New tax legislation has been introduced to Parliament to ensure greater fairness in the way the tax system shapes commerce, investment decisions and social policies.
Revenue Minister Stuart Nash has introduced the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill.
"The bill implements two major policies which went through public consultation earlier this year, as well as picking up on smaller issues which have been the source of some frustration and complaint for those who deal with the revenue system," says Mr Nash.
"The legislation establishes a framework to collect GST on low-value imported goods. The changes put local retailers on a level playing field with foreign firms who have taken advantage of the tax break. There are 26,000 small businesses in the retail sector employing more than 62,000 people. They are required to collect GST on all sales, and now the same requirement will apply to offshore retail giants.
"The new GST collection system applies to imported goods valued under $1000 and will come into effect on 1 October 2019. GST on goods valued above $1000 will continue to be collected by Customs when the goods enter New Zealand.
"The internet has opened up more markets for global companies but if they want to do business here they must follow the rules like everyone else. We're not the first to introduce such a rule and eventually this will be the new reality of doing business.
"The second major change will mean residential property investors no longer get a tax break by using losses on rental properties to offset the tax payable on other sources of income such as salary and wages.
"Currently investors with loss-making rental properties can subsidise part of the cost of their mortgages through reduced tax on other income, helping them to outbid owner-occupiers for properties. Yet these investors often make tax-free capital gains when these properties are sold.
"In conjunction with the extension to the bright-line test, ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers. The new rules will not apply to a person's main home or a property that is rented out and used privately such as a bach.
"The legislation also recognises the growing use of te reo Māori as an everyday language, including by many businesses. Inland Revenue has allowed taxpayers to keep records in te reo Māori for more than 20 years but this has never been enshrined as standard practice through legislation. The right to use te reo Māori should be officially recognised in the law, rather than at the discretion of a Government department.
"Another wrong that is righted by this bill is the situation where a person who is the victim of a sex offence becomes liable for child support payments for a baby born as a consequence of that offence.
"Although an exemption is available to prevent this liability, it has only been granted twice in twelve years. In order for a victim to qualify for the exemption, the offender must have been prosecuted. Sadly, all too often sex offences are not reported and even once reported, few result in a conviction. The law change will mean the Commissioner of Inland Revenue can use her discretion in such cases when deciding whether an exemption should be granted. Not only do we want a fairer tax system, we also want a humane and effective justice system, and this change will help to achieve that.
"The bill also tidies up a somewhat confusing situation where domestic student loan borrowers are eligible for interest-free loans, but find they are charged interest which is then written off at the end of each year. This has been required as a technical workaround because of the IRD's aged technology platform. Now with the transition to a new platform, we can finally clear up that confusion and not charge interest for these borrowers in the first place."
"Our revenue system enables the funding of our vital public services but it also needs to operate fairly in the way tax is administered and collected. These changes achieve those objectives and create a fairer system," Mr Nash says.
The bill is expected to have its first reading on 12 December 2018.
For more information see taxpolicy.ird.govt.nz.
