Nash StuartTAXATION (ANNUAL RATES FOR 2017-18 EMPLOYMENT AND INVESTMENT INCOME AND REMEDIAL MATTERS) BILLThird ReadingHon STUART NASH (Minister of Revenue): I move That the Taxation (Annual Rates for 2017-18 Employment and Investment Income and Remedial Matters) Bill be now read a third time.For the benefit of members I'll provide a quick recap of the objectives and the content of this bill. One thing I will say before I do start that is that I thought that the Hon Steven Joyce who shepherded this bill through the House in its first reading might be speaking on this. It would be good to hear what he has to say about this but I acknowledge that he has a very important speech to give in about an hour anyway.Firstly the bill sets out the income tax rates for the 2018 year leaving them unchanged from the previous year. This is the sort of bill that is introduced every year and normally has support right across the House as it has I think for the nine years I was here previously. The centrepiece of the bill however as members may recall is a set of measures designed to make the process of interacting with the tax system as simple as possible. The principle behind the proposals is to make the tax obligations easy to get right. This is actually the fundamental principle behind Inland Revenue's Business Transformation project. It is not about necessarily just realigning the tax system; it's a complete change in culture. It's a customer focus.The proposals in this bill aim to achieve this by providing Inland Revenue with accurate more timely information from the payers of employment and investment income. Inland Revenue can use this information to fill in the necessary information in the equivalent of a tax return. Gone are the good old days when you had to sit at the kitchen table with a whole lot of receipts and fill in your return and send it back. This saves the taxpayer from this chore but they can check the information if they wish. It will also help ensure that people are paying the correct amount of tax by enabling the IRD to ensure that the appropriate tax rate is being used—again back to this whole customer-centric focus of Inland Revenue. In designing these principles it has been important to minimise the compliance burden based on employers and on payers of investment income. Accordingly the bill has been amended since its introduction with the objective of easing that burden for the payers of such income.The other major aspect of this bill is its measure to modernise and strengthen the tax rules relating to employee share schemes. These rules have been in place for many years now and it is time to ensure that the rules are sound and align with our objectives for the tax system as a whole. In particular we want to make sure that there is no tax advantage in receiving remuneration by way of an employee share scheme instead of other forms of remuneration. Basically it's about protecting the integrity of the tax system.The bill also includes business-friendly proposals aimed at easing compliance costs or removing unnecessary obstacles. A proposed amendment will create an exclusion from the dividend rules for certain company demergers in particular demergers by listed Australian companies. The bill also contains proposals to extend the brightline test from two years to five years. The brightline test currently requires income tax to be paid on any gains from residential property sold within two years of acquisition subject to some exclusions. The two-year brightline test was put in about three years ago in 2015 but we did not feel—we just did not feel that two years was enough to stop speculators gaining untapped capital gains. As was talked about at the time how the Income Tax Act works is it's based on an intention test and what that means is when someone buys a rental property or a second or third or fourth property it is the intent under which they buy that property that will determine whether they pay tax on the capital gain. For example if they have an intention to buy the property for a capital gain then they have to pay tax on that capital gain. If they buy the property for the intention of making a rental yield then they do not have to pay tax on any capital gain made.The problem with this is it is very very difficult to prove intent. It was interesting—I remember sitting in a meeting with the then Governor of the Reserve Bank. We had a look at Auckland house price increases—in fact across the country but the Auckland ones stood out because they were going through the roof—and we asked the Governor of the Reserve Bank what the rental yield was in these properties and he said it was under 3 percent. So we asked then if people were buying these properties for capital gains and he said Almost certainly." He couldn't say unequivocally but "Almost certainly." What we found was that people were buying these properties flipping these properties and not paying tax because all they had to say to the Inland Revenue Department was "We were buying these for rental yield. Our circumstances have changed which forced us to make a sale."What we found when Inland Revenue did a little bit of analysis around who was complying under the two-year brightline was that in fact—it was quite a small sample size—only 50 percent of those who should be paying tax on a capital gain actually were complying. I don't think that many people know that Inland Revenue gets all this information from Land Information New Zealand. So when people think they can get away with avoiding tax then they are actually wrong because Inland Revenue has the ability to interrogate every little bit of property data that comes through. So I would urge people who will need to pay tax under the two-year brightline—or once this bill receives Royal assent and they have purchased a property after that then under the five-year brightline—to please comply. It makes it easier on everyone because Inland Revenue will find you if in fact you are not complying.As far as I was concerned this measure was about preserving the integrity of the tax system which is vital. There are some other consequences. You know it may have a little bit of a dampening on the housing market which is not a bad thing for first-home buyers and Kiwis who are hoping to get into the market. But by and large as far as I was concerned as the Minister of Revenue it was about preserving the integrity of the tax system because what we were finding is people were making capital gains and not paying tax on that and I just think that was manifestly unfair which is the reason why we moved it from a two-year brightline to a five-year brightline.I just do want to outline that none of the terms and conditions or exceptions that existed under the two-year brightline have changed whatsoever so in this bill the only thing that has changed is the term from two years to five years. I also want to say that the Government considers extending this test is important to ensure as I've sort of alluded to that property speculators do pay their fair share and I don't think there's any Kiwi watching or in New Zealand who does not think that people should be paying their fair share—not too much not too little just their fair share; it's all we ask. Because speculators can drive house prices beyond the reach of many Kiwis this pressure will help dampen or may well help dampen the property market.These are the main features of the bill and it is a bill which will improve taxpayers' experience of tax administration and make the tax system fairer. I would like to thank the policy officials and the drafters who worked on the details of the bill the organisations and the individuals who made submissions on the proposed legislation and the Finance and Expenditure Committee for its consideration and recommendations to improve the workability and fairness of the provisions. As someone who sat on the Finance and Expenditure Committee for about six years I know the work that the members put in to ensure that they are well versed and they read the submissions. I know the amazing work that the officials put in to actually answer not only members' questions but also submitters' questions and queries and just generally interact and liaise in a very very positive way with key stakeholders in the tax system. These tax bills are by their nature quite complex and that is why I know that the work that goes into them is hugely appreciated. I commend the Taxation (Annual Rates for 2017-18 Employment and Investment Income and Remedial Matters) Bill to the House. Thank you."