The New Zealand Tax Podcast: John Cuthbertson of CAANZ on how to make effective submissions to Parliament

(This is an edited transcript of the podcast episode which aired on 26th September)

My guest this week is John Cuthbertson, FCA from Chartered Accountants Australia and New Zealand, (CAANZ). Since 2017, John has led the New Zealand tax team responsible for engaging with Inland Revenue, Treasury, Government and Opposition MPs on tax law reform, policy settings and administration. He joins us today to discuss CAANZ's public role in advocacy, the Generic Tax Policy Process, and the new tax bill released last month and how to make effective submissions. Welcome, John. Thank you for joining us.

John
Thank you for having me, Terry.

TB
Not at all. Been a pleasure to bring you on. I've been looking to do so for some time. So, tell us a little bit about your specific role with CAANZ, the size of your team and how it plays out.

CAANZ’s tax advocacy team & role

John
We're a perfectly formed small team, TB. We have 2.3 full-time equivalents in terms of senior tax advocacy roles, which basically means that my three staff work part-time. And with that, there's myself and a member knowledge specialist who's responsible for our newsletters and our digital side of things. We amplify what we do or work with our tax advisory group, which is broadly put together from a cross-section of chartered accountants in New Zealand, from public practice through to commerce and academia. And they work closely with us for the various submissions we put out each year. We do advocate in the public interest, which really means free from sectorial bias and what's good for New Zealand Inc, what's good for the taxpayers, but also at a higher level, what's good for the tax system as a whole.

TB
You would be constantly talking with Inland Revenue and policy officials on a number of things at any one time, generally. Would that be the case?

John
We have regular meetings. We meet on a fortnightly basis for a half hour catch up, if you like. But we're not just advocating on the tax policy that is coming through. We also submit on all of the draft public rulings, and we look at the various documents that come out for taxpayers to complete each year. We're providing input into all of that. We did 60 submissions in the year ended 30 June, just gone. That's a huge commitment.

TB
So much stuff is pushed out by Inland Revenue, I can't possibly cover it in the podcast. I pick up stuff with those major interpretation statements, at least one or two a month, and then basically smaller rulings, et cetera. So the volume of work your team works through is phenomenal.

John
Yes, last week alone, we had five submissions due on Friday.

Submissions on tax bills

TB
So you're doing submissions, and you've talked earlier about that process in relation to rulings, interpretation statements. But then every so often, twice a year, we get a big tax bill that’s dropped on us sometimes.  What happens then? Because we've got the current one, the Taxation (Annual Rates for 2025-26 Compliance, Simplification, and Remedial Measures) Bill.

And this is obviously where your team will be very busy now because submissions are due by October 23rd. And am I right in thinking you'll make a written submission, which will be quite substantial, over 100 pages? I think that's not uncommon, but you'll also appear in front of the Finance and Expenditure Committee to talk through particular points.

John
Yes. We definitely do a written submission and it’s not uncommon for our submissions to get to about 160 pages. And that submission, we're somewhat unique in that we submit on virtually the whole of the bill. There'll be areas where we can't add any value to, we recognise that, but we generally try to submit on the majority of the bill. And the reason we do that is because it sort of sets it up as, it sounds a bit rude, the sort of centrepiece submission in a way. In the sense that that's what the committee use because we summarise the main clauses of the bill, and then what we do is we put forward our view and backup for it in terms of a set out.

Officials and MPs can use our submission as sort of a non-biased opinion on the bill if you like, so that they've got a document, and we purposely set it out so that they can print it off and write their notes between the margins. We've left all that space for them because that's what they told us they wanted.

Appearing before the Finance and Expenditure Committee

That's the written process. And then usually within about a week of the bill being due, the written submission, you then appear before the Finance and Expenditure Committee. That's at your option, but we always take that option. And then you get between 10 and 15 minutes, just like any other submitter, to make your points.

So usually when we go along to that phase, we're very selective. And by that stage, having gone for a massive submission process, there'll be four or five key issues that stand out for their own reasons. And we will pick two of those areas and take that to the committee on the day. And we're usually one of the first to submit, so that's quite nice. And then we get to go through, and they'll ask questions. And then if you're really unlucky, they'll ask questions about things you haven't actually talked about, which can get a lot more complicated.

But it's a very good process. And to be fair, you don't want surprises coming up at that stage because it's sort of too late. You really want most of the things to be known. And the time against the select committee, ideally, it would be a no surprises basis. But unfortunately, there are often things that need to be dealt with.

What about Amendment Papers?

TB
So, for example, let's say something unusual happens between now and October, they may drop in an Amendment Paper [previously a Supplementary Order Paper]?  These can be controversial because sometimes they come in, and no one's had a chance to submit on them. These Amendments tend to find themselves getting amended further on down the track because they haven't gone through that consultation process. Or am I being unfair on the process?

John
I think it depends on the amendment, TB, and the problem you have is there's a huge variation in what those amendments can be. In some cases, the amendment that gets put in later simply because they ran out of runway for the bill, which has to be completed by a certain time. But they've still done the majority of the work, and they do the extra work to bring it in. And it depends when it comes in on the process of the readings of the bills as to how much public scrutiny it does get.

A clarification or a change in the law?

If it comes in at the very end, then it gets no scrutiny. But if it comes in slightly earlier, there will be scrutiny. I'm more concerned about the things they call clarifications, because quite often they're not. Clarifications can often be a change in the law. That's probably what more concerns me, but you're right. We would always try, and people can actually put a supplementary submission in if they want to, a written submission and see how that goes. It might not always be accepted, but you've got that option and sometimes they will allow for that automatically. That will be stated that you can submit on this point and require a new due date, but certainly if something has come in late and it's controversial or it's not what we would want, then definitely that'd be one of the topics we would raise in our oral submission.

The problem with the 2020 trust disclosure rules

Now, if I go to the trust disclosures one, which is a pet hate of ours to be honest with you, that had all the hallmarks, TB, of coming in late as a pre-Christmas present, under urgency, without public consultation. And came with the 39% rate also introduced the same way for when that all came through.

And it's never good to put something like that into primary legislation because it's very hard to alter and fix in a quick and meaningful way. And it just went way over the top. And what I mean by that, my personal preference would have been that they'd had a census to get the information gaps that they had and fill it in that way first and then have a lot lesser regime in terms of information you want to keep on an ongoing basis.

11% of trusts return 81% of the income

They've had a number of years of this now and we use their own data they collected from the first year of the trust disclosure information to go to the select committee when they were putting the trustee rate up to 39%. Because their own data showed in the end that there was only 11% of trusts that earned more than $180,000 in this country as total trustee income. But the dichotomy was that those 11% actually earned 81% of total trust income.

TB
Wow.

John
And when you went through the numbers underneath that, there was a very significant number of trusts that earned very little income, nowhere near $100,000 or $80,000. Some of them were just $1,000 or $2,000 when you think about it. And that very small percentage, and this is how we got to that scenario, having a small trust exemption in terms of the trustee rate at 33%, which we pushed for very hard.

We think the rules as they've stood, and they've been gradually reduced, are still too harsh on the smaller trusts because even though they've got reduced disclosure requirements, they're still disclosure requirements and still quite onerous to do. We would like now to see those smaller trusts removed completely and just look very closely at the information you need from the larger trusts.

Because we had a whole mismatch there on the way through of information around distributions and deemed distributions and deemed settlements. And some of them it was just going to the family bach for a holiday, it was in a trust scenario, and you had the option of valuing that at market value or nil. Most people would have taken nil. But once you start mixing numbers and characterisations up like that, you get some meaningless data. I'm not sure what you got out of that. And I think they just didn't know what they wanted and asked for too much.

Impact of the Trusts Act 2019

TB
Yes, that was a problem. That's picking up an earlier point, that one-size-fits-all. Yes, the trust disclosure rules were very onerous. The new rules did coincide with the Trusts Act 2019 coming into force which requires more disclosure going on then, but my view would be, “What's the baseline that's required under the Trusts Act 2019?”  And that ought to be acceptable within certain parameters, unless you define a large trust and say it's income is X or assets worth Y and work around that rather than the approach we got.

John
The problem though Terry, with the rules that they brought in was that they weren't quite linked with the trust.

So you were asking for things that weren't already in existence and people had to then create extra costs to combine things or strip things apart like land and buildings. Now they've realised that, they've simplified that to allowing you to present it in the way you normally present it.

The problem we see though, is whilst it looks good that this is being repealed from our perspective, when you read the fine print, and it's always in the detail, it says because they think that they've got their general powers to collect the same sort of information and it's up to the Commissioner now to decide what information they need on a go-forward basis. So, if you saw one of our recent press releases, it was more around a plea to Inland Revenue to be sensible about what they  need be mindful of . And I think there's a huge dichotomy here between that small trust, big trust scenario when you look at where all the income's been earned. And the problem's different now too, because we've got a trustee rate of 39% and a top marginal tax rate of 39%. Presumably that's taken some of the heat out of what the fear was in the first place and why they needed the information.

Tips for a good written submission?

TB
In terms of tips for submitters, what would you say from your experience? Because obviously, you've probably got the best guides on how to submit. All submissions pick out key points and use your 10 min that you get wisely. But on a written submission, what would you say would be a good way of approaching it?

John
Look, there's one key bit of advice I'd give, and you can take this how you like, but I think a lot of submitters are guilty of focusing on the negative. They'll come out and say “We absolutely hate this thing. You should not do it. What the hell were you thinking?”

But that's all they say and they don't offer anything. I think what is really powerful is if you can come along and say “look, we don't like this for X, Y, and Z reasons. We think there's a better way of doing it or achieving what you want to achieve. And by the way, this is what it could look like.”  If you can put up alternative scenarios, that's what we went to the select committee with on that 39% trustee rate.

We came out and said well, we've got this data now from you. We had an Official Information Act request. We gave them a two-page summary and when presented on it and we did that in advance. So, I think for submitters the idea is not just to have a rant.  I think for some people it's cathartic, but it doesn't achieve anything other than getting it off your chest.

The reality is having your eyes open, be measured and objective. It's not a personal affront. What you're trying to do is be seen to be sensible and have objective ideas. Set out what you see wrong with it, that's fine, but then offer up an alternative, that's the most powerful thing you could do. And you may not have an alternative necessarily, but you don't have to have all the technical detail to say how this will work, because that's their job to put together at the end of the day. If you can help them, that's fine.  If you've just got a genesis of an idea which says, well, could it be done another way, which would involve this and this? That's all you have to do. You don't have to give them the answer. All you have to do is point out that it's in need of a solution and that's possibly what it could look like.

TB
Well, I think on that note, that seems a good place to leave it. My guest this week has been John Cuthbertson, FCA of the Tax Leader of Chartered Accountants, Australia and New Zealand. John, it's been fantastic to have you on talking about your role, The Generic Tax Policy Process and submissions. And thank you for your insights on the new tax bill. Really great pleasure to finally have you as a guest. Thank you so much.

John
Well, thank you for having me, TB. It's been a been a pleasure.

TB
That’s all for this week, I’m TB Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts. Thank you for listening and please send me your feedback and tell your friends and clients. Until next time, kia pai to rā. Have a great day.