Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13704] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I appreciate the Minister taking a call a moment ago and I would like to follow up with him on a couple of the issues he responded to. The first is the issue of the proposed new tax treatment for redundancy payments contained on Supplementary Order Paper 167. The Minister ruled out Pansy Wong’s amendment on technical grounds saying that it covered only a certain time period. I put to the Minister in the chair and to the Government that what they are trying to do here with redundancy payments has some logic to it because a redundancy payment is a lump sum paid in recognition of a number of years’ work. Therefore it covers more than 1 tax year. I can see that the Government’s argument is that it is unfair that it should be taxed at the additional marginal rate of the year in which the payment is made because it puts the person up into a higher tax bracket when if it was spread over all the years of employment involved it may not put the person into the higher tax bracket. But the issue of compensation for injury where a person gets a lump-sum payment because he or she has been injured at work and can no longer be involved in full-time work is a similar issue. 
The lump-sum payment can cover more than 1 year’s work. All we are asking the Government and the Minister in the chair to do is to be rational. If they are going to make this provision for redundancy payments there is an even more powerful argument to make it for compensation payments because the poor person receiving the compensation payment may never be able to work again. Such people have been injured at work they get a lump sum covering more than 1 year’s payment they are put into a higher tax bracket and exactly the same arguments apply. It should not be beyond the wit of the officials in the Chamber tonight to change the provision on Supplementary Order Paper 167 to also include accident compensation lump-sum payments that cover more than 1 income tax year. I would really appreciate the Minister’s advice as to why that obvious anomaly is being ignored. 
Secondly I would like to raise with the Minister the matter of finance leases also covered on Supplementary Order Paper 167. The Minister told the Committee that the cost of these operational leases which are really finance leases is roughly $92 million—I think that is what he is saying—and the provision on Supplementary Order Paper 167 reduces that cost to the Crown down to $16 million. 
Hon Peter Dunne 
: By $16 million. 
Dr the Hon LOCKWOOD SMITH 
: It reduces it by $16 million; I had misheard. The Minister says that the department is consulted. I have talked directly today to some of the key players involved in these transactions because of course they made submissions to the select committee. I wanted to check whether the Government had reached agreement with them on this new provision. In fact it turns out that it has not. What I want the Minister to respond to is this. The margins involved in these kinds of transactions are obviously not great. If the Government is taking away $16 million in only two deals—the Minister acknowledges that it is only two deals—that predate 20 June 2007 there is no issue about closing this loophole going forward. There is no issue about that at all; the issue relates to the deals already done under existing law pre - 20 June 2007. If the Minister is recovering $16 million from those two deals there is no question that those deals will be marginal if not put under. Is it right—[ 
Interruption 
] Dr Cullen shakes his head. He talked to the players involved. They will probably put the deals under. The language they shared with me today was that it will sink the issue. What was the language used? Here it is: I wrote down that this will “put this deal under water and as a consequence there will be litigation.” I ask the Minister on what basis was this—true depreciation loss is divided by six—arrived at because some of the players say it will put them under? 
My third question for the Minister relates not to Supplementary Order Paper 167 but to clause 64 in Part 1. There has been no discussion of this tonight. That is the amendment to the fair dividend rate in respect of offshore portfolio investment holdings. This is my question to the Minister. New clause 64 the new majority provision put in by the select committee has provisions for the commissioner to determine under subclause (3) the attributing interest for which the fair dividend rate may apply and under subclause (4) the attributing interest of a person for which the fair dividend rate may not be used. There is a lot of concern about this and controversy around the fair dividend rate. This is changing the provision somewhat so my question asks how taxpayers will know specifically what the commissioner declares will be allowed for as attributing interest for the fair dividend rate provisions and what will not be allowed for by the commissioner. 
If the commissioner does not allow certain attributing interests and the person is a provisional taxpayer I ask whether people will be caught under the penalty provisions—use of money interest provisions—through not getting provisional tax payments correct if they cannot foresee what the commissioner will declare is allowed for the 5 percent fair dividend rate or is not allowed for the 5 percent fair dividend rate. The provisions here as I understand them will allow a higher tax assessment than the 5 percent fair dividend rate. If people as provisional taxpayers have based their provisional tax payments on a 5 percent fair dividend rate and the commissioner says: “Oh no this attributing interest will not be allowed for under the 5 percent fair dividend rate; another method has to be used here under the new clause 64(4).” what happens if that is a higher tax assessment and people being significant taxpayers have paid their provisional tax incorrectly because they could not foresee what the commissioner was going to declare there? 
All I am asking is for the Minister to satisfy us that that is not possible and he could tell us I guess that the commissioner will make clear at least a year in advance what payments can be covered by the fair dividend rate and what he will not allow under that rate. As long as that determination is made sufficiently far in advance I can see that my concerns will not in fact come to bear. But I would appreciate the Minister advising on that because there is some concern around the industry in this general area. So with those three issues aired I will let other colleagues follow on.