Document 2 Briefing to CE MAB fees and tax treatment.pdf

IN-CONFIDENCE
Memo
To:
Chappie Te Kani, Acting Chief Executive, Secretary for Children
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From:
Jane Fletcher, Acting DCE Governance and Engagement
Date:
26 November 2021
Security level:
IN-CONFIDENCE
This memo may contain legal advice and be legally privileged. It should not be disclosed on an
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information request, without further legal advice.
Ministerial Advisory Board fees and payments
Purpose
Official
1.  The  purpose  of  this  memo  is  to  provide  you  with  an  update  on  the  treatment  of  Ministerial
Advisory Board Members fees and the next steps required to correct the historical payments to
date and confirm the future treatment of fees in line with the Cabinet Fees Framework (CFF).
Summary
2.  Following  a  recent  review  of  Board  Member  invoices,  payments,  and  the  Cabinet  Fees
Framework  (CFF)1  it  was  identified  that  Oranga  Tamariki  was  not  applying  the  appropriate
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treatment of tax consistent with the CFF.

3.  Independent  advice  was  sought  from  PwC  to  support  Oranga  Tamariki  in  applying  the  CFF
appropriately  and  identify  what  actions  were  required  to  correct  historical  payments.    PwC
confirmed Board Member fees are not subject to GST but are subject to Withholding Tax (WHT)
and  several  steps  are  needed  to  correct  future  payments  and  remedy  historical  payments.
These steps and necessary adjustments are outlined in this memo.
Recommendations
4.  It is recommended that you:
a)  Note the contents of this memo

Yes / No
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b)  Agree to the letters attached as Appendix A being sent to each Board member
Agree / Disagree
c)  Note that following receipt of the assurance from each Board Member, we will need to
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prepare a letter for Inland Revenue providing assurance of the steps we have taken
Yes / No
d)  Agree to transfer the Ministerial Advisory Board budget to the Director Secretariat.
Agree / Disagree

_________________________

________________________
Chappie Te Kani

Date

Acting Chief Executive, Secretary for Children

1 CO-19-1-Fees-Framework-for-members-appointed-to-bodies-in-which-the-Crown-has-an-
interest.pdf (publicservice.govt.nz)

IN-CONFIDENCE
Background
5.  The Oranga Tamariki Ministerial Advisory Board (the Board) was established by the Minister for
Children in January 2021 commencing from 1 February 2021.  There are four Board Members
with one of the Board Members being the Chair.

6.  In August 2021, we became aware that there may be issues with some of the Board members
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invoices  and  the  application  of  the  CFF  so  we  initiated  a  review  of  all  fees  paid  to  the  Board
Members.

7.  We  found  that  we  have  paid  several  Board  Member’s  incorrect  invoices  due  to  not receiving
correct advice from the commencement of the Board, and not understanding the application of
the  CFF.    Oranga  Tamariki  (at the  request  of  the  National  Accounting  Centre)  requested  the
invoices from Board Members include GST and did not advise that the payments should have
been subject to WHT.
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8.  Since  September,  and  throughout  October,  we  have  continued  to  seek  advice  regarding  tax
treatment to  ensure  we  align  with  the  CFF.   We  sought  independent  advice  from  PwC  as  the
recommended experts in applying the CFF; this advice is attached as Appendix B.
Summary of independent advice from PWC
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9.  The four Board Members are appointed to perform a schedular activity (being work or services
performed by chair or member of a committee, board or council).

10.  Payments to individuals for performing a scheduler activity are known as schedular payments.
Under  legislation,  an  employer  is  required  to  deduct  WHT  on  schedular  payments  unless  an
exemption applies.

11.  The Board members have been appointed by the Minister for Children in their personal capacity.
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Both the relevant legislation and the CFF are compelling support for the requirement that Oranga
Tamariki withholds WHT on the payments to the Board Members.

12.  Recommendation  that  WHT  should  be  deducted  from  payments  to  the  Members  at  the
appropriate rate, unless the Members provide a Certificate of Exemption, or another exemption
applies.    Based  on  their  review  of  documentation,  PwC  consider  it  unlikely  that  another
exemption applies.

13.  Section 6(3) of the GST Act 1985 specifically excludes certain activities from being considered
a  taxable  activity,  including  any  engagement,  occupation  or  employment  as  a  chairman  or
member of any local authority or any statutory board, council, committee, other body, subject of
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Section 6(4) of the GST Act.  Accordingly, both the GST Act and the CFF provides compelling
support that the payments to the Board Members should not be subject to GST.

14.  Going  forward, the  default  position  should  be  that  WHT  applies  to  payments  to  all  the  Board
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Members (and any additional members to the board), and GST should not apply to the payments
to the Board Members.

15.  As this treatment will differ from the tax treatment that Oranga Tamariki and the Board Members
have been applying in the past, the requirement to deduct WHT, and the expectation that GST
should not be charged, should be clearly communicated to the Board Members.

16.  To address the tax treatment of payments in the past, the technically correct position may be for
Oranga  Tamariki to file  a  voluntary  disclosure  in regard to  WHT,  and request  credit  notes  (or
another  method)  from  the  Board  Members  in  regards  to  GST.  However,  filing  a  voluntary
disclosure could result in adverse consequences, including a situation where; Oranga Tamariki
‘grosses up’ payments made to the Board Members to calculate WHT and ‘bears’ the costs of
WHT.    This  could  result  in  the  Board  Members  receiving  additional  income  and  a  credit  for
excess tax deducted, therefore the over remuneration of Board Members.

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Official
Information
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27.  We have drafted letters for each Board Member (drafts attached) confirming future tax treatment
of invoices and what each member needs to do to rectify the historical payments we have already
made.   These  letters  will  be  provided  to  the  Board Members,  signed  out  by me  as  the  Acting
Deputy Chief Executive, Governance and Engagement.

28.  The letters confirm that Inland Revenue has asked us to provide the payment details to them for
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each Board Member to ensure they are able to spot check that the necessary tax obligations are
being met.

29.  I will speak with the Board members prior to their letters being sent to ensure the letters do not
contain any surprises for the Board members.

30.  The Director of the Secretariat will be responsible for approving future invoices and confirming
they are in line with the CFF.  The Director of the Secretariat will also approve any expenditure
related to the MAB.  The Secretariat have confirmed that they have implemented new controls
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to support future expenditure and that these are in line with the Oranga Tamariki financial policies
and procedures.

31.  The following corrections, assurances and adjustments are required for each individual Board
Member.

32.  Matthew Tukaki – Chair Official
Future invoices will reflect:
•  WHT to be deducted at a rate of 33%
•  No GST is to be charged on invoices
•  Charging of fees is in line with the CFF.
Invoices are to be submitted using the ‘Committee member expense form’ onwards from
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September 2021.
Rectifying historical invoices, the Chair will need to:
s 9(2)(a) OIA
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•  Provide assurance to Oranga Tamariki, by way of letter, advising that the payments will be
made directly to Inland Revenue as required for the 2021 and 2022 income tax returns and
that the GST component has been paid to Inland Revenue
•  Return the overpayment direct to Oranga Tamariki.  The Chair received an amount which
was incorrectly overpaid by Oranga  Tamariki outside of the CFF.  This has been factored
into  historic  treatment  of  WHT  and  included  in  the  amount  of  WHT  to  be  paid  directly  to
Inland Revenue. As previously advised, I have met with the Chair to discuss the incorrect
overpayment. He is aware of and does not contest the amount. A separate letter has been
drafted regarding the overpayment
s 9(2)(a) OIA

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33.  Shannon Pakura
Future invoices will reflect:
•  WHT to be deducted at a rate of 33%
•  No GST is to be charged on invoices
•
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Charging of fees is in line with the CFF.
•  Invoices are to be submitted using the ‘Committee member expense form’ onwards from
September 2021.
Rectifying historical invoices, the member will need to:
s 9(2)(a) OIA
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Official
•  Provide assurance to Oranga Tamariki, by way of letter, advising that the payments will be
made directly to Inland Revenue as required for the 2021 and 2022 income tax returns.
34.  Dame Naida Glavish
Future invoices will reflect:
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•  WHT to be deducted at a rate of 33%
•  No GST is to be charged on invoices
•  Charging of fees is in line with the CFF
•  Invoices are to be submitted using the ‘Committee member expense form’ onwards from
September 2021.
Rectifying historical invoices, the member will need to:
s 9(2)(a) OIA
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•  Provide assurance to Oranga Tamariki, by way of letter, advising that the payments will be
made directly to Inland Revenue as required for the 2021 and 2022 income tax returns and
that the GST component has been paid to Inland Revenue.

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35.  Tā Mark Solomon
Future invoices will reflect:
•  WHT to be deducted at a rate of 33%
•  No GST is to be charged on invoices
•
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Charging of fees is in line with the CFF.
•  Invoices are to be submitted using the ‘Committee member expense form’ onwards from
September 2021.
Rectifying historical invoices, the member will need to:
s 9(2)(a) OIA
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•  When the member submits their next invoice a credit amount s 9(2)(a) OIA  will need to be
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included as we have incorrectly paid the member twice for services on 10 March 2021
•  Provide assurance to Oranga Tamariki, by way of letter, advising that the payments will be
made  directly  to  Inland  Revenue  as  required  for  the  2022  income  tax  return  and that the
GST component has been paid to Inland Revenue.
Lessons Learnt
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36.  This whole course of events has been messy and embarrassing for Oranga Tamariki but of more
concern is the inconvenience and distress it has caused the Board  Members. My letter to the
Board members will acknowledge and apologise for this.

37.  While there are complex tax issues, we could have identified these issues much earlier in the
life of the Board if we had the systems in place to be alerted to them.

38.  I am confident we are now applying the correct approach to the invoicing and have the controls
in place, including with the support of the Director of the Secretariat, to prevent this happening
again in respect of the Ministerial Advisory Board. We will also be strengthening the induction
approach and material for the new Board members.

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39.  We will complete a detailed lessons learnt exercise and put in place arrangements to mitigate
against this happening again with other Boards or external groups we support.  We will provide
a summary to you once we have completed this.
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Next steps
40.  Subject to your review and approval, letters will be sent to each Board Member asking that they
respond  in  writing  to  us  no  later  than  10  December  2021  to  provide  the  assurance  Oranga
Tamariki needs to provide to Inland Revenue.

41.  Following receipt of the assurance from each Board Member, we will need to prepare a letter for
Inland Revenue providing assurance of the steps we have taken.  Ideally this will be provided to
Inland Revenue no later than 17 December 2021.

42.  We are progressing allocating the Ministerial Advisory Board budget to the Director, Secretariat
to support accountability of the future budget, expenditure and the steps needed to ensure fees
are paid in line with the CFF.