Shanks Katrina: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Shanks Katrina: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13716] 
KATRINA SHANKS (National) 
: 
 It is my pleasure once again to speak on Part 2 of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. When looking at this bill we see it is a very very comprehensive bill. The thing we have to think about when putting together legislation like this is that we should be putting together legislation that is streamlined that is in accordance with all the other tax legislation and that flows nicely instead of putting together piecemeal legislation that will then create complexities for the people who use it. Although the Inland Revenue Department gives out booklets to guide business people and anybody else who has to use this type of legislation at the end of the day there has been a history of those booklets having errors in them. 
The electoral funding legislation is an example of a situation where the Electoral Commission put out booklets telling people about its summary of that legislation and how it would impact on their lives and their returns only to find its interpretation was different from the law. The commissioner’s interpretation was different from the law itself. The onus is on the person concerned to go back and understand the law and not to rely on those booklets which are guideline booklets for people. 
My concern is that this tax legislation is very very complex and we cannot really expect Joe Bloggs on the street the dairy owner the owner of the chemist shop or the person who owns the garden centre people who are really busy in their businesses to go ahead and read this legislation because they cannot rely on the guidance provided by the Inland Revenue Department in the booklets that it gives out. At the end of the day the onus is on people who are filling out returns to get things right themselves and to understand the legislation. So it is very important that we try to keep the tax legislation as streamlined as we can because it does impact on most New Zealanders. It is important that it is not complex. 
I become concerned when I see big bits of legislation—and the legislation before us is massive—and also big Supplementary Order Papers around the legislation. That means that maybe the legislation has not had as much discussion as it should have had if there are such big Supplementary Order Papers supporting it. I would like to think that discussion is available. For example there was obviously not enough discussion around the finance lease provisions of this legislation when it was put out. I am hoping that the Government has a good strategic view on that issue and that we have a vision for where we want to be with regard to taxes in the future and a view on whether this legislation is a good vehicle to take us to where we want to be. 
I would like to talk specifically to one measure in Part 2 of this legislation today: new section 34B inserted by clause 153 which is about tax agents. Tax agents play an extremely important role in terms of getting people’s tax returns right to begin with and also in ensuring that if they get them right then the Government and the Inland Revenue Department are maximising their net revenue because they know they are capturing all the revenue they should get. As time has gone on tax agents have become more and more important in our society as the tax legislation has become more and more complex. Now the onus is on those accountants—it is normally chartered accountants who are tax agents; that is not always the case but quite commonly they are chartered accountants—to have a good understanding of this legislation. Also they are now accountable for the returns that they put in. If people represent themselves as tax agents and as professionals they are liable I do believe for any errors in those tax returns. 
So when we are talking about penalties I say it is important that this legislation gets the provisions on tax agents and the listing of tax agents absolutely right. The legislation states in new section 34B(2) inserted by clause 153 who can be a tax agent. It can be a person who “(a) prepares the returns of income required to be furnished for 10 or more taxpayers; and … a practitioner carrying on a professional public practice”. A person providing that information also has to update the commissioner about the changes around him or herself. The Law Society has brought out a really good submission on clause 153 where it talked about its issues in relation to that. When it talked about new sections 34B(2)(b) and 43B(12)(c) it talked about the Tax Administration Act and how it should apply to the size of an organisation so that the obligation to provide an updated list of partners or members is relaxed in the case of organisations over a particular size. 
In big organisations where a tax lawyer or a tax accountant does the returns for that big organisation or in a chartered accountancy practice where returns are being done for many many organisations there can be a very high turnover in staff in the organisations themselves where those people work. Part of the requirement here is for the tax agent to provide details of shareholders of closely held companies partners in partnerships and members of unincorporated entities. It may not be appropriate in all cases to go back to the commissioner and keep on telling the commissioner about the changes in those organisations. In some instances changes could be occurring nearly weekly. That is a massive administration nightmare for some of the big organisations. It is also another form of cost for the people who use those organisations because every time the organisation fills out a new form more time is spent on doing administration the cost of which is then passed on to the clients. That is particularly the case in large partnerships where partner turnover is such that lists of partners would be required to be updated several times a year. 
The submission from the Law Society pointed out that maybe we should include a size threshold in new section 34B(12) or enable the commissioner to dispense with those requirements in certain cases having regard to the size of the organisation. When looking at tax agents I think it is important to see the whole range that is offered there. We need to have provisions in this legislation that do not make it more onerous on those tax agents moving forward. 
The other area that the Law Society talked about was the type of foreign investment fund and the determination on the type of interest in foreign investment funds and the use of the fair dividend rate model. That is in clause 165 of the bill which seeks to repeal sections 91AAO(2) and 91AAO(3) of the Tax Administration Act 1994 and to repeal their effect on a retrospective basis. In this clause we are talking about a retrospective basis going back to 2006. That is a long way to go back in legislation considering we are coming into 2008. Section 91AAO(2) provides the principles by which the commissioner would be guided when issuing determinations as to the availability of the fair dividend rate model. The society disagreed with the proposal to repeal that provision though it did accept that there might be an alternative form to amend it. 
The repeal of that provision would allow the commissioner to determine whether the fair dividend rate method applied to an investment without giving taxpayers any basis for reviewing that decision. The commissioner would not be required to follow the published criteria. If criteria were published there would be an amendment as the commissioner saw fit. If the fair dividend rate method has any validity then the principles as to when it does and does not apply must be capable of expression. Those principles should be expressed in section 91AAO(2) of the Tax Administration Act so that the commissioner is not left to make and change the law in that area at his or her own discretion and without principled guidance. 
I think it is also important to look at the penalties around people when they are doing their voluntary tax because tax is voluntary. As my good friend beside me Chris Tremain from Napier said many many people do make stupid mistakes and normally they are just stupid mistakes—they are an error. It is really important to allow the Inland Revenue Department to keep having some discretion so it can go in and say someone is a good taxpayer and it knows he or she has made a mistake. The inputs may have been put in the outputs and the outputs in the inputs by mistake because the schedule was accidentally upside down in the spreadsheet when the taxpayer was compiling it. Many people do that. Many people do not have accounting systems in their small businesses and they run things off spreadsheets all the time. It is easy to look at a revenue line and an expenditure line and to put inputs and outputs in the wrong way around. It is actually really really simple to do that in a small business.