Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
[Volume:613;Page:10043] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I move  
That the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill be now read a second time 
. The Finance and Expenditure Committee has considered the bill and reported it back to Parliament making a number of recommendations on the proposed legislation to ensure it works as intended. 
One of the major features of the bill is the introduction of GST reforms resulting from the Government’s extensive review of the legislation. The bill introduces a reverse charge mechanism to remove a distortion in favour of imported services which at present do not attract GST. New Zealand service providers who must charge GST on services supplied in New Zealand face therefore a competitive disadvantage as a result. 
The committee has recommended a change to improve the consistency of treatment for branches and subsidiary companies. This will ensure that the reverse charge applies in all cases where imported services are consumed within New Zealand. It has recommended narrowing the scope of the reverse charge so that the supplies of an imported service that would be zero-rated had it been made in New Zealand and consumed overseas will likewise be zero-rated. This will ensure that the reverse charge does not tax consumption overseas. 
The committee has also recommended changes to make it simpler for recipients of imported services to claim import tax credits and to ease the introduction of the new measure. Another major reform introduced by the bill is the alignment of the GST treatment of the financial services sector with that of other sectors. When GST was introduced financial services were exempt because of the difficulty of including them within the rules. This means that the finance sector cannot recover GST on purchases relating to the supply of services to other businesses which is a distinct advantage for the sector. The proposed solution is to make financial services supplied to the registered businesses subject to GST but to zero-rate them. This means that financial services will still not attract GST but providers of those services to other businesses can recover GST on related purchases. To reduce compliance costs the committee has recommended that providers of financial services be required to elect into the new arrangement rather than elect out as originally proposed. This means that participation will be voluntary rather than mandatory which will save time and money for those providers who do not wish to take advantage of the change. 
Further GST remedial amendments have also been incorporated into the bill since its introduction. One clarifies that the financial contributions made to local authorities under the Resource Management Act and the Local Government Act are subject to GST. The second amendment clarifies that late payment penalties imposed on unpaid rates under the Local Government (Rating) Act are exempt from GST. Another clarifies that the transportation services supplied to non-residents for the movement of household goods into New Zealand are zero-rated for GST purposes. 
 To turn briefly to the administration of GST a further late addition is a common-sense amendment to simplify the process for businesses to deregister for GST. Another feature is an anti-avoidance measure—the deferred deduction rule—intended to target aggressive tax arrangements that offer investors more in tax deduction than they invest. The arrangements typically involve loans and investors are not at any real risk of having to repay. The solution proposed in the bill is to defer tax deductions on loans that meet certain criteria. The Finance and Expenditure Committee has recommended changes to the proposed legislation to target this better. It has recommended narrowing the definition of “promoter” thereby removing some of the uncertainties associated with a wider definition and further limiting the types of arrangements that it might apply to. The committee also recommended clarifying a number of points relating to the consolidated approach to measuring the total cost of property held by investors and associated persons. 
The bill introduces legislation enabling employer contributions to superannuation funds on behalf of people earning less than $38000 a year to be taxed at a lower 21 percent rate—the marginal rate that applies to tax on incomes below that level. The measure was designed to reduce the overtaxation of the retirement savings of lower-income employees and to remove a disincentive to saving for retirement. I shall introduce a Supplementary Order Paper to the Committee of the whole House to address concerns expressed by the select committee about the overtaxation of contributions when the employer contribution plus the employee’s salary are more than $38000 a year. In such circumstances all the contribution is taxed at 33 percent in the bill as reported back. To deal with this concern I propose to legislate so that specified superannuation contribution withholding tax is calculated only on an employee’s salary or wages thereby eliminating the potential for overtaxation. This approach will lead to some under-taxation which may also be a concern. Therefore I have asked officials to monitor whether the option is abused when it comes into force and if so whether the Government will need to reconsider its position in that respect. 
The bill also repeals the income tax exemption for the investment earnings of sickness accident or death benefit funds because it is inconsistent with Government policy for the taxation of savings and insurance. There have also been concerns that the exemption has been exploited in schemes marketed to high-income people to reduce the tax that they pay. The select committee has recommended a separate exemption for those funds that have the required mutual characteristics of friendly societies which are exempt from income tax provided they meet certain criteria. 
The select committee has recommended including in the bill a remedy to a potential problem in relation to qualifying trusts. It has recommended a change to the definition of qualifying trusts to enable a non-qualifying trust to become a qualifying trust retrospectively. It will ensure that income tax obligations including use-of-money interest and penalties are satisfied. This will prevent beneficiaries of trusts from becoming subject to disproportionate penalties as a result of a proposed Inland Revenue Department interpretation on the tax treatment of trusts. 
This is an omnibus bill covering a wide range of often highly technical topics so I cannot cover in the time available all the bill’s contents and all the changes recommended by the select committee. I have concentrated on the latter and have not described other important reforms proposed in the bill. One of these is the legislation bringing into effect New Zealand’s part in the landmark agreement with Australia to remove a tax impediment to trans-Tasman investment. The bill makes it possible for Australian companies to enjoy New Zealand’s imputation credit rules while corresponding legislation has been enacted in Australia. Submissions on the bill made small technical suggestions but the reform was welcomed by all. Many would like to see it go further to full streaming and I am sympathetic to that position but the Australian Government is not prepared to proceed that far at this point. 
To conclude I thank the select committee for its careful consideration of this often difficult bill and I commend its report to the House. I apologise to the member following me but I have people waiting in my office for a meeting that has now been adjourned for some 20 minutes.