Robertson Grant: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In CommitteeText is incorporated into the Bound VolumeRobertson Grant: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In Committee[Sitting date: 10 May 2016. Volume:713;Page:10955. Text is incorporated into the Bound Volume.]GRANT ROBERTSON (Labour—Wellington Central): Part 1 of the bill as other speakers have noted consists of a series of amendments to the Income Tax Act and as Julie Anne Genter has just said the vast bulk of them are actually about amending terms to give them clarity of meaning. When we were in the Finance and Expenditure Committee it really did become a little like an English language class in that we had a number of discussions about the difference between “ask” and “apply” and between “request” and “apply”. As Stuart Nash has already said we deleted the word “written” in a number of places because of course people are not strictly speaking writing things today as they have done in the past.Quite clearly taxation law needs to be modern. It needs to keep up with the way in which terms are used in the modern world and that is why I had hoped that we would be able to debate other changes that also modernise terminology and process in the Income Tax Act because surely that should be what Parliament does. These tax bills come to us on a regular basis from the Government. We come in hope each time that the word “transformation” will actually mean something—that a bill will actually change in a significant way the way the tax system operates—and disappointment greets us on every occasion on which we come to this House. This would have been the opportunity to make a change like the one that Julie Anne Genter suggested in her Supplementary Order Paper 173 because Part 1 of the bill is about amending the terminology that is used in the Income Tax Act so that everybody using the tax system understands it.Right now today there is a section covered by this—section 59 as Julie Anne Genter said—that is not at all clear about what it actually is there to do. There is a heading in the Act “Foreign trusts” but actually when it comes to what is required of people when they read that section—they come to the Act they read the Act and they say “What is a foreign trust?”—at the moment it is bizarre. What it actually says is that unless you are in Australia we are not actually interested in who the foreign trustees are or where they are coming from. So that kind of terminology is actually important to the operation of the Income Tax Act.Being able to understand when someone fills out a form—and the process here is that there is the section of the Act section 59 which was sought to be amended here which then in turn creates an obligation under the Act that is fulfilled by filling out something called an IR607 form which is the form that you fill out if you want to have a foreign trust. What the Supplementary Order Paper that Julie Anne Genter put up sought to do—The CHAIRPERSON (Lindsay Tisch): That is out of order.GRANT ROBERTSON: I raise a point of order Mr Chairperson.The CHAIRPERSON (Lindsay Tisch): No wait until I have ruled. We cannot talk about foreign trusts because that is not in the bill. Foreign funds are a different matter. Foreign trusts are out of order because it does not appear in the bill. That is what I ruled on earlier on and that is why I want the member to come back and focus on. It was all right up until he started talking about foreign trusts.GRANT ROBERTSON: I raise a point of order Mr Chairperson. I want to be clear here that the ruling that you made just recently was that you were judging on the debate as to whether something was relevant or not. With great respect to my colleague Julie Anne Genter a debate actually involves more than one person and I believe what I have been trying to do in my call is explain why Part 1 is important why terminology in the Act is important and why—The CHAIRPERSON (Lindsay Tisch): That is fair enough.GRANT ROBERTSON: Yes and that is what I have been trying to do. I do not want to relitigate your ruling but I am doing what I think is the appropriate thing which will help the Chair in a decision about whether or not a Supplementary Order Paper is actually within scope by having a debate about it. So I will keep speaking and you will probably sit me down.The CHAIRPERSON (Lindsay Tisch): I thank the member. I say to the member Julie Anne Genter that I think you have raised a very important issue here that is going to need further much closer examination. I have made a ruling—and I know that you are probably not happy with that ruling—on the basis of advice but I am sure you have raised something that we will need to consider more fully in time. But as it stands at the moment I have made the ruling and we are staying with that. I say to Grant Robertson in respect of the points that you are making to tread very carefully but up until the foreign trusts part you were within the scope in my view.GRANT ROBERTSON: Thank you Mr Chair. The point that I was making—the first of a couple of points I want to make about Part 1—was that the issues that are covered in Part 1 are around terminology essentially and that those things are important and that they are in constant need of updating because the meaning of words and the way words are interpreted does change.For instance there was a discussion on clause 31 which amends section EK 16 about what is the difference between “informed” and “notified”. The idea was that being “notified” came back in the definitions that we discussed as being a very formal concept—a concept that would be one that would have to be in writing for instance. We discussed the importance of how those terms changed their meaning over time and the same applies I think to matters throughout the Income Tax Act including definitions of terms like “foreign fund” “foreign trust”—whatever you want to choose. I think that it is a valid discussion to be able to say: “Let’s get the terminology right and let’s be consistent with what happens in the rest of the world.”One of the criticisms that has been taking place in recent times over aspects of our tax legislation is that we are out of step with the rest of the world and that we are creating the mismatches that the Prime Minister talked about and the Minister in the chair Michael Woodhouse talked about in the House earlier today. The concern that there is a mismatch between our tax regime and that of another country is what creates difficulty. It creates what they call arbitrage opportunities for people if there is a difference between one country’s tax system and another. Therefore the terminology that we use needs to be consistent internationally and I think that is precisely what Julie Anne Genter was attempting to get across in her Supplementary Order Paper 173—the way in which we govern particular aspects of our tax regime is not consistent with the rest of the world.The terminology we use and the underlying meanings of the forms that we ask people to fill in are not the same. That can be exploited by people who want to hide their wealth and people who do not want to pay their fair share and we should not stand for that as a country. That is why in Part 1 of this bill the changes to terminology are important because New Zealand should have a tax system that is consistent and that is well regarded around the world and that is at risk as we stand here today.I do want to move on in the remainder of my call to another matter in Part 1 which is the question of employee share schemes. Just to make sure we are all happy that this in scope it is covered precisely by clause 52 and onwards from there. Essentially the issue that the select committee was asked to debate when this came up was effectively changes that allowed employees to choose to withhold tax using the PAYE rules on any employment income that an employee received under a share scheme. There was a balancing requirement put into the legislation that there be a requirement on employers to disclose the tax value of any benefits under a share scheme done using a monthly schedule for employers. Largely people supported the first part of that which is that there should be more flexibility around the way that tax on employee share schemes is imposed but people were not so keen on the requirement on the other side to be able to actually report on that. So the officials and our expert adviser worked on this.Employee share schemes are a good thing. They are an important part of many people’s contracts and working lives now and they are well regarded by a lot of employees. It helps people feel a sense of ownership of the organisation that they work for. But obviously when it comes to taxation they create some level of complication and the possibility that people will not be as transparent as they were.The select committee when we considered this adopted a series of changes that essentially allow the—there was a general acceptance that employees could choose to use withholding tax to deal with this but in terms of their reporting obligations a number of changes were made essentially allowing large employers to have additional time to compile the necessary information for making the returns that were needed. Essentially this has been done by deeming share scheme income to arise in the next repayment return period for a large company. That is understandable because it gives them the benefit of having a little bit of additional time to be able to do this while still disclosing the information that would be required in a normal monthly schedule.We in the select committee were happy to accept that recommendation to allow companies to do this but our expert adviser was at pains to point out to the select committee that this was the kind of clause we would probably have to return to and review at some point to ensure that the obligations were actually being met and that they were not themselves too onerous when they were met. It is important because as I say on this side of the Chamber we support the idea of employee share schemes being part of contracts because they are in many ways part of the new way of doing business.I know my colleagues on the other side of the Chamber are fascinated by the Labour Party’s Future of Work project and one of the things that has arisen during that—Brett Hudson: Oh I was wondering when you’re going to do some.GRANT ROBERTSON: Brett Hudson I know spends all day poring over the Labour Party’s Future of Work documents. If he did he would see that one of the issues that has arisen during that discussion is different forms of organisation of work be they cooperatives be they people working on their own and self-employed—or examples like share schemes and the growing use of those in the future of work.On this side of the Chamber we are happy to support the clauses about this because they allow us to support a new way of people being recompensed and keeping the Inland Revenue Department happy at the same time. That level of flexibility that has now been included for those employers with employee share schemes to be able to choose how they pay their tax and to have a little bit of scope in terms of when they disclose that needs to be handled carefully.