Taxation Bill – First Reading Speech
9 June 2005
Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill – First Reading Speech
I move that the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill be now read a first time.
I shall be recommending later that the bill be referred to the Finance and Expenditure Committee for consideration.
The main feature of the bill is a package of tax measures, announced in Budget 2005 and over recent weeks, designed to promote economic growth. Many of these changes take the form of reducing tax barriers and impediments to economic growth.
The bill introduces changes to the tax depreciation rules designed to ensure more productive use of capital. That is achieved by reducing biases in the depreciation rules that distort the structure of capital investment away from the best investment opportunities. And when taxes distort investment decisions, the result is lower growth.
The changes are motivated by concerns that our current depreciation rates are too fast for buildings and too slow for short-lived plant and equipment, which can result in excessive investment in tax-preferred assets and under-investment in others. For this reason, the depreciation rates for buildings will decrease, while the rates for short-life plant and equipment will increase, becoming consistent with the rates for longer-lived plant and equipment.
To reduce some of the compliance costs for businesses, the low-value threshold for depreciable assets will rise from $200 to $500.
A number of other changes in the bill also focus on reducing the cost of tax to business and generally making the tax side of business easier for small businesses.
To reduce the number of tax payment dates that businesses must cope with, the bill aligns the three payment dates for provisional tax with those for GST, both of which will now be due on the 28th of the month. Small businesses that want to pay provisional tax more frequently, to help with their budgeting, may choose to make six payments a year, rather than three large payments, as at present.
A related change will allow businesses the option of basing their provisional tax payments on a percentage of their GST turnover. This will suit businesses that have seasonal income and who want their tax payments to be more closely aligned with their income flow.
Also introduced is a new subsidy designed to encourage small businesses to take advantage of the help that payroll agents can give them in dealing with PAYE, child support and student loan deductions from staff wages. Payroll agents will be subsidised for up to five employees per employer, for an amount to be decided by negotiation with payroll agents.
Wide-ranging changes to the fringe benefit tax rules are designed to reduce compliance costs and remove anomalies that have developed since the rules came into operation in the 1980s, including the inadvertent over-taxation of some benefits. As well, improved anti-avoidance measures ensure that the original purpose of the rules, to treat non-cash remuneration on par with cash remuneration, is not undermined.
Several of the changes relate to motor vehicles, the main source of fringe benefit tax. Employers will have the option of calculating the private benefit from an employer-provided motor vehicle on the basis of its depreciated tax value, instead of its cost, a change that a lot of businesses have said they want.
At the same time, the valuation rate applied to the cost price of a motor vehicle will be reduced from 24 percent to 20 percent, which will significantly reduce the amount of FBT paid on motor vehicle benefits.
These changes will also apply to leased vehicles, as part of achieving a better alignment of the FBT treatment of leased vehicles with that of owned vehicles.
To reduce compliance costs in relation to other fringe benefits, several new options and exemptions from FBT are being introduced, and the minimum value thresholds applying to miscellaneous fringe benefits are being raised substantially. As a result, many small, hard-to-measure or unintended benefits will no longer be covered by the rules.
Several other amendments in the bill are aimed at increasing New Zealand’s access to worldwide labour, skills and capital.
To remove a tax barrier to international recruitment to New Zealand, a new exemption on certain types of foreign income will be made available to migrants or returning New Zealanders who have been non-resident for tax purposes for ten years.
To help resolve problems associated with the New Zealand tax treatment of accrued entitlements in foreign, job-related superannuation schemes, the bill introduces changes to extend the scope of the current exemption for interests in those schemes.
The government proposes to introduce in a subsequent bill, subject to further work, an exemption for certain Australian superannuation schemes. These changes should resolve any recruitment problems and disincentives arising from our current tax treatment of interests in those schemes.
The tax rules on securities lending transactions are being updated to bring them into line with the rules on other commercial transactions and with those of countries such as Australia. The changes remove tax barriers to securities lending transactions and make New Zealand more attractive to international investment, while also preventing the use of securities lending for tax avoidance.
The bill allows companies that bring in new equity investors to have better access to tax deductions for research and development expenditure. The changes cater for the growth cycle of technology companies, in particular, and remove a barrier to R&D investment.
Similarly, the bill exempts non-resident investors from tax on the sale of shares in companies they have invested in alongside the New Zealand Venture Investment Fund. The change complements earlier reforms aimed at removing tax barriers to venture capital investment in New Zealand.
The bill introduces a number of other business tax changes. For example, it clarifies the tax treatment of income from investments in what are known as “foreign hybrids”. The change will allow members of a controlled foreign company to access tax credits for foreign tax paid on its income. Foreign hybrids will also be eligible for the so-called grey list exemption.
The bill extends the concessionary continuity rules, which apply to carrying forward losses and imputation credits, to allow for the use of the concession when a smaller, widely-held listed company takes over or merges with a larger one. I understand there is some concern about the proposed application date, so I will be interested in what submissions to the select committee have to say about it.
It introduces new information-reporting and record-keeping requirements for New Zealand-resident trustees of foreign trusts, to ensure that New Zealand can satisfy information requests from tax jurisdictions with which we have a double tax agreement.
It clarifies the tax deductibility of re-grassing and fertilising costs associated with farm conversions, to provide greater certainty and reduce compliance costs for farmers.
The bill introduces important measures to protect the tax base. New tax rules on corporate migration will ensure that companies that migrate from New Zealand pay tax on their worldwide income earned while resident in New Zealand. The changes will apply from the date of announcement, 21 March this year.
A further measure prevents avoidance of GST by use of third parties to import goods, such as luxury cars, that were offshore at the time of supply. Once enacted, that change will apply from 19 May, the date of the bill’s introduction.
Finally, the bill sets the annual income tax rates that will apply for the 2005-06 tax year.
These, then, are many of the changes introduced in this large, omnibus taxation bill. They and other changes proposed in the bill are described in detail in the separate, 135-page commentary on the bill, which has been distributed to members of this House.
I commend the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill to the House.