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Taxation (Kiwisaver and Company Tax Rate Amendments) Bill (Consistent) (Sections 5, 19) [2007] NZBORARp 9 (10 May 2007)

Last Updated: 2 January 2019

Taxation (Kiwisaver and Company Tax Rate Amendments) Bill

10 May 2007

Attorney-General

LEGAL ADVICE

CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990: TAXATION (KIWISAVER AND COMPANY TAX RATE AMENDMENTS) BILL

1. We have assessed whether the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill (‘the Bill’) is consistent with the New Zealand Bill of Rights Act 1990 (‘the Bill of Rights Act’). We understand that this Bill will be considered by Cabinet at its meeting on 14 May

2007.

2. In our view, the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights Act. In reaching this conclusion, we considered a potential issue of consistency with section 19(1) of that Act.

PURPOSE OF THE BILL

3. The Bill introduces changes to current tax law contained in the Income Tax Act 2004, the KiwiSaver Act 2006 and the Tax Administration Act 1994 to encourage employees to join and continue making contributions to the Kiwisaver scheme. The Bill also decreases the company tax rate, and makes a number of remedial amendments for the new portfolio investment entity rules.

CONSISTENCY WITH SECTION 19 OF THE BILL OF RIGHTS ACT

4. Section 19(1) of the Bill of Rights Act protects the right to freedom from discrimination on the grounds of discrimination set out in section 21 of the Human Rights Act 1993, including age (which means any age of 16 years old and over).

5. Taking into account the various domestic and overseas judicial pronouncements as to the meaning of discrimination, the key questions in assessing whether discrimination under section 19(1) exists are:

• Does the legislation draw a distinction based on one of the prohibited grounds of discrimination?; and
  

• Does the distinction involve disadvantage to one or more classes of individuals?

6. If these questions are answered in the affirmative, we consider that the legislation gives rise to a prima facie issue under section 19(1) of the Bill of Rights Act.

7. Where a provision is found to be prima facie inconsistent with a particular right or freedom, it may nevertheless be consistent with the Bill of Rights Act if it can be considered a reasonable limit that is justifiable in terms of section 5 of that Act. The section 5 inquiry is essentially two-fold: whether the provision serves an important and significant objective;

and whether there is a rational and proportionate connection between the provision and the objective.[1]

Tax credit for member contributions

8. New section KJ1 of the Income Tax Act 2004 introduces a tax credit for contributions made by a person to a Kiwisaver scheme or a complying superannuation fund. The aim of the tax credit is to increase the incentives to join Kiwisaver and to continue to make regular contributions. New section KJ2 provides that the tax credit will only be available to members of the Kiwisaver scheme or a complying superannuation fund ("members of Kiwisaver") who are 18 years of age or older and are less than the age of eligibility for withdrawal from the Kiwisaver scheme.

Tax credits for 16 and 17 year olds

9. Under new section KJ2 members of KiwiSaver who are aged 16 or 17 years old are not entitled to the tax credits that are paid to other members. This creates a disadvantageous distinction on the grounds of age and, therefore, the provision can be said to be prima facie discriminatory under section 19(1) of the Bill of Rights Act. This provision must therefore be justified in terms of section 5 of that Act.

Is this a justified limitation under section 5?

10. The KiwiSaver scheme was established to encourage in individuals a long-term savings habit and asset accumulation with the aim of increasing individuals’ well being and financial independence, particularly in retirement. New section KJ2 contributes to the appeal of the KiwiSaver scheme with the promise of tax credits to members of KiwiSaver.

11. The purpose of the age distinction is to avoid creating an incentive for those aged 16 or 17 to leave educational training and enter the workforce in order to obtain the benefit of a tax credit. In our view, this is an important and significant objective. High importance is placed

on young people obtaining an education, with many young people actively encouraged to

continue their education whether through remaining in secondary school or in other educational facilities. In addition, by encouraging young people to stay in educational facilities for longer, the provision is helping to ensure the greater earning power of those young people and hence improve their ability to save in the future. Accordingly, we consider that new section KJ2 meets the first limb of the inquiry under section 5 of the Bill of Rights Act.

12. While we acknowledge that a disadvantage exists for those aged 16 and 17, we consider the disadvantage would be minimal in practice. We note that the enrolment rules for the Kiwisaver scheme exclude many types of jobs that young persons are traditionally employed in – namely casual agricultural work and temporary employment of 28 days or less (see sections 10 through 12 of the Kiwisaver Act 2006). We further note that 16 and 17 year olds need to "opt in" to the Kiwisaver scheme as opposed to being compulsorily enrolled. This raises the question of affordability. People aged 16 and 17 years generally earn less than those aged 18 and over, so the number of young persons who can afford to make contributions is likely to be low.

13. We consider that new section KJ2 is rationally and proportionately connected to its objective and is therefore justified in terms of section5 of the Bill of Rights Act.

14. In forming our view, we were guided by recent decisions in the European Court of Human Rights (ECHR). In a series of cases considering alleged discrimination in the United Kingdom Superannuation Scheme the ECHR re-affirmed the wide margin of appreciation to be afforded in the area of social and economic policy including taxation. In such areas the ECHR will defer to the legislature unless it is established that the policy is "manifestly unreasonable".[2]

15. We also took account of the fact that age-based distinctions of this nature are transitory and non-stigmatizing in character. Members of Kiwisaver who are aged 16 and 17 years old will feel the effects of the distinction for a limited period only with the consequence that such effects are to some degree mitigated by the knowledge that they are temporary in

character. More broadly, such distinctions may be justified as permitting fair distribution over time: that is, the provision of a tax credit to all employees but for only part of their working lives is acceptable given the financial implications associated with providing tax credits.

Tax credits extinguish at New Zealand Superannuation Age

16. Under new section KJ2, entitlement to the tax credits ceases when a person becomes eligible for withdrawal from the Kiwisaver scheme: that is, the age of eligibility of New Zealand superannuation or 5 years of membership, whatever is the later. We note that this provision reflects the eligibility criteria for the Kiwisaver scheme, which is set out in section

10 of the Kiwisaver Act 2006. In our advice on the Kiwisaver Bill, dated 13 February 2006, we concluded that any disadvantage this distinction created for people over the New Zealand superannuation age was justified in terms of section 5 of the Bill of Rights Act.

CONCLUSION

17. We have concluded that the Bill appears to be consistent with the rights and freedoms contained in the Bill of Rights Act.

Stuart Beresford Principal Advisor Public Law Group

Margaret Dugdale
Manager, Bill of Rights/Human Rights
Public Law Group

Footnotes

1 In applying section 5, we have had regard to the guidelines set out by the Court of Appeal in Ministry of Transport (MOT) v Noort [1993] 3 NZLR 260 Moonen v Film and Literature Board of Review [1999] NZCA 329; [2000] 2 NZLR 9; and Moonen v Film and Literature Board of Review [2002]

2 NZLR 754 and Supreme Court of Canada’s decision in R v Oakes (1986) 26 DLR (4th).

2 Walker v United Kingdom (Application no 37212/02), Pearson v United Kingdom

(Application no 8374/03), Barrow v United Kingdom (Application no 42735/02)

In addition to the general disclaimer for all documents on this website, please note the following: This advice was prepared to assist the Attorney-General to determine whether a report should be made to Parliament under s 7 of the New Zealand Bill of Rights Act 1990 in relation to the Taxation (Kiwisaver and Company Tax Rate Amendments) Bill. It should not

be used or acted upon for any other purpose. The advice does no more than assess whether the Bill complies with the minimum guarantees contained in the New Zealand Bill of Rights Act. The release of this advice should not be taken to indicate that the Attorney-General agrees with all aspects of it, nor does its release constitute a general waiver of legal professional privilege in respect of this or any other matter. Whilst care has been taken to ensure that this document is an accurate reproduction of the advice provided to the Attorney-General, neither the Ministry of Justice nor the Crown Law Office accepts any liability for any errors or omissions.