Collins JudithTAXATION (ANNUAL RATES FOR 2017-18 EMPLOYMENT AND INVESTMENT INCOME AND REMEDIAL MATTERS) BILLFirst ReadingHon JUDITH COLLINS (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 first time. I nominate the Finance and Exp enditure Committee to consider the bill. This bill serves two purposes that are important for the health of our tax system. A good tax system comprises good tax policy supported by good tax administration. This bill contains proposals to improve both sides of the equation. Along with setting the income tax rates for the 2017-18 year as the name of the bill implies the rates remain unchanged from the previous year. This bill contains proposals for modernising tax administration and also contains proposals aimed at improving the current tax settings within a broad based - low rate framework.The Government's vision for the future is for most people to pay the correct amount of tax through the year and if there is any refund or tax to pay that will be calculated by IRD. To achieve that vision of a simple tax administration the Inland Revenue Department needs good timely information direct from income payers—for example income information provided by employers and investment income payers. People will be able to check and confirm that information if they wish. Good accurate information will mean greater accuracy of tax collected through the year and help prevent individuals from getting into debt.This bill therefore includes proposals for payers of dividends interest and tax for Māori authorities; distributions to provide detailed information to the Inland Revenue Department on a monthly basis or for the months in which payments are made if the payment frequency is less than monthly. Currently payers of these sorts of income provide only aggregate information at year-end to the Inland Revenue Department. The Government is conscious of compliance and administration costs for payers of investment income so to reduce these costs the bill proposes that investment income payers be allowed to correct errors in previous withholding tax returns in their next return without incurring penalties or interest subject to restrictions for errors being corrected in the following tax year. In addition the bill proposes removing the requirement for interest payers to provide end-of-year withholding tax certificates to income recipients who have provided their IRD numbers. The investment income information changes will generally apply from 1 April 2020.The second group of tax simplification proposals is aimed at employers. One of the objectives of the Government's transformation of tax administration is for businesses to spend more of their time focusing on growing their businesses rather than fulfilling tax requirements. Businesses using accounting software to prepare and send their GST returns to the Inland Revenue Department are experiencing a significant compliance cost reduction. The Government wants employers to benefit from this approach too so the bill proposes changes that will enable employers to benefit from modern software but does not require them to use it. The proposed changes are intended to reduce compliance for employers by integrating tax tasks like providing PAYE information into their normal business procedures. The bill proposes requiring employers to provide the Inland Revenue Department with information about their employees' income and deductions on a pay-day basis rather than on the current monthly basis.In line with the theme of modernisation this bill proposes abolishing a subsidy that has outlived its purpose. In the early days of electronic filing of PAYE information the use of a payroll intermediary made compliance easier for small employers and helped to guarantee a better standard of information provided to the Inland Revenue Department. An incentive to use an approved intermediary was therefore provided. The range of payroll products and services has developed significantly in the intervening years and an incentive is simply not appropriate any more. The bill therefore proposes to repeal it from 1 April 2018. These are some of the main proposals relating to modernising our tax administration.I turn now to the second category of proposals: those aimed at maintaining our broad based - low rate tax system. To remain effective the tax settings must constantly evolve to keep abreast of changes in the economic environment interpretation of the law and business practices. One such change is the growing popularity of employee share schemes. The tax laws relating to employee share schemes have been in place for many years but since their establishment they have not been revisited. In the meantime employee share schemes have become a more popular form of remuneration amongst employers. The bill therefore proposes a number of changes to modernise and improve the taxation of employee share schemes.The main objective of the proposed reforms is to ensure that as far as possible the tax position of both the employer and the employee is the same whether remuneration for labour is paid for in cash or in shares. This means ensuring that the share scheme cannot be structured to give employees tax-free remuneration. For example under current law an employee can be given what is economically a valuable share option without being taxed on that benefit whereas the provision of an actual option is taxable when the option is exercised. The proposals in this bill remove this distortion.The bill also proposes allowing employers a tax deduction for the amount of the employee's share scheme income at the time the employee is taxable in order to align the tax treatment with other types of employment income. So it is a balanced package that benefits business.In response to submissions to minimise compliance costs it is proposed that the tax-exempt widely offered employee share schemes are retained. The bill however proposes some amendments to modernise the rules and to close certain loopholes that are currently being used to obtain unintended deductions. Transitional rules are included in the bill which will allow most companies 6 months after the enactment of the bill to amend the employee share schemes if necessary to take into account the new law.The Government is keenly aware of the value of employee share schemes as a form of remuneration particularly in innovative start-up companies and to remove some potential tax impediments faced by start-up companies in offering employee share schemes officials are currently developing a public consultation document that defines a proposal contained in the 2016 issues paper. Public feedback is important to the development of sound tax rules and therefore I would encourage interested parties to make submissions to the Finance and Expenditure Committee on the proposals contained in this bill.The bill proposes making available a refundable tax credit to address the losses arising from decommission expenditure incurred by a petroleum miner. This is similar to other refundable tax credits already included in the Income Tax Act 2007 most relevantly the refundable tax credit for mineral mining rehabilitation expenditure. The existing rules addressing this situation involve significant compliance administration costs. An amendment is proposed to create an exclusion from the dividend rules for certain company demergers. The full value of the shares in a demerged company is currently treated as a taxable dividend for the shareholder. However a genuine demerger is in substance the division of a corporate group rather than a distribution of income and should not therefore give rise to taxable income. In practice the problem has arisen in relation to demergers by listed Australian companies so the proposed solution focuses on these. This is a good example of tax policy being responsive to the valid concerns of the private sector.A proposed amendment would provide the Inland Revenue Department with the discretion to issue IRD numbers to offshore persons without a New Zealand bank account if satisfied with their identity and background. This is intended to give the Inland Revenue Department sufficient flexibility to deal with a range of different cases in a timely basis and reduce undue compliance costs.Five new charities are proposed to be added to the list of donee organisations in schedule 32. New Zealand charities that support overseas activities must be listed in schedule 32 in order for their donors to be eligible for tax benefits in particular the donations tax credit. The proposed new additions to schedule 32 are Beyond Disaster Relief New Zealand Flying for Life Charitable Trust Médecins Sans Frontières New Zealand Charitable Trust Tony McClean Nepal Trust and Zimbabwe Rural Schools Library Trust.Finally the bill contains a range of remedial matters. These and other measures proposed in the bill have been developed to strengthen our tax system by modernising the administration to make it easier for people to get their tax right in the first place. I commend the bill to the House.