply states: “A taxpayer is liable to pay interest on unpaid tax to the Commissioner in accordance with this Part.” In other words if we do not pay our tax on time a use-of-money interest is applied to those unpaid taxes and we are liable to pay that tax. This new section DB 3B(1) says that a person is allowed a deduction. It is not clear to me just from reading this at first glance what the criteria are for that deduction—what makes someone able to apply for that deduction—so I wondered whether the Minister would address that issue. 
In an earlier bill I was lamenting the fact that the Inland Revenue Department now owes me money. I wonder whether this works the other way where the Inland Revenue Department has to pay interest on the use of money it has if one ends up overpaying tax student loan fees or anything like that. 
Sue Moroney 
: So you could buy more pies. 
IAIN LEES-GALLOWAY 
: One could buy more pie with the interest that one earned. 
Hon Lianne Dalziel 
: They kept demanding my husband’s student allowance after he paid it all back. 
IAIN LEES-GALLOWAY 
: Well that is what happened to me as well. It is atrocious. It is a terrible situation and I hope that something is being done about that situation. 
As someone who is coming to this for the first time I ask the Minister what the criteria are for getting a deduction for interest that one is liable to pay if one has not paid all one’s taxes and use-of-money interest is being applied to it. I would appreciate the Minister answering that question. It looks like he is keen to get to his feet and give us an answer and that would be fantastic. 
The question was put that the following amendments in the name of the Hon Peter Dunne to the proposed amendments set out on Supplementary Order Paper 254 in his name to Part 1 be agreed to: 
to omit from clause 7DB “EZ 23B(7) (Insurance or compensation for depreciable property replaced because affected by Canterbury earthquakes)” and substitute “EZ 23B(8)(Property acquired after depreciable property affected by Canterbury earthquakes)”; 
to omit from section EE 44(2)(d) in clause 7DC “Insurance or compensation for depreciable property replaced because affected by Canterbury earthquakes” and substitute “Property acquired after depreciable property affected by Canterbury earthquakes”;  
to omit the heading above section EE 47(4) and section EE 47(4) in clause 7DE and substitute the following heading and subsection: 
“Irreparable damage or damage rendering building or grandparented structure useless 
“(4)The third event is— 
“(a)the irreparable damage of an item or property that is not a building or grandparented structure; or 
“(b)the damage of an item of property that is a building or grandparented structure or of the neighbourhood of the building or grandparented structure causing the building or grandparented structure to be— 
“(i)useless for the purpose of deriving income; and 
“(ii)demolished or abandoned for later demolition.”;  
to omit section EE 48(3)(a) in clause 7DF(5) and substitute the following paragraph: 
“(a)the building or grandparented structure has been rendered useless for the purpose of deriving income and demolished or abandoned for later demolition as a result of damage to the building or grandparented structure or of the neighbourhood of the building or grandparented structure; and”; and 
to omit section EE 23B in 12BB and substitute the following section: 
“EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes 
“ 
When this section applies 
“(1)This section applies for a person and an income year (the  
current year 
) before the 2016-17 income year when the person— 
“(a)in or before the current year receives insurance or compensation for items of depreciable property (the  
affected property 
) each of which as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011— 
“(i)if not a building or grandparented structure is irreparably damaged; or 
“(ii)if a building or grandparented structure is rendered useless for the purpose of deriving income and demolished or abandoned for later demolition because of damage to the building or grandparented structure or to the neighbourhood of the building or grandparented structure; and 
“(b)in the absence of this section would have in or before the current year from insurance or compensation for the items of affected property (the  
affected class 
) in 1 of the categories referred to in subsection (10)(b) total depreciation recovery income under section EE 48 (Effect of disposal or event) exceeding the total amount for the affected class of depreciation loss treated as a positive amount under section EE 48; and 
“(c)plans in the current year to acquire depreciable property (the  
replacement property 
) meeting the requirements of subsection (7); and 
“(d)gives written notice to the Commissioner under subsection (9)— 
“(i)specifying the affected property: 
“(ii)linking for the purposes of this section each item of acquired replacement property with an affected class. 
“ 
Depreciation recovery income and suspended recovery income 
“(2)The amount for the affected class of the excess referred to in subsection (1)(b) (the  
excess recovery 
) is not depreciation recovery income except to the extent of the amount that— 
“(a)remains after adjustment under subsection (3) or (6) (the  
suspended recovery income 
); and 
“(b)is attributed to an income year by subsection (7). 
“ 
Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool 
“(3)If the person acquires an item of replacement property (the  
replacement item 
) and links the replacement item with affected property for which the person does not use the pool method the amount given by subsection (4)— 
“(a)is treated as not being included in the amount of the person’s expenditure on the replacement item for the purposes of determining— 
“(i)under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item if the person uses the diminishing value method or straight-line method for the replacement item; or 
“(ii)under section EE 22 (Cases affecting pool) the cost of the replacement item if the person uses the pool method for the replacement item; and 
“(b)is a reduction in the amount of the suspended recovery income for the affected property. 
“ 
Amount of reduction: expenditure on replacement item and suspended recovery income 
“(4)The amount of the reduction under subsection (3)(a) or (b) for a replacement item and affected property for which the person does not use the pool method is— 
“(a)zero if the cost of the affected property equals or is less than the person’s total expenditure in acquiring with or before the replacement item other replacement property linked with the affected property; or 
“(b)the amount calculated using the formula— 
limited replacement cost x excess 
affected cost. 
“ 
Definition of items in formula 
“(5)In the formula— 
“(a) 
limited replacement cost 
 is the lesser of the following: 
“(i)the amount by which the cost of the affected property exceeds the total expenditure in acquiring with or before the replacement item other replacement property linked with the affected property: 
“(ii)the amount of the expenditure on the replacement item: 
“(b) 
excess 
 is the excess recovery for the affected property: 
“(c) 
affected cost 
 is the total cost for the person of the affected property. 
“Effect of acquiring item of replacement property if suspended recovery income from affected property in pool 
“(6)If the person acquires an item of replacement property (the  
replacement item 
) and links the replacement item with affected property for which the person uses the pool method— 
“(a)the amount of the person’s expenditure on the replacement item is treated as being reduced by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property with or before the replacement item for the purposes of determining— 
“(i)the adjusted tax value of the replacement item if subparagraphs (ii) or (iii) do not apply; or 
“(ii)the cost of the replacement item for the straight-line method if that method is used to determine depreciation loss for the replacement item; and 
“(iii)the adjusted tax value of the pool of the replacement item if the person uses the pool method for the replacement item; and 
“(b)the amount of the suspended recovery income for the affected property is reduced by the amount of the treated reduction under paragraph (a). 
“ 
Requirements for replacement property 
“(7)An item of replacement property for a person must— 
“(a)be depreciable property that is not depreciable intangible property; and 
“(b)be acquired in or before the person’s 2015-16 income year; and 
“(c)be included in the same category under subsection (10)(b) as the affected class with which the person links the item if the affected class is described in subsection (10)(b)(i) or (ii); and 
“(d)be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011 if the item is a building grandparented structure or commercial fit-out. 
“ 
Amount of depreciation recovery income 
“(8)The person has in an income year for affected property an amount of depreciation recovery income equal to the amount of suspended recovery income for the affected property— 
“(a)at the end of the income year if that year is the 2015-16 income year and neither of paragraphs (b) and (e) 
apply earlier; or 
“(b)when in the income year the person decides not to acquire more replacement property if neither of paragraphs (a) and (e) apply earlier; or 
“(c)when in the income year the person goes into liquidation or becomes bankrupt if neither of paragraphs (a) and (b) apply earlier. 
“ 
Notice of election for affected property 
“(9)A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance or compensation for affected property must give written notice to the Commissioner— 
“(a)for the earliest income year (the  
estimate year 
) in which the amount of the insurance or compensation for the affected property can be reasonably estimated by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and 
“(b)if the current year is after the estimate year— 
“(i)for each income year between the estimate year and the current year by the date on which the return of income is filed for that income year; and 
“(ii)for the current year by the date on which the return of income is filed for the current year. 
“ 
Contents of notice of election 
“(10)A notice under subsection (9) must— 
“(a)describe the items of affected property; and 
“(b)indicate in which of the following categories each item of affected property is included: 
“(i)a building or grandparented structure not referred to in subparagraph (iii): 
“(ii)commercial fit-out not referred to in subparagraph (iii): 
“(iii)depreciable property for which the person uses the pool method: 
“(iv)depreciable property not referred to in subparagraphs (i) to (iii); and 
“(c)give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and 
“(d)give the amount of the expenditure on the replacement item and the reduction under subsection (3) or (6) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and 
“(e)give the amount for the affected class of the suspended recovery income at the end of the current year. 
“ 
Disposal of replacement property: reduction in cost treated as depreciation loss 
“(11)For the purposes of section EE 48 the amount by which a person’s expenditure on a replacement item is treated as being reduced under subsection (3) or (6) is an amount of depreciation loss for the item for which the person has been allowed a deduction. 
“ 
Relationship to subpart EE 
“(12)This section overrides subpart EE (Depreciation). 
Defined in this Act: adjusted tax value amount assessable income building commercial building commercial fit-out depreciable intangible property depreciable property depreciation loss depreciation recovery income grandparented structure income year liquidation notice pool pool method return of income straight-line method. 
Amendments to the amendments agreed to. 
The question was put that the amendments as amended set out on Supplementary Order Paper 254 in the name of the Hon Peter Dunne to Part 1 and the amendments set out on Supplementary Order Paper 263 in his name to Part 1 be agreed to. 
Amendments agreed to.