Hon Peter Dunne
Minister of Revenue
Dunne unveils new way to give to quake appeal
New Zealanders will be able to donate their accumulated tax credits from donations they have made in the current tax year to the Christchurch Earthquake Appeal, Revenue Minister Peter Dunne announced today.
Last year tax credits claimed for donations were worth about $154 million.
“That is by any measure a substantial amount of money in tax credits, and if some or all of that were gifted to the Appeal, it would be a very significant level of gifting,” Mr Dunne said in an address to the Tax Agents Institute of New Zealand annual conference in Wellington.
From next month, people will fill in their annual tax credit claim form for their donations and will have the option of redirecting their tax credit to the Appeal.
Mr Dunne described it as “a kind of gift aid scheme”.
He said tax credit forms will be posted to people from the end of this month. They will also be available for downloading from the Inland Revenue website (www.ird.govt.nz) along with instructions on how to redirect tax credits to the Appeal.
“The message I have been getting is that many people want to be able to do more.
“This is another way to do that. It is a simple way of giving without actually opening your wallet.”
Mr Dunne added that New Zealanders could also use the payroll giving scheme to give to the Appeal.
Payroll giving is available to all employers who file their Employer Monthly Schedules to Inland Revenue electronically. Further information can also be found on the Inland Revenue website.
Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985
Hon Peter Dunne
Minister of Revenue
Address to the Tax Agents’ Institute of NZ Annual Conference
Holiday Inn, Wellington 12.30pm, Friday 4 March 2011
Good afternoon and thank you for inviting me to address you here today.
First, I would like to extend my thoughts and support to the people of Christchurch including TINZ members from the region and their families.
My sincere condolences and sympathies to all who have lost loved ones, friends or colleagues.
As a Cantabrian myself with a large part of my extended family in Christchurch, my heart is very much with all the people of that redoubtable province at this time.
Cantabrians are made of stern stuff, but that has been more than tested in recent months and in particular with last week’s horrendous quake.
As the Prime Minister, John Key, has said, it is not just Canterbury’s test, it is New Zealand’s test, and I have every confidence we will come through this shoulder to shoulder, as one people.
My speech to you today was originally going to focus on the strides we have made in restoring New Zealand’s economy coming out of recession.
However, the truth is that now, as we contemplate the scale of the destruction in Christchurch, we have to accept that this changes everything.
This is a whole new ball game and we need to respond – and we are responding – quickly, wisely and decisively.
Like everyone else in the city, Inland Revenue’s Christchurch office has been affected, but early advice suggests that it is structurally sound, although it will be weeks before it reopens.
On a human note, if you know Christchurch, the Inland Revenue building is across the road from the CTV building that has been a focal point of the tragedy that unfolded on Tuesday of last week, and a number of IRD staff endured the horror, as they were running for their own lives, of watching that building collapse knowing full well that it was occupied by a great number of their fellow Christchurch workers.
There is no over-estimating the trauma that has been suffered and what the people of Christchurch are coming through.
The current focus there is for people to take care of themselves and then to restore services as soon as possible.
In the meantime work normally done in Christchurch has been transferred to other centres.
First and foremost, we are dealing with human beings – our staff and taxpayers both.
People surrounded by human suffering and devastation have much to deal with.
These are extraordinary times and we all need to do what we can to help.
Of course, tax issues will be far from most Christchurch people’s minds at present, but what Inland Revenue can do is to give people one less thing to worry about right now, and that is what we have committed to doing.
Indeed, we have already begun to do so through the various initiatives announced in the last week.
If people cannot meet a tax filing date at this point in time because of lost or destroyed records, then Inland Revenue will be able to waive penalties and interest for those who have been victims of this earthquake.
Inland Revenue has also started running newspaper and radio ads in Canterbury to assure businesses and individuals that they will take a realistic approach in the current circumstances, and apply the discretion that the law allows.
Last year, following the September earthquake, the power to extend the remittance of use of money interest was granted to Inland Revenue. We have already extended that to cover this event.
Can I suggest that when reasonable, any of your clients who have been directly affected by the quake get their tax affairs up to date and then contact Inland Revenue regarding remission of any penalties and interest.
If your clients have debt issues, contact Inland Revenue as soon as is practical so the relevant processes can be put in place.
While we are showing flexibility on tax obligations in these tragic circumstances, we are making sure that payments expected from Inland Revenue, such as Working for Families Tax Credits, are made as usual.
Inland Revenue worked closely with the Ministry of Social Development to develop the employer and job loss cover package that was announced on Monday.
Of relevance is that the earthquake support subsidy payments to employers are free of GST this time.
Approval for this was granted by Order in Council on Monday and Inland Revenue’s website contains details of this.
My officials have been working on a wide range of earthquake-related issues such as donations, depreciation recovered consequences and concerns around hard dates that taxpayers must do things by – filing and notice dates.
I announced on Tuesday that donors to the official Christchurch Earthquake Appeal launched by Prime Minister John Key last Sunday will be able to claim a tax credit or deduction on their donations.
The Appeal will also be treated as a tax-exempt entity.
Many people are being very generous, from large businesses donating big sums through to individuals giving what they can and very generously.
We want to encourage that by ensuring those donations can get a tax credit or tax deduction.
The Appeal has been designed to complement those already established, such as the funds organised by the Red Cross and the Salvation Army.
Essentially, the Government has created the Appeal to work alongside these organisations to make sure the funds are used in the best possible way.
And while I have not previously been known to stand before large gatherings to extol the virtues of gambling, on this occasion I will make an exception.
Half of all sales from this Saturday’s special Lotto draw will go directly to the Appeal. Go out and buy a Lotto ticket this week.
I am sure you will agree that it is for a particularly fine cause.
As I have said, we are working on a wide range of earthquake-related issues. I am sure that further issues will emerge over time and when they do, I promise you that our response will be swift and willing.
Make no mistake.
We have a full sense or urgency around all elements of Government response.
We are fully committed, and will do what we can to assist and expedite Christchurch’s recovery.
It is a year since I last spoke to you and in the interim, much has occurred and changed on the tax landscape.
And the changes we have made have generally been regarded as very positive.
The 2010 Budget, I need not remind anyone, introduced some of the biggest changes to the tax system seen in many years.
It has been a watershed year for the development of our taxation system.
It was a much-needed response to the economic turmoil that New Zealand has faced, along with virtually ever other nation, in the past two or three years, and I am confident it is already paying off by placing our economy on a much sounder footing to face the future.
This is all part of our Government’s overall economic strategy.
With tax rates reduced, people have more disposable income which we want to encourage them to put into savings and investments.
We want people to invest wisely, so in the last Budget we also removed depreciation on most buildings to encourage more prudent investment decisions in a more balanced investment environment, making the old Kiwi favourite of property investment less attractive than it had previously been.
We can now get on with the business of rebuilding and restoring our economy, lifting productivity and encouraging savings and investment.
The year ahead, therefore, looks busy from a tax perspective.
The shift is perhaps best described as a move from ushering in a high level of change and reform, to bedding it in and consolidating it.
The 2011 Budget will be delivered on 19 May.
That will set out the next steps in the plan to lift New Zealand’s economic performance.
Obviously I cannot go into detail about the Budget, but I would like to talk to you about the Government’s priorities.
Our immediate concern, of course, is Christchurch’s recovery.
Recovery plans for Christchurch after the September earthquake have been set back greatly.
The scale of the disaster makes this not a Christchurch disaster, but a national one in every sense.
As such, our slowly recovering economy has taken a hit. There is no other way of dealing with this disaster, unprecedented in its scale and tragedy, than facing reality, and getting on with the task ahead.
On a broader front, I have already said that the next big challenge is to tackle New Zealand’s savings problem.
Our persistent current account deficits and high level of net foreign indebtedness leave us exposed to global and regional economic turbulence.
It is a long-standing problem which successive governments have attempted to address in a variety of ways.
KiwiSaver was, of course, an attempt to address the problem and it has been successful to the extent that it can be, but in and of itself, it is not the complete silver bullet.
In last year’s Budget, we tried to curb New Zealanders appetite for consumption and promote saving by lowering income tax rates and increasing the GST rate, but more still needs to be done.
Because no Government ever has all the answers the Savings Working Group was established to help us get the best answers
Savings Working Group
In January, the Savings Working Group issued its report.
It raised concerns about New Zealand's high level of indebtedness and vulnerability to financial shocks.
It examined measures which might reduce vulnerabilities to such shocks and improve the allocation and spread of savings.
The report recommended that the Government consider a large number of possible changes.
These included indexing the tax system for inflation or extending PIE arrangements so that there is a 5 or 10 percentage point reduction for all investors into PIEs below their normal marginal tax rates.
It also suggested extending these low PIE rates to interest and dividends more generally.
The report also set out a number of possible changes to KiwiSaver including auto-enrolment of all employees not currently in KiwiSaver, reducing the starting age to 16 and increasing the default contribution rate.
A major theme of the Savings Working Group report was the need for the Government to improve its own balance sheet faster, which severely limits the scope for any major changes to further lower taxes.
The suggested direction of change is about improving rather than reducing tax collections.
The Prime Minister has stated that Budget 2011 will be a savings and investment Budget.
The measures suggested by the Savings Working Group are among those being considered by the Government in the lead up to the next Budget.
These are major issues.
The Government appreciates the work and co-operation of all involved in making suggestions in this important area.
There is much in the report that makes good sense and I feel we are finally getting some traction with the savings problem.
By playing its part in lifting national savings, the Government will help keep interest rates low and build faster and ongoing economic growth.
In parallel to the redesign of our economy and our tax system is the redesign of how Inland Revenue goes about its work and dealing with tax agents and taxpayers.
When I spoke to you last year, I told you about my vision for a first-class tax administration that collects revenue and delivers services with speed, certainty and in a way that allows taxpayers to self-manage their tax affairs with confidence in the technology, systems and people they are dealing with.
I am pleased to report there has been progress on this front.
In June last year, Finance Minister Bill English and I launched an online consultation forum and a discussion document outlining options to improve how employers, businesses and individuals interact with Inland Revenue.
Overall, submitters supported the vision set out in the consultation, particularly the intention to improve interfaces and processes.
However, there was also strong opposition to making use of electronic technology and communications mandatory.
We are committed to moving to an "e" environment over time but we will ensure we do that in a way which builds and maintains the support of the community; working with, rather than dragging along, so to speak.
A tax bill introduced last November included the information sharing framework discussed in the consultation, and aimed at reducing the compliance burden by allowing Inland Revenue to share basic information with other departments so people don’t have to keep supplying the same details over and over.
The select committee is currently hearing submissions on this bill and will report back to the House in June.
Inland Revenue has also been working very closely with interest groups such as the Software Developers’ Working Group, NZICA and personal tax summary intermediaries, to better develop options set out in the consultation.
I expect to receive further advice from officials on these options in due course.
From April next year, Inland Revenue will provide secure access, via third party software, to key account information.
This will allow tax agents to view their clients’ tax data from within their practice management solutions.
Over time, Inland Revenue will expand the information available.
This new service will be a first step towards a full business to business system.
It is just one example of Inland Revenue working with the private sector to reduce compliance costs for business.
Having said all this, although we have taken consistent steps, business transformation is no easy task.
It requires a long term programme consistently applied to make compliance faster, easier and less costly for taxpayers.
International tax reform
This year, with a review of the taxation of offshore branches of New Zealand companies, we continue our focus on ensuring that our tax rules are internationally competitive and, where sensible, that our rules on the taxation of offshore investment are in line with international norms.
As with the foundations of a sound tax system and a sound economy, the key planks of our new international tax framework are already in place.
Over the past three years, our international tax rules have been progressively reformed.
In 2007, new rules for the treatment of offshore portfolio investments were introduced.
This standardised the taxation of nearly all such investments, removing distinctions between income and capital gains and eliminating a significant bias towards investment in certain overseas equities.
Then in 2009 the tax treatment of controlling investments in foreign companies was overhauled.
After almost two decades of comprehensive New Zealand taxation of such investments, a tax exemption was introduced for ‘active’ income such as that derived from manufacturing or distribution activities.
This brings New Zealand into line with other OECD countries and lowers barriers to the global expansion of New Zealand-based businesses.
Legislation is currently being considered which continues those reforms.
The Taxation (International Investment and Remedial Matters) Bill, introduced in October, proposes extending the active income exemption from controlling investments to non-controlling but significant investments, known as non-portfolio foreign investment funds.
These reforms help New Zealand-based businesses to compete more effectively in foreign markets.
Other Government priorities of the Government are on maintaining the tax system to ensure its integrity.
For the tax system to work efficiently we must also ensure that everyone pays their fair share of tax and that all taxpayers are treated consistently.
This is part of what I alluded to earlier – a busy programme of bedding in tax changes and ensuring fairness and consistency across the tax system.
Fairness – GST and social assistance
In December, legislation was enacted which squarely addressed fairness concerns.
The new rules prevent GST "phoenix" schemes by requiring GST-registered vendors to charge GST at a zero rate on most transactions involving land if the purchaser is also GST-registered.
Phoenix schemes involve a GST-registered purchaser claiming a GST refund without the corresponding payment having been made because the supplier in the transaction had been deliberately wound up to avoid making the GST payment.
The practice was of particular concern in the property sector, where the GST amount involved can be substantial.
Also introduced were simplified change-in-use rules and greater clarity over when GST applies to residential and commercial accommodation.
On the other side of the equation, we also want to ensure that people receiving social assistance receive their correct entitlement – no more, no less.
A loophole needed to be closed.
It had become apparent that some people with substantial financial means have been able to structure their income in ways that have allowed them to gain clearly unfair advantages over other taxpayers.
The definition therefore of “income” for Working for Families, the Student Allowance and the Community Services Card has been broadened to help prevent structuring income to access these social assistance programmes.
They need to be just that: social assistance programmes for those in need; not pots of gold for the exceedingly cunning, and I think most people agree with that.
My feeling is that the abuse of social assistance programmes by a minority, offends the sense of justice and fair play of the majority.
In Budget 2010, the Government signalled reforms to the qualifying company (QC) and loss attributing company (LAQC) rules.
The reforms are aimed at addressing a number of problems with the QC rules that, again, undermine the integrity of the tax system.
These problems included arbitrage opportunities, where shareholders could deduct losses at their marginal tax rate and pay tax on profits at the lower company rate.
After a public consultation last year, the Government introduced the look-through company rules that provide transparent tax treatment, similar to partnerships, for income tax purposes.
I would like to take this opportunity to publicly thank TINZ for its input during the public consultation.
It was a useful and informative contribution.
Under these rules, a company’s income and losses are both passed on to shareholders, so income will be taxed and losses may be deducted, subject to the loss limitation rule, at a shareholder’s marginal tax rate.
The look-through rules begin on 1 April this year.
However, we are not quite there yet.
I understand there are some issues still to be resolved with the current dividend rules as they apply to smaller companies.
There is a perception that the rules are complex, in particular that shareholders cannot access the company’s capital gains tax-free unless the company winds up.
To a large extent, this issue is addressed in the existing QC rules, although it is also acknowledged by officials, and was commented upon during last year’s public consultation, that some of the eligibility and election features of the existing QC rules do create a compliance burden for small businesses and practitioners such as yourselves.
It does concern me that the dividend rules have been described to me as “ad hoc” and even as “a mish-mash”.
Clearly this not a situation I care to allow to continue in this arena or any other.
In response to the submissions therefore, we announced last October that it was the Government’s intention to review the dividend rules with a view to simplifying them for closely-held companies.
Officials have begun reviewing the dividend rules on the tax treatment of distributions from capital sources, with a focus on closely-held companies.
The review is expected to be concluded next year.
In the interim, the present QC rules are ‘grand-parented’ for existing QCs and LAQCs who do not elect into the flow-through treatment; they may continue to use the QC rules but LAQCs will no longer be able to attribute losses to its shareholders.
For those existing QCs choosing to stop using the QC rules, special transitional provisions enable them to switch to the look-through company rules, or to become a partnership or sole trader with no tax costs.
Another change arising out of Budget 2010 was the removal of depreciation for buildings with an estimated useful life of 50 years or more.
In addition, the 20 per cent depreciation loading on new plant and equipment was removed for assets purchased after Budget day.
The Government has considered submissions on these matters and the rules introduced in December recognise that there is a case for depreciation on building fit-out.
The new rules confirm that depreciation on the fit-out of commercial and industrial buildings can still be claimed.
The issue of time of purchase of plant and equipment has also been clarified and the depreciation loading on assets can be claimed if the investment decisions were made before 20 May 2010, even if not completed until later.
In closing, this then is a broad sketch of what the Government is focusing on.
Naturally, as I indicated at the outset today, some of this will be subject to change as we of necessity give priority to the recovery efforts in Christchurch.
Where Government and the tax system can help, that assistance will be forthcoming. On Monday, the Prime Minister announced details of the initial recovery package.
At the same time we remain committed to restoring New Zealand’s economy.
Government’s priorities are focused firmly on setting the New Zealand economy on its feet again and making it stronger than before.
In this vital work, it is crucial that we have an efficient tax system which supports and enhances, rather than stands in the way and impedes New Zealand business as it sets about growing and thriving.
We have taken huge steps in that direction already. We will continue to do so. Our thinking is clear. We will be resolute in meeting all the challenges that we face as a government, a people and a nation.