Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In CommitteeText is incorporated into the Bound VolumeTaxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In Committee[Sitting date: 12 April 2016. Volume:713;Page:10376. Text is incorporated into the Bound Volume.]Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) BillIn CommitteePart 1 Amendments to Student Loan Scheme Act 2011STUART NASH (Labour—Napier): This is a reasonably complex bill. It deals with a number of issues that the Labour Party feels quite strongly about. In Part 1 we are talking about the Student Loan Scheme Act 2011 but we are also going to be debating in other parts Income Tax Act changes Goods and Services Tax Act changes Tax Administration Act changes as well as the title and commencementclauses. As mentioned there are a number of Labour speakers who I know will take calls on this technical bill because there are quite a lot of clauses and quite a lot of concepts that do need explaining. The reason for this is there is quite a lot of relevance in this bill that impacts upon others outside the stock-standard tax practitioner bracket.What I would like to talk about first and foremost is charities. The issue we are trying to solve here in Part 1 is that often what happens with students is they head off on an OE. They have finished their studies they have a student loan but under the Student Loan Scheme Act if a student with a student loan heads overseas they must pay interest on that student loan. But what is allowed to happen is if a student is working for a registered charity for a maximum time of 24 months then they are classed as still being domiciled in New Zealand. So even though they may head off they do not have to pay interest on their student loan.The problem we are trying to solve is that under the current law charitable organisations must be approved by Cabinet for the purpose of the student loan scheme interest write-off and listed in regulations. What can happen with this is by the time that goes through the approval process the student is overseas they have already accrued a whole lot of interest on their loan and they do not get full benefit. So what this bill does is it basically removes the need for Cabinet to approve a charity. What I will say which is quite interesting is that the level of disclosure required under this bill by the commissioner for charities is quite unusual compared with other pieces of legislation on the statute book when it comes to tax law.Grant Robertson: Oh well done.STUART NASH: I know. For example when I compare new sections 27A 27B 27C 27D and 27E inserted by clause 7—this basically relates to what the commissioner’s responsibilities are with regard to listing charities what qualifies as a charity whether the commissioner can delist a charity etc. etc. The regulations are quite prescriptive and the level of disclosure is quite onerous. In fact I suspect that if we were to compare this bill with other pieces of tax legislation like for example the legislation governing overseas trusts—The CHAIRPERSON (Hon Chester Borrows): Do not go there—stick to Part 1.STUART NASH: Absolutely Mr Chair but what I am saying is that I think this is very good because what this is doing is requiring a level of disclosure that meets the expectations of the general public of New Zealand. We like to know with our tax law that there is a level of transparency that cannot be overridden or abused in any way shape or form. This is what this does. Like I said what it does is it takes the onus from Cabinet and gives it to the commissioner. For example new section 27B prescribes the primary matters in which the commissioner must be satisfied for listing a charity and that goes into quite a level of depth around charity law etc. etc. There are a whole lot of requirements that must be met before an entity is listed as a charity.New section 27C is about an application by an entity to be listed as a charity so there is a process that every entity must go through before it seeks the listing which again is very transparent. It is out there so that organisations are left in no doubt as to what they must do. But having said that there is also in clause 7 new section 27D which says the commissioner may list a charity for tax purposes even if no application has been made or if in fact the commissioner requires more information. What this means is that a student traveling overseas to work for a charitable organisation will not be disadvantaged if that organisation has at the point of registration or application met all the requirements. There are a number of clauses in here that I will talk on at a much greater level of depth but I thought that this is importantfirst and foremost because I know—FLETCHER TABUTEAU (NZ First): Thank you Mr Chair. Thank you for this opportunity to stand up on behalf of New Zealand First in relation to this taxation legislation. I wanted to touch on just a few things that coincidentally have already been raised and just reaffirm some of the words that have been spoken already in the Chamber. This is a highly complex bill and a number of the pieces of legislation that are being altered are significant and quite varied. It is important that we get this opportunity to come back and touch on each and every one of them.I first of all want to add New Zealand First’s voice to the charity discussion. The intent there is to ensure that a student is recognised as still being domiciled in New Zealand for the purposes of repayments in terms of their student loan. We acknowledge that this is the right and fair thing to do but in reference to new section 27Ainserted by clause 7 “(1) The Commissioner must keep a list of entities that are charities for the purposes of section 25(1)(b). (2) The list must specify”—I will not go and read all of that out because I think there seems to be a consensus already that the specificity is quite detailed. In fact there should be greater debate and perhaps a question for the Minister in the chair Michael Woodhouse about the level of obligation for charities in terms of declaring of information because I would suggest we may have gone too far in terms of the charity’s obligations.Also new section 27E—are there currently entities—oh yes I have a question to the Minister. New section 27E inserted by clause 7 is quite specific. It says that entities listed under the Act as charities do not meet the criteria set out section 27B. The question is are there entities listed under this charities component of the legislation that do not actually meet the current criteria? If that is the case then does the commissioner now have an arbitrary right to delist them from that charities list? It is a fair question a reasonable question and something that we would like clarity on.Then if you actually move on to new section 176A inserted by clause 23 the level of disclosure goes quite far. What the question is in new section 176A is a question around the charity being able to contest the decision of the commissioner around the charity listing in the legislation. It says the entity can contest the decision if it believes it “is not fair and reasonable;”. My question to the Minister is—new section 27B sets out a very clear and straightforward list of the definitions in terms of requirements for defining what a charity is so what is the opportunity there for entities to say what is not fair and reasonable about the decision? It is legislative—it is a tick in the box. There is no debate involved in it; they are either a charity under the Act or they are not. It is just a matter of confusing the issue there.If I could take the Committee’s attention to new section 209A inserted by clause 26 “Disclosure of information to Australian Taxation Office in relation to borrowers who are or may be overseas-based”. New Zealand First looked at this part of the legislation and said that actually that is quite reasonable. We are very clear on our expectations for New Zealanders in terms of paying back their debts and their obligations in terms of borrowed money. When we looked at the legislation we said: “Well it makes sense that New Zealanders overseas should be required to do the same thing.” and so we ran into the issue about information sharing. The solution in new section 209A(1) is to “(a) obtain or verify contact details of borrowers who are or may be overseas-based; and (b) administer the student loan scheme in relation to those borrowers. (2) For those purposes the Commissioner may provide the information set out …”.Again the level of detail there is quite high but I just want to take this opportunity to make a contrast because we have current issues in front of the House at the moment where we look at the clear ability for two Governments to come together talk very clearly with one another on information sharing data sharing contacting individuals—GRANT ROBERTSON (Labour—Wellington Central): Thank you Mr Chair for the call—that is terrific. I also want to talk about clause 26 within Part 1 which relates to the new provisions on disclosure of information in this case to the Australian Taxation Office. By way of background what is happening here is that effectively New Zealand has a new arrangement for the exchange of information regarding student loans which was signed between the Australian Commissioner of Taxation and the New Zealand Commissioner of Inland Revenue in March 2015.This sits alongside a range of provisions in New Zealand law to exchange information with other taxation jurisdictions; for instance double taxation agreements that we have with Australia and with around I think 40 other countries; and also what is called—as this is—a taxation information exchange agreement which we currently hold with 11 countries. It is not 12 countries. Malta is not on the list of countries with which we have a tax information exchange agreement despite what the Prime Minister told the House last week when he stood up and said that we did have a tax information exchange agreement with Malta—we do not. He has not come to—The CHAIRPERSON (Hon Chester Borrows): We are talking student loans here.GRANT ROBERTSON: I raise a point of order Mr Chairperson. We are indeed and what we are specifically talking about if I refer to the commentary on the bill provided to us by the Minister is an “Arrangement for the Exchange of Information”—those words all have capital letters on them. I am currently working through the arrangements for information exchange that are in the call.The CHAIRPERSON (Hon Chester Borrows): Taking the member’s point of order what we are talking about—and I refer specifically to the clause that he is talking about—is the disclosure of information with the Australia Taxation Office. If he wants to make some side reference then he has done that and he should move on.GRANT ROBERTSON: Thank you Mr Chair. So as I was saying it says in new section 209A(1): “The purpose of this section is to facilitate the exchange of information between the Inland Revenue Department and the Australian Taxation Office”. What I was pointing out was that we have a double taxation agreement with Australia. This taxation information exchange agreement is an additional agreement. I was just making the point that we do not have one of those with Malta and I am waiting for the Prime Minister to correct that.The reason that we have this clause in here is to enable a much clearer line of communication between our Inland Revenue Department and the Australian Taxation Office. There are certain details that are now required to be exchanged. Those details in new section 209A(3) include: “(a) a borrower’s name or any other name by which a borrower is known: (b) a borrower’s date of birth: (c) a borrower’s tax file number: (d) a borrower’s last known address and contact details: (e) any other information that the Commissioner considers relevant for the purposes referred to in subsection (1)(a) and (b).” That is quite a comprehensive set of details about student loan borrowers.Dr David Clark: And we know who the beneficiary is.GRANT ROBERTSON: Indeed. In fact the first one is well worth going into a little further—“a borrower’s name or any other name by which a borrower is known”. That is actually a comprehensive way of identifying who a student loan borrower is.If we compare that with other disclosure arrangements that the Inland Revenue Department has—in fact I will put the question to the Minister of Revenue as to whether he would like to compare that and see whether he thinks there is fairness here for student loans borrowers versus for instance those who run a foreign trust in New Zealand who actually can get away without even saying what the name of the trust is because if you do not know what the name of the trust is you do not even have to put it in the form. No. You have just got to describe it; you do not actually have to put the name in it. So a question for the Minister is whether he thinks it is fair that student loans borrowers have this obligation but those people who want to avoid paying their tax elsewhere in the world do not even have to put the name of their trust down.We can say the same thing here about the extent of these disclosure arrangements because there is no doubt in this—there is no “might” or “if”. Information has to be collected and available and shared. It is that sharing that is the essence of this clause. It is not just about making sure that a student loan borrower keeps that information because if we were comparing this with other disclosure arrangements in tax law the person who is a settlor of a foreign trust in New Zealand just has to keep the information. They do not have to share it with anybody; they do not actually have to make it available; they just have to keep it. I wonder whether the Minister would like to tell us whether that is fair. If student loan borrowers have to meet their repayment obligations—and I think everybody in this Chamber acknowledges they should because that is an important part of having taken out a loan—why are those sorts of obligations not on other types of people who interact with the Inland Revenue Department? I would like to hear the Minister justify some of those concerns.DAVID BENNETT (National—Hamilton East): It is a great pleasure to talk on the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill. We are talking about the student loan scheme portion of the bill which is actually the smaller part of the bill. The bigger parts which we will come back to will be around other areas of the bill—the residential withholding tax and also the GST amendments—which probably will be more helpful for that last speaker Grant Robertson because he will actually be able to speak on the bill rather than to wander off and try to make political statements that are completely irrelevant to the actual bill that he is talking about.Dr David Clark: Don’t question the Speaker’s judgment.DAVID BENNETT: Oh the Speaker made no judgment Mr Clark—the only judgment is your judgment in your leadership so I would not be yelling out too much.The CHAIRPERSON (Hon Chester Borrows): Back to the bill.DAVID BENNETT: When we look at the student loan scheme amendments section of the bill—this is the important part of it; not as important as the other two parts but still important. Most student loan borrowers do the right thing and they repay the amounts on their student loans.Hon Clayton Cosgrove: Did you pay yours back?DAVID BENNETT: What is that Mr Cosgrove? Well he will be paying back his soon—when he has to go and get a real job and do some real work other than working for the Labour Party. Most student loan borrowers repay their loans but when we have borrowers overseas we have a lower rate of compliance and so there is a lower rate of return to the New Zealand Government from overseas-domiciled New Zealand borrowers of student loans.Basically over the last few years you have seen some legislation in this area to try to claw back some of that student loan from borrowers who are overseas and to make sure that we get a better repayment from New Zealanders who have taken advantage of our education system and got a good education have gone overseas and got a good job and have not paid back their student loan to the extent that those who have been living in New Zealand have.This bill contains further amendments in that area notably around the arrangement of exchange of information regarding New Zealand student loans with our Australian counterparts—that is the Commissioner of Taxation in Australia and the Commissioner of Inland Revenue in New Zealand. Basically there will be a greater exchange of information. Many New Zealanders who study and then go overseas do go to Australia to work so that is one thing: there is a higher preponderance of people who have not paid back their student loans who are in Australia compared with other countries. This exchange of information will allow the Inland Revenue Department to receive up-to-date contact details for New Zealand student loan borrowers living in Australia through matching borrower details against the Australian Taxation Office records of Australian taxpayers. It is important for New Zealand’s tax base that we have that information and therefore we can go further in seeking repayment of those loans.The bill also has a few smaller things in it around delegation of authority for charitable purposes to acknowledge that some organisations that borrowers may be working for are charitable. Basically there are situations where borrowers may volunteer and go to work overseas. They are treated as if they were physically present in New Zealand so they do not have to pay interest on their student loans whereas if they had been treated as being overseas working for a voluntary organisation they could have then been seen as having to pay interest on their student loans. So taking into account those New Zealanders who make a contribution to the world through the volunteer work that they do we are making it easier for the student loan legislation to be more efficient in how it impacts on those members of our community. The student loan scheme changes will apply from enactment of this bill so that will enable us to have that sharing of information with the Australian Taxation Office immediately.This is not the most complicated part of the bill or the most debated part of the bill—you will see that more around the residential land withholding tax; I am sure that there will be more opinions on that area and also in regard to the GST on online services—but it is part of this bill it is part of that work around student loans to enable New Zealand to get the best return that we can for those people who have borrowed and have gone overseas and are getting the benefit of the student loan especially in the Australian context. Thank you very much.Hon CLAYTON COSGROVE (Labour): Who needs John Shewan when we have that member David Bennett? The Government could have saved a lot of money by having a special inquiry appointing that member as an absolute expert on all things in respect of taxation. But I will move on from his fiscal prowess.There is an old adage in respect of tax that for a tax system to be credible with users it has to be simple it has to be transparent and it has to be consistent—consistent. Looking at new section 209A inserted by clause 26 of the bill and the other provisions around student loans I want to ask the Minister in the chair Michael Woodhouse a question in a comparable sense. We have taxation agreements with Australia in respect of liable-parent contributions. I do not want to track into that too much but I want to ask him a question around the inquiries that he may well have made of our Australian counterparts in respect of their robustness in doing their part of the deal in terms of the collection of student loans.In my experience having represented some constituents over the years when it comes to liable-parent contributions there is always an argument that is made that when you go to the Australian side of the coin—the Australian inland revenue service the Australian Taxation Office—they have got a bit of an attitude that says “We’ll get to that when we can” whereas our Inland Revenue Department in terms of policing on our side of the fence in respect of Australians tends to be a little more vigorous in terms of meeting our obligations with our Australian cousins. But it has been said by many a constituent that when they are trying to deal with their liable-parent contributions and representations are made to the Australian Taxation Office it does not prioritise this in a great way—it gets to it when it can as per its other work. I am being colloquial but that is the feedback that comes through from people.I suppose my question to the Minister is: have there been any representations made to the Australian Taxation Office in terms of what priority it will give in the collection of student loans and information sharing to doing its half of the work if you like in its jurisdiction? I think that is a fair question to ask and I look forward to an answer.As I said—and I know the previous speaker David Bennett did not touch on these issues—fundamentally there needs to be consistency within a tax framework. Simplicity and transparency: they are the fundamental tenets for the tax system to gain credibility with those who use it. It is worth making the comparison as Mr Robertson did with the level of detail that is required to be disclosed to the Australian Taxation Office in respect of new section 209A(1) (2) and (3) where we are talking about the borrower’s name—or any other name they may have been known by—date of birth tax file number and last known address and contact details. You are almost asking for the borrower’s shoe size with the length and depth of information that is required to be disclosed and passed on.Many would argue that that is fair enough. Like many members of this House many moons ago before I came in here I had a student loan. I was lucky enough to get a decent job and pay it back and I think most students just like most taxpayers would argue that they should meet their obligations. Many struggle because of the nature of the income—or lack of it—that they get but I think most fair-minded Kiwis would say that they will meet their obligations. However if you compare the depth and detail in the requirements under new section 209A with other parts of the tax system—the policing of foreign trusts for instance but I know that is a quarantined subject. It has had razor wire put around it in this House; we are not allowed to talk about it. Somehow it is like some disease that has come in here that has infected the place but we have got to pretend that it does not exist. What is it? Suspension of disbelief I think is the technical term that people use from time to time. If you compare the requirements on a student with the requirements on those who use foreign trusts within a jurisdiction you have got to ask: does this bill and does that matter though it is secondary to this discussion meet the test of a consistent transparent simply-put-together tax system and tax framework? I ask the Minister whether he could provide us with some information on that.There seems to be a gross inconsistency. No one is arguing that the requirements in new section 209A inserted by clause 26 are not required or are onerous or are too tough. What people are asking the Minister of Revenue is whether he still agrees with the tenet that a tax system should be transparent and consistent.Dr DAVID CLARK (Labour—Dunedin North): I want to pick up where my colleague Grant Robertson—The CHAIRPERSON (Hon Chester Borrows): As opposed to repeat it you are just going to pick it up are you?Dr DAVID CLARK: Yes pick it up Mr Chairperson. The clause 26 references that my colleague referred to and I trust he may speak further on this lead into other important aspects of the student loans aspect of this bill. As we have canvassed we are required under this part of the bill to record a borrower’s name or any other name by which the borrower is known a borrower’s date of birth a borrower’s tax file number a borrower’s last known address and contact details and any other relevant information.The CHAIRPERSON (Hon Chester Borrows): You are the third speaker to debate this issue.Dr DAVID CLARK: That is not the end of the matter; that is the precursor. That information then goes on through to other parts of the bill and is required as background for a number of other calculations that we find in subsequent clauses. That very information is used as background to inform calculations that say that the borrower must pay tax equal to the larger of two amounts and those two amounts are calculated using various formulae. In clause 30 to do with shareholders in close companies we have a calculation of the amount of earnings they might have as compared with ordinary earnings.That is a level of detail into which the bill delves. In new clause 11 of schedule 3 inserted by clause 30 there are requirements for borrowers who are settlors of trusts. We read that “This clause applies for the purpose of determining the amount that is included in the adjusted net income of a borrower for an income year when the borrower is the settlor of a trust (the borrower’s trust) …”. That amount is calculated again using a calculation in subclause (4) of new clause 11: “(a + b) ÷ c”. Again it is of the nature of where the income is either greater than zero or calculated by this trust greater again—so we have there calculations that build upon the information collected earlier in order to ensure that the borrowers pay their fair share. That is what it boils down to in plain language. It is about making sure the borrowers have complete transparency in the calculations that are made and that it is then calculated in terms of their fair share built upon what they earn via their various means or where their income sources come from.That is sensible. Nobody here I think will dispute that. But until we had these Panama Papers there was a saying that there are two things in life that are certain: death and something else that they seem to have forgotten on that side of the Chamber. It was about collecting taxes. Now we have a debate in this Committee about exactly whether these clauses should apply and how. We delve into the detail and we see that the principle underlying it is about making sure people pay their fair share according to the various interests they have. These interests are disclosed and known to the tax department because there is a high burden of proof on the taxpayer to declare all of their information including things such as other names and other relevant information which is a catch-all clause.That feeds through in fact into all of these subsequent clauses in the pages that follow. Those calculations add up to in many cases a greater amount than were the borrower simply a borrower simple with no other business interests with no trusts that they were the settlor for with no close companies that they were responsible for and so on. That is how the calculation is made. Were it the case that these people had foreign trusts where their interests were not disclosed that would not be captured in these clauses unless it was captured under “other relevant information”.That is why in this bill I commend the fact—and I am sure my colleagues will too—that we are collecting this wider set of information. It is a good principle of tax law to collect all relevant information to ensure that people pay back their fair share. I have been a student loan borrower as many others in this House will have been and I have not resented the fact that I had to pay that loan back. That is something that in my time was the expectation that I went in with. I do think that over time—JULIE ANNE GENTER (Green): I rise to speak on Part 1 of the bill. I note that this part of the bill is the most problematic for the Green Party. This is what I raised during my second reading speech. On the one hand we support the changes that mean that student loan borrowers who are working overseas for approved charitable organisations and for approved aid activities as volunteers are entitled to be treated as if they were physically present in New Zealand and as such they are not charged interest on their student loans for a maximum of 2 years. We thought that that makes sense and it is good that we are making it easier for borrowers who are working for charitable organisations to have that recognised so that they receive the benefit that they are entitled to—an interest holiday if you will. But overall the Green Party has great concerns about the student loan scheme generally.I suppose it goes to the overall priority about whether or not it is important to prioritise the opportunity for education for people without loading them up with a whole lot of debt. For the Green Party it would be a priority for us in order to create a knowledge-based economy a clean green economy all of that to ensure that we are investing in our people and giving them opportunities. We are not really giving them opportunities when at the same time we are offering them an education but loading them up with debt. But I would say that—as many of my colleagues have referred to in Part 1 of this bill—in terms of the aspects the changes to the student loan scheme on the one hand although overall we would question whether or not it should be a priority for the Government to ensure that students are paying for their education as opposed to the wider society which is going to benefit from that the principle of information sharing for the purposes of ensuring that say taxes are paid when they should be is really important.So I can understand this principle of information sharing and we thought it was a good thing in the bill that in clause 26 there is this full disclosure of information to the Australian Taxation Office and that a whole lot of information is provided so that people who have taken on student loans under the scheme—even though the Green Party does not fully agree with that scheme we want to ensure that the borrowers are paying it back. It might be $600 million or $800 million that is owing in student loans according to the regulatory impact statement which estimated it was something in the order of $600 million to $800 million for people living overseas who have not been paying back their student loans.One of the ways that we resolve this is through information sharing and understanding exactly who the borrower is what their name is their date of birth—all this information. That seems perfectly reasonable. But in the context of things the amount that is owing is quite small relative to the amount that we might be missing out on tax that is not being paid by multinationals for example that are avoiding paying tax in New Zealand. The amount that we are missing out on there—between $500 million to $1 billion possibly more—is considerable.So we have the resources of the Government being put to chasing down people with student loans rather than focusing on much greater amounts of money that we are missing out on on tax from multinational corporations that are not paying their fair share here. At the same time we are going through this process to do this information sharing with Australia and to gather all of this information about the borrowers and yet when it comes to foreign trusts in New Zealand we do not request any of that information.We do not make it possible for our partners in the world—other countries that are partners in double tax agreements. Even they cannot request information about very very wealthy people who might be using New Zealand foreign trusts to avoid paying tax in their home country. Virtually the only country that could request that sort of information is Australia and that is only because it complained to the New Zealand Government in 2006 because it knew that wealthy Australians were using New Zealand as a tax haven to avoid paying tax. Since we do not have that sort of agreement with other countries they are not able to request this information.Strangely when we proposed in the House last week to the Prime Minister that it might be good to have a register with more information about the settlors of these trusts so that other countries could request information from us and ensure that New Zealand foreign trusts were not being used to dodge tax—KRIS FAAFOI (Labour—Mana): Thank you very much Mr Chair for the opportunity to speak to Part 1 which amends the Student Loans Scheme Act 2011. I want to concentrate my contribution in the first instance to clause 17 which replaces section 114 of the principal Act. The original section was titled “Notification of worldwide income by New Zealand-based non-resident borrowers”. It sounds technical but I will get to the point soon.The CHAIRPERSON (Hon Chester Borrows): Good.KRIS FAAFOI: Thank you Mr Chair. There has been an argument made on this side of the Committee around the principles around a fair taxation system and around the obligations that people who have taken out student loans and have potentially moved overseas have to meet in order to pay their fair share—to repay their student loans back. We want to make sure there is consistency within this piece of legislation and with the taxation system as a whole.Clause 17 which replaces section 144 talks about worldwide income by New Zealand - based non-residents. New section 114(1) states: “This section applies to a New Zealand-based borrower who is a non-resident and who has Schedule 3 adjustments.” I have gone to schedule 3 of the principal Act to see what it might entail if there was a schedule 3 adjustment. In clause 30 of the bill clause 11 of the replacement schedule 3 talks about borrowers who are settlors of trusts. It goes on to say in clause 11(2) that schedule 3 does not apply if a trustee of the borrower’s trust is registered to a charitable entity. I think that many speakers have spoken about that—that the borrower’s trust is solely for the benefit of the local authority. I can understand that.But clause 11(3) of schedule 3 goes on to a very complicated—well not too complicated—formula to ascertain the adjustment within schedule 3 to the New Zealand - based non-resident’s payments in a specific year. The rough calculation is (a + b) ÷ c—I do not want to bore people at home with the detail but I have to because this is the Committee stage—“… where—a is the net income of the trustee of the borrower’s trust for the income year reduced to not less than zero by the amount of the trustee’s income that vests or is paid by the trustee as beneficiary income for the income year”; and b is “the greater of zero and the total of amounts calculated in accordance with subclause (4) for each company in which the trustee of the borrower’s trust and associated persons hold voting interests of 50% or more on the last day of the company’s income year”; and c is “the number of settlors of the borrower’s trust who are alive at any time in the income year including the borrower to which this clause applies.”My point is that that is a hang of a lot of information. I do not entirely understand it all but it is a lot of information to disclose for a New Zealander who has got their interests in a trust who has obligations back to the New Zealand people to pay back money that they have borrowed in order to study. It is a lot of information. We have been talking about the principle of consistency around the obligation to make sure you pay your fair share of income tax and I think there is an inconsistency here about the information that is demanded from someone who is a New Zealander resident overseas who has a trust and has an obligation to pay back to the State their student loan based on what they are earning and let us say a foreign trust where these people have come from overseas set up a trust and all we demand from them is a name.There may be a theme developing here but I think this is one instance in clause 17 where we must take a principled approach to taxation. If we are demanding information of the complicated nature that we have within schedule 3 under new section 114 which is in clause 17 and within this bill why have we not got that same consistency in terms of demanding information from those who hold foreign trusts in New Zealand? That is a question that I would like to pose to the Minister in the chair the Hon Craig Foss. Why is the Government not taking that move for consistency? Why is there not the consistency? I know that it might be a bit complicated for the Government. It might be too complicated for the Government.GRANT ROBERTSON (Labour—Wellington Central): It is opportune because I also want to pick up and develop the ideas that the previous speaker Kris Faafoi was working on in particular looking at—I can see how pleased you are about that Mr Chair; it is great to have your endorsement—the amendments to schedule 3. I am looking here at clause 11—Dr David Clark: I want to hear from the Minister.GRANT ROBERTSON: Oh no I am coming to that. Clause 11 of schedule 3 inserted by clause 30 of the bill is titled “Borrowers who are settlors of trusts”. It is very important to go back and recognise that all of the amendments in Part 1 of the bill relate to borrowers—or the vast majority of them—who are offshore. So this is when you are in Australia and you still owe the money but you—The CHAIRPERSON (Hon Chester Borrows): Student loan.GRANT ROBERTSON: Student loans—that is right; student loan borrowers offshore. But in this case we are talking about borrowers who are the settlors of trusts. That is the heading in clause 11—The CHAIRPERSON (Hon Chester Borrows): Student loan borrowers.GRANT ROBERTSON: This is an interesting conversation we are having here but yes I think we are on the same page metaphorically and literally. So as my colleague has mentioned there is an expectation inherent in this clause that we know the income that the borrower is getting from the trust. That is actually what the clause is based on and the formula that my colleague mentioned in clause 11(4) and (5) of schedule 3 are generated by knowing the income of the trust. That is essentially what lies at the heart of this clause.That would be right if you were a New Zealand resident borrower because if you are a New Zealand resident borrower and you have a trust you have income tax obligations but not if you are not in New Zealand—not if you are not a New Zealander. Changes that have been made in recent years mean that if it is a trust where those who set it up are not New Zealand residents they have no income tax obligations.Dr David Clark: None.GRANT ROBERTSON: Whatsoever. So here we are with student loan borrowers who are the settlors of trusts and have a string of obligations put upon them which we can enforce—which the Inland Revenue Department can enforce—because it knows the income that that trust is generating. A tax return is returned and then we can judge from that how much the borrower—the student loan borrower Mr Chair—would be paying back. That is a fair system.Contrast that with the information that we have about other types of trusts: foreign trusts where there is no information like that that could even be used to work out whether or not somebody owes money. Once again we have our concern on this side of the Chamber about the absence of the critical element of a taxation system: fair treatment. New Zealanders should be proud in general of our tax system. It actually is robust and it does work well. But where deliberate decisions are made as they were in a tax bill that went through this Committee in 2010 to create loopholes through which we could for instance zero-rate a managed fund we then create the opportunity for that to be exploited—The CHAIRPERSON (Hon Chester Borrows): Come back to the bill.GRANT ROBERTSON: —and unfairness to join in our system.My question for the Minister in this regard is somewhat technical but it is relevant: at what point does somebody become a non-resident for tax purposes? If the issue that we know of in terms of the setting up of trusts is that if you are not a resident that is where you can exploit the loophole how long would a borrower who is the settlor of a trust need to be away from New Zealand to no longer be considered a resident? This is a serious question because we are dealing within clause 11 of schedule 3 here with exactly that kind of person: a person who has been in New Zealand—The CHAIRPERSON (Hon Chester Borrows): Who is a student loan borrower.GRANT ROBERTSON: That is correct but in this case it is a student loan borrower who is the settlor of a trust. I am pretty sure we are still on the same page. At what point after they have been away is that student loan borrower no longer considered a resident for tax purposes? This matters when it comes to the question of their obligations as a settlor of a trust because we know those obligations are in fact different depending on whether or not you are a resident or a non-resident in New Zealand.Again it is a question of basic fairness and the reason I am raising it with the Minister is that we do now know that a lot of young New Zealanders are spending longer away having graduated from university with a student loan. Should they have structured their affairs in such a way that they are the settlor of a trust can the identity of that trust change over time so that it effectively becomes a non-resident’s trust and therefore no longer subject to these obligations?STUART NASH (Labour—Napier): I would like to talk about clauses 26 and 73. This is about the disclosure of information to the Australian Tax Office about borrowers who are or may be overseas-based. The issue this is trying to solve is one of the key problems in collecting overseas student loan payments: holding up-to-date contact information for defaulters. You know if you cannot get hold of them then how can you liaise with them or correspond with them? Many of them are believed to live in Australia and what this will allow is the exchange of information as has been talked about between the Inland Revenue Department (IRD) and the Australian Taxation Office to receive up-to-date contact details of New Zealand student loan borrowers residing in Australia through matching details against the Australian Taxation Office’s database of Australian taxpayers.What this will allow the IRD to do is to contact those individuals and keep them engaged with their student loan obligations and where appropriate recover outstanding student loan repayment amounts. The thing we cannot forget when we are talking about student loan borrowers and even more about student loan defaulters is that when a New Zealander has signed a contract with the Government to undertake a student loan it is a legally binding agreement and they must abide by the terms. I think it is just incorrigible that someone may head across to Australia to avoid paying off their student loan after arguably drawing the benefits of that loan in order to get educated or do whatever people do with student loans.The thing about this and this is where it is quite clear is that an amendment to the Tax Administration Act 1994 creates an exception to the taxation secrecy provisions. The one thing that the IRD values more than anything—what its whole integrity is based upon—is in fact maintaining the secrecy of individual taxpayers so no one knows what anyone else is doing. My personal view is that the IRD does act with complete integrity in this instance. It has a number of clauses and terms and conditions and individual employment contracts that ensure that all staff members know that they have to maintain the integrity and the secrecy of each taxpayer.So the interesting thing about clause 26 is that it limits who in the Australian Taxation Office is authorised to receive the information from the Commissioner of Inland Revenue. Again this just maintains the integrity of the tax system. But it also prescribes the information that may be provided by the commissioner and says that the information must be relevant for the purpose. What I mean by this is that the IRD cannot go on a proverbial fishing exercise. So it cannot say to the Australian Taxation Office: “We want everyone between the ages of 21 and 28 between A and Z who holds a New Zealand passport that is registered with these names.”This is the interesting thing: it can go after only those people who it knows have a student loan and who it suspects may be living in Australia. When I say “suspects may be living in Australia” the bill is actually quite clear. The IRD does not have to prove they are living in Australia; it just has to suspect they are living in Australia. This is again where we come back to a common theme which is that it has to actually know what it is looking for. If you do not know what you are looking for in tax law then you will never ask the important question to get the information. We have talked about overseas trusts and this sort of thing and I do not want to bring that up again but it is a great example—when someone says “we have a transparent system” how do we know it is transparent? Those who are seeking transparency will never seek answers for questions they do not know whether to ask or not.It actually would be good for the Minister in the chair Craig Foss to speak about this and the reason I say this is that I have a suspicion that Mr Foss is an expert in this. I know he is a financial whiz. He has worked overseas in financial markets—I say this as a positive not a negative—and I would like to hear his views on how this legislation compares with other pieces of tax legislation and whether he thinks this is consistent with other pieces of legislation.The other clauses I would like to talk about are clauses 8 and 9. This is about the treatment for over-recovered additional deductions. I will just give a bit of background on this. The Commissioner of Inland Revenue is able to require a New Zealand - based student loan borrower’s employer—i.e. the boss of a student loan borrower—to make additional deductions from that borrower’s wages and salary to meet previous shortfalls in repayment obligations. The commissioner is allowed to do this by law without actually seeking the permission of the student loan borrower.What the IRD does is it writes to an employer—it must be in writing—and the commissioner advises the employer of the total additional amount to be deducted and by law the employer must deduct this money from the employee’s account. But it is also recognised that there may be circumstances in which the commissioner might have got it wrong or the employer has deducted too much or something so what it does is it ends up creating an inherently unfair situation for that employee—that student loan borrower. There is one thing that I think one of my colleagues talked about and that is the inherent fairness of the tax system. One of the guiding principles of any tax system but certainly the New Zealand tax system is fairness.What clauses 8 and 9 do is allow a student loan borrower who feels aggrieved by the commissioner requiring an employer to take money without their knowledge to apply to the commissioner and say: “Hey I think you’ve made a mistake.” It has to be done in writing and there is a whole set of processes that a student loan borrower must follow but what it does allow at least is a sense of redress which again is important and I think just adds weight to the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill.There is just one other thing that I would like to mention and it is a point of clarification I suppose. A number of speakers have talked about deposits in income equalisation accounts and shareholders of close companies. Income equalisation is an interesting topic. What this is intended to do is allow persons to carry on—initially actually it was agricultural fishing and forestry businesses—and smooth their incomes over years when they may have massive highs and massive lows. So this is where clause 30 “Schedule 3 amended” talks about deposits in main income equalisation accounts. Again it brings with it that notion of fairness.What it does allow I believe is the avoidance of the aggressive sort of tax planning that some individuals may feel they want to enter into in terms of avoiding their obligations which again is most important. But basically clause 30 inserts into schedule 3 new clause 7 which says: “The borrower’s adjusted net income is increased by the amount of a main income equalisation deposit the borrower makes for the income year.” So if the student loan borrower whacks $50000 into this equalisation account then his or her income increases by that amount. Again this is used as a smoothing tactic which is fair and it makes a lot of sense to be honest. But this just ensures that no one is avoiding paying their fair share.We have talked about borrowers in trusts but there are also borrowers who are major shareholders in close companies. Again what the legislation does is list the different entities a borrower may be engaged in in terms of just the normal I would have thought process of doing business—companies equalisation accounts trusts etc. etc. What it does do—and this is why we are supporting this part of the bill—is introduce that level of fairness. But it also ensures as mentioned that people cannot—well in my view—undertake the sort of aggressive tax planning that we want to avoid in our tax system.But that is probably all I am going to talk about for now. There still are some other issues that need to be clarified within Part 1 but let us see where we get to with the next speaker.TIM MACINDOE (Senior Whip—National): I move That the question be now put.Motion agreed to.Part 1 agreed to.Part 2 Amendments to Income Tax Act 2007STUART NASH (Labour—Napier): Part 2 of the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill basically consists of amendments to the Income Tax Act. This is I suppose—I was going to say the substance of the bill. That is a little unfair. It is not because everything is important. This bill just to give a little bit of background is one of three bills that were designed to put the Government’s 2-year brightline test into force. So what that is about is there was a feeling that overseas speculators were coming into this country investing in houses for making a very quick capital gain and onselling the houses within 2 years. The Inland Revenue Department (IRD)—we talked about this before—suggested a 5-year brightline. Treasury or the Minister of Revenue rejected that. We are not too sure why because it was certainly recommended by the IRD. But once that was in place a whole lot of other legislation needed to fall in right behind it to ensure that there was no way that a 2-year brightline could be gained.What we are talking about here is clauses 34 through to—I am not too sure where Part 2 ends; it is quite a substantial part of the bill. It is quite technical and I must admit there was a lot of debate in the Finance and Expenditure Committee trying to really tighten this up. I must admit that we were lucky in the fact that we had our tax adviser. Our tax adviser is an incredible person who knows the tax law like the back of her hand and she was very very good in advising us on how we could actually make this better. She worked very closely with the IRD in terms of tightening this up. This is the residential land withholding tax.Like all withholding taxes it is a payment into an account. When a transaction has been undertaken and a full amount has been settled upon then an amount is paid to the Government. But because we are talking about overseas owners here or—well the definition is quite wide actually and Mr Faafoi may like to have a look at the definition of an overseas owner. Let me talk about the objective. The objective of the residential land withholding tax is to act as a collection mechanism for the brightline test. I think the Government calls it the capital gains tax you have when you are not having a capital gains tax.What it is designed to do is to address an anomaly in our system that we feel very strongly about and that is overseas speculation. Let us make no bones about this. This is overseas buyers coming into New Zealand buying houses not living in them—in fact not even moving to this country—and selling them without contributing anything at all. I am sure there are a number of speakers on our side of the House who will be keen to elaborate on this. As mentioned the residential land withholding tax would require as mentioned income tax to be paid on any gains from the disposal of residential land that is acquired and disposed of within 2 years subject to some exceptions—and we did look at a number of exceptions.With the introduction of the brightline test we thought it was highly likely that overseas vendors who sell residential property within the 2 years will have a tax liability in relation to income from that property. However we also acknowledge—and this is what this part of the bill does—that there is a general difficulty faced in collecting tax from foreign investors with no or limited presence in New Zealand. We think that this tax would optimise the effectiveness of the brightline test and support the integrity of the tax system. Of course the integrity of the tax system is something that has been talked about since we started debating this bill at 3 o’clock and I suspect it will still be talked about by the time we wrap this bill up and probably even in the next tax bill on the Order Paper as well.The proposed tax is payable from 1 July 2016 and what we see in these 2-year time frames is that it can allow some interesting behaviour. What we were really afraid of is that someone would buy a house and sell it in 2 years and 1 day reap the gains and pay no tax. The concern that we have here is that tax advisers in this country who are very very adept at—what should I say—minimising tax will provide advice that if you are an overseas speculator and you are looking to buy a house and you want to avoid the residential land withholding tax then make sure you can hold on to this property for just over 2 years. As mentioned this tax is payable from 1 July 2016 in the same circumstance as the Taxation (Bright-line Test for Residential Land) Act except there is no main home exemption for this. The reason there is no main home exemption is that we think that this probably was not a main home that you are investing or speculating in.The focus of the residential land withholding tax is on New Zealand residential land sold by offshore persons. Again as mentioned the definition of an “offshore person” is not necessarily what you may expect. New Zealanders are included in this definition but that is something that I will elaborate on a little bit later. A main home exemption is a compliance cost of marginal use. There will be an exemption for the disposal of inherited property as well as relief for relationship property. We see this a lot in tax law—if someone has to dispose of a property under urgency due to a marriage failure or something then there has to be a provision in tax law that allows this. It is proposed to impose the residential land withholding tax at a point in time when New Zealand land is sold by an offshore vendor so as to improve the collection of any annual income tax for the brightline residential income that the offshore person may have.It was argued here that the conveyancing lawyer would probably be the collection agent but what was acknowledged in the select committee is that that is not necessarily the case. Mr Scott may talk on this because he had some very interesting points to make in the select committee. We need to ensure that the conveyancing agent—which is as mentioned normally a lawyer and we can talk about a lawyer in this case I suppose but it is not always—is not held liable for information he or she might not have had at a time and point when the seller disposed of the property. The payment of the residential land withholding tax generates a tax credit that may be used to pay annual income tax liability for the brightline test of residential land income. If the tax credit for the residential land withholding tax is not needed to pay income tax liability then that tax credit is actually refunded. Again this goes to the principle of tax law: you take tax when there is tax payable; you refund tax when there is a loss. There is nothing unusual in that.Let us talk about an offshore person because an offshore person also includes a New Zealand citizen who is overseas—that is if they have been overseas for the last 3 years. So again what we are looking at here is speculating in a market where I suppose you could say that person is not contributing in any way shape or form. At least in New Zealand if you own speculative property you are paying tax and that tax is contributing to the upkeep of roads and schools and other core services. But if an investor is living overseas and they are investing in property then I think it is very difficult to make an argument that they are contributing even in another way through their taxes and their GST etc. So this does include a New Zealander living offshore if they have been overseas for 3 years.An individual who holds a New Zealand residence class visa may be an offshore person if they have been living overseas for the last 12 months. New Zealand trusts and companies may therefore be offshore persons if there is a significant offshore interest in them. And again we debated what constituted an offshore trust or an offshore company. At this point in time I cannot recall whether we looked at blind trusts. I suspect we did not. I suspect now if we were looking at this bill we would pay particular attention to trusts that are blind or are overseas trusts or that are holding assets in New Zealand. We might have looked at this in a slightly different way given the whole integrity of the New Zealand tax system has been called into account with recent events but that is a conversation for another day or another time or another reading.The mechanism proposed for the collection of the residential land withholding tax as mentioned is the point in time when the land located in New Zealand is disposed of which is primarily an obligation of the offshore person or vendor. It is proposed that the offshore vendor’s conveyancer as mentioned—usually a lawyer—or in absence of the vendor’s conveyancer the purchaser’s conveyancer is treated as the resident land withholding tax agent of the offshore vendor. In absence of the vendor’s conveyancer—Dr DAVID CLARK (Labour—Dunedin North): My colleague Stuart Nash was discussing the offshore persons aspects of this bill. I myself was not on the Finance and Expenditure Committee so I will preface my comments with that but I have identified particularly in the notes around the bill—and I will search further for future contributions into the actual clauses in the bill—the issues around anti - money-laundering identification in respect of offshore persons.There is a recommendation that comes back with this bill for amendments that will make gathering a bank account and understanding the bank account less onerous for those who are offshore persons. This I think is worrying in light of the events of recent days. I invite members of the select committee to also contribute because as Mr Nash just noted they might have looked at this in a different light in respect of blind trusts and other things had the events of the Panama Papers and so on which have become public fodder in recent days been in front of the committee at that stage.I note that in the commentary on the bill it says: “Officials have undertaken to continue to work on solutions whether legislative or operational for some of the … practical difficulties and unintended consequences.” It says that in a paragraph that speaks specifically to anti - money-laundering identity verification. Officials are wanting to maintain the integrity of the system to make sure that the people who are operating here are vetted and to ensure that those people are not involved in money-laundering but they are wanting to do that without placing too much burden on those people. Where that balance falls is a legitimate question to be asking in tax law. I think that what we have seen in recent days is that burden may not be in the right place.So I encourage those officials to look into that and I look forward to this debate as it continues and as it begins to open up those questions of whether the balance is struck right in this part of the bill.The anti - money-laundering verification undertaken by New Zealand entities—somebody is exempt I read if they already have this verification. If they have achieved that verification once it seems they are exempt—in this bill—from having to achieve it again to avoid duplication of process. Where are the checks and balances? Is that a once and for all thing? If somebody has been certified as being free of any kind of wrongdoing in respect of anti - money-laundering in one investigation are they free forevermore? I wonder whether Mr Foss may be able to shed some light on that as the person representing the bill to the Committee as the Minister in the chair because these are questions that I think now demand answers.We have in this country a reputation as a fair dealer when it comes to tax—historically that is true—but what we have seen over the years and during the time of this Government is the gap between rich and poor growing.We had tax changes that meant the top 40 percent of the benefits of those changes went to the top 10 percent of earners and the bottom earners got a few percent which was swallowed up in a GST change. We have got a tax system that has become less fair over time and people are concerned. The public whom I have spoken to in recent days have questioned me on whether our tax system is really fair any more and here we have in this bill exemptions for people who have previously been cleared of money-laundering allegations as I read it.I would appreciate it if the Minister in the chair would clarify whether there is a once and for all stamp of approval if people have been through one set of investigations or whether there are likely to be more investigations and whether the tests that are in place for money-laundering are sufficient in this bill because I am not clear having read the notes—as I said I do want to go back and speak to the individual clauses and come back to this debate.I might not carry my particular contribution much further at this stage because I do want to dig in and do a little bit more research having just stumbled across this particular matter of concern. But what I can say in closing is that I think we need to be assured that we have a fair tax system. I think we are right as Kiwis to be worried when we see non-resident people taking advantage of our growing status as a tax haven and the damage that that does to New Zealand’s reputation. I think that the Panama Papers have cast a whole different light on the tax legislation that we pass through this House and it will need to be more closely examined.FLETCHER TABUTEAU (NZ First): I rise to oppose this part of the legislation and I just want to underscore and talk about where we have come from to get to this point. In my opinion this is the third part of what is a broken attempt on the part of this Government to basically claim that it is fixing up the issue of overseas speculators buying up New Zealand homes. Of course I am speaking specifically to Part 2 of the legislation and the amendments to the Income Tax Act.What we do know is that Aucklanders are now paying record prices for their homes. In terms of context it is from the previous two bits of legislation which are supposedly the panacea to this problem that we come to this third bit. But from the two pieces of legislation that have already been implemented—because this one only seeks to establish how those payments are to be calculated and paid on the part of those overseas speculators—we have already seen that the brightline legislation does not work. How do I know that? Because over the months leading up to Christmas and to the New Year we saw the legislation implemented and actually we saw a slight downturn in terms of purchases of Auckland homes from overseas speculators. We saw that. What we saw though was overseas speculators actually just trying to figure out what the legislation meant to them.Basically what they saw was that they only need to get an IRD number and that is it and they can still carry on with that speculation and profit out of the Auckland housing market because the requirements on them are minimal and make no substantive changes to what they are trying to do which is use Kiwis’ homes as a profit mechanism. That is the gist of it. Kiwi homes are being used by overseas speculators for them to make money. New Zealand First insists that it is not fair and it is not acceptable and we have also consistently said that this legislation will not work.Here for example is this bill the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill. We actually support two-thirds of this legislation and we voted for the first part accordingly but the reality is that the opportunity is here and now for the Committee and for Minister Woodhouse to perhaps break up this legislation—break it up so that New Zealand First can vote for common-sense parts of the legislation. For instance we acknowledge that we do need to hold student debtors accountable. I think that in contrast to topical issues around tax and trusts at the moment it is harsh and heavy-handed—but here we are. It is a solution and what we hold for one student we must hold for another; it does not matter where they are residing.I turn specifically to the amendments to the Income Tax Act which outline the grounds on which payment should be made. Generally speaking even after all the law changes to supposedly slow speculation in Auckland recent statistics—I say again—have proven that there has been a minimal effect or actually no effect on that speculation.What I want to point out at this stage—it is very general I acknowledge and I will come to the specifics of the legislation—in this opportunity to speak to the Committee is that tax experts came back to the select committee after the alterations and amendments and basically said to the committee—well not basically; they said it outright—that this part of the legislation this residential land withholding tax will not work. They said it to our faces and basically they said it in several ways. They said that those who wish to speculate on New Zealand property and profit from it will adjust their behaviour ever so slightly—in that they referred to the 2-year time period. They will just wait—they will wait and they will make more money on it if that is their wont and they will adjust their behaviour.The other part is that if you look at the statistics and the money generated from this legislation—and here is the rub—this tax revenue legislation bill will in fact according to KPMG and others accrue a negative net revenue to the Government. It will be a negative tax take—that is what this tax legislation will achieve upon its implementation once we establish who is liable and how they are going to pay. There are a whole lot of issues in how we determine who is liable and how they are going to pay but we will come to those later.The tax experts gave numbers in line with the Inland Revenue Department’s own analysis which suggested anywhere between $1 million and $5 million in terms of revenue-gathering from this legislation. Five million dollars sounds like a lot but we know that in terms of—I mean that is one house in Auckland at the moment is it not? It is next to nothing; it is ludicrous. Then they put the obvious to us and said that there is a cost in gathering this revenue. What you will find when you juxtapose cost to revenue as a good accountant is wont to do is that the actual return to the Government coffers will be negative—for a piece of legislation that we have been told will not work because behaviour from speculators will change. New Zealand First cannot and will not support absolutely farcical measures—if you do not mind the language—in terms of a Government standing up and essentially saying it will do something about this and in fact it knows full well it will not achieve any of the stated objectives that it has set out before us today. Thank you.STUART NASH (Labour—Napier): There are a couple of things that I would like to elaborate on. Just to go back to a clause that I was talking about before—this is under the subheading “Liability of conveyancers: reasonable reliance”. We are talking about Part 2 clause 44 new section RL 2(6B): “A paying agent is not liable for a penalty under Part 9 of the Tax Administration Act 1994 for a failure described in subsection (6)(b) …”. What we are basically saying here is that even though the lawyer or the conveyancing agent is in fact responsible for paying the tax they are not liable if their client has not given them the information required to make the payment of that tax.I suppose what I am saying here is that what we are requiring overseas investors to do is to provide their conveyancing agent with the correct information that allows the collection of this tax. There was a little bit of concern in the select committee about how this would play out and what would happen if an overseas investor knowingly or negligently gave false information because it is quite hard tracking down people who live overseas who are not part of this jurisdiction and who are often part of a jurisdiction that is completely foreign to the vast majority of New Zealanders—and some of them we do not even have tax agreements with. So we are relying in fact on the honesty of the overseas investor.One thing that I would like to talk about is that we should actually I suppose understand when the residential land withholding tax will apply. It is quite an important part of the bill. It will apply when the property being sold is residential land. Again we talked about what constitutes residential land but the definitions are in the legislation and it is defined for the purposes of the brightline test—and this is one of the bills we talked about earlier. This is the tax bill that gives effect to the brightline test. This is when the vendor or the seller acquired the property—now this is the important thing—on or after 1 October 2015. Any land bought before 1 October 2015 is actually not subject to this so if an overseas speculator has bought something on 29 September 2015 they can hold that for a year or they can hold it for any amount of time and avoid paying this tax at all. And of course the vendor is an offshore person.The other thing that is quite important I suppose is: how much does the person have to pay? Well what will be required to be withheld—and there is a difference between what is withheld and what is paid—is 33 percent or 28 percent if the vendor is a company times the current purchase price minus the vendor’s acquisition cost. So a stock standard example is if an offshore person buys a house for $100000 and they sell it a year later for $150000 then that is a $50000 profit. If they are a company then they have to pay $14000 in residential land withholding tax but they still bank $36000. There is still quite a lot of money there that is in the account or I should say it is the lower of 33 percent or 28 percent if it is a company and 10 percent times the current purchase price. So there are two equations in there that need to be met to ensure that it is very difficult to avoid paying your full amount but let us go back to the amount of money that speculators can still make here. If a speculator buys a house for $100000 and sells it for $150000 within that 2-year period or if it is a company or a trust it pays $14000 in tax they still bank $36000. If they are an individual on the top tax rate and then they withhold $16500 they still bank $33000.It is still quite a lot of money but the interesting thing is that there is a clause in the bill that says that the residential land withholding tax will be paid before other disbursements are made at the time of settlement. There was a concern by real estate agents that perhaps they would not get their commission. We assured them that in fact no they would get their commission—that was sacrosanct—so the real estate agents were quite happy about that. But if the vendor’s conveyancing agent is required to pay the residential land withholding tax this will be paid after the amount required to discharge the vendor’s New Zealand mortgage has been paid. But the interesting thing is that if this would result in insufficient funds being available to pay the mortgage then the amount of residential land withholding tax would be restricted to the difference between the current purchase price and the amount required to discharge the New Zealand mortgage.JAMI-LEE ROSS (National—Botany): I appreciate the opportunity to answer a few of the points made by our colleagues on the other side of the Chamber. I just want to say at the outset that the Finance and Expenditure Committee worked pretty well together on this bill and we came to a few conclusions that were cross-party and I think were good for the overall legislation and the point that we landed in.I do want to answer a few things that some of our colleagues have raised though. I always enjoy following Fletcher Tabuteau and being able to answer some of the points that he has raised. He basically said that (1) the brightline test is not working—well it only came in late last year. And (2) this tax is not sensible or practical—I think that might have been the word that he used. Well apparently not taxing people is what they would prefer; I do not know that that is really a position the New Zealand public would agree with. And (3) he spoke about the amount of money that it would bring in and he was saying that it was not going to be a high amount of money. Well quite frankly it does not matter how much money comes in; it is about ensuring that overseas purchasers of property and offshore persons are paying their tax appropriately.That is what this is all about. It is not about making huge amounts of money for the Government; it is about ensuring that overseas purchasers of property are paying their fair share. The easiest way that we feel we can target those people who are offshore persons and who could find it easier to avoid paying tax because they are offshore is to tax them by way of a residential land withholding tax. That is what this is all about. It is not about making huge amounts of money. So a residential land withholding tax will ensure that there is greater compliance with the tax obligations that those offshore people have.In terms of the brightline test it was put in specifically to ensure that those who are speculating on property are taxed appropriately. There is already the intentions-based test that has always been there and so I reject the claim that Mr Nash made that if someone purchased a property prior to October 2015 they would not be subject to tax if they speculate on it and sell the property. That is not true because they will still be subject to tax if they have speculated and their intention was to make a capital gain on that property. The date used here is simply to ensure that we have a line in the sand. Whether that line in the sand was October 2015 1 January 2015 or whatever date you put in there there is always going to be a point at which you could say: “Well if somebody purchased a property before that date then they won’t be subject to x y z.” The reality is that the intentions-based test has always been there is still there still applies and always will still apply and that this is separate from that.Stuart Nash: But if it works why are we doing this?JAMI-LEE ROSS: Well if it works—the reality is that the Government took some action because there were claims by the media claims by the public and concern by the public that offshore people speculating on property were not being taxed appropriately. So we changed the law and put in place the brightline test to ensure greater compliance. But the intentions-based test has always been there will still be there and does still apply to a purchase made in September or prior to October—so Mr Nash’s claim is incorrect there.Mr Tabuteau’s claims that the brightline test does not work—he had some interesting claims around that because he said that the number of offshore people buying property declined after the brightline test came in. I would have thought that actually means it had some impact and it actually was working. So Mr Tabuteau I do not think we can make that claim.Finally I just want to touch on the point that Mr Nash made around the liability of conveyancers and them having to rely on the information provided to them by the individuals whom they are tasked to work with and act on behalf of. I guess we always have to come to the point where we consider complexity and how difficult we made it in ensuring that there was compliance. We could have made the tax agents and the conveyancers liable for ensuring the information was correct but that would have added a huge amount of complexity that quite frankly would be unnecessary for most of the people who are involved in this. By ensuring that the liability did not lie with the conveyancers and that they could rely on the information that they were given by their clients it reduces some of the complexity but those people are still subject to other aspects of the Income Tax Act around providing documents fraudulently. So if there was evidence of that happening no the conveyancers would not be liable but the Inland Revenue Department would still have the ability to go after the people providing fraudulent information. I think the provisions that are in Part 2 that the committee arrived at where we made some changes around the definition of “offshore person” and landed in that space where 25 percent meant an individual or a company or group of people were not considered offshore but over—[Bell rung] Mr Chair.The CHAIRPERSON (Hon Trevor Mallard): Jami-Lee Ross.JAMI-LEE ROSS: I just want to finish off this point: that we arrived at the 25:75 split where 25 percent meant that they were not considered offshore but 75 percent or over and above 25 percent meant they were considered offshore which I think was a good space that the committee landed at. I think it has improved this bill considerably.GRANT ROBERTSON (Labour—Wellington Central): Thank you very much Mr Chair—[Interruption] A silent colleague to my left there but I am sure—[Interruption] Thank you. I am sure Jacinda Ardern will take a call shortly. I want to pick up Jami-Lee Ross’s observation about the purpose of Part 2 being about the tax obligations of offshore people and those people paying their fair share. It is a noble goal and one that the Finance and Expenditure Committee had in its mind as we worked our way through the Government’s policy to introduce a residential land withholding tax for offshore persons.If only such noble goals were part of the Government’s overall tax policy and offshore people paid their fair share for instance through trusts. Then we would actually have a tax system that New Zealanders could look at and as my colleague Jami-Lee has just said see that everybody pays their fair share. But there was a complete failure by the Government to have that kind of consistency as we have seen in the last few days and it all gets murkier. We now see that the Prime Minister has got deposits in companies that specialise in offshore trusts.David Bennett: Oh come on. Get on the bill.GRANT ROBERTSON: It gets murkier by the moment Mr Bennett. That is what happens when you do not front up and go to New Zealanders with information about your tax affairs. Mr Bennett might not care about that but other New Zealanders do. They want to see fairness in the tax system—just as Jami-Lee Ross said he thought this part of the bill was aimed at.It was disturbing in the select committee as we worked through the residential land withholding tax issue that we were correcting mistakes made in legislation passed only a matter of months earlier. We did that twice once when covering Part 2 and once when covering Part 4. Essentially that came down to the fact that the various new definitions that the Government had come up with to put in both the Income Tax Act and the Tax Administration Act did not fit when it came to a residential land withholding tax issue.In this part of the bill we are looking at the definition of “offshore person”. I do support what Jami-Lee Ross said which is that the committee did come to the conclusion that the definition was far too broad when it came to being able to implement a residential withholding tax in a meaningful and sensible way. The officials from the Inland Revenue Department came to the committee and said that if we kept the same definition for “offshore person” as we passed in the previous piece of legislation we would find that almost impossible to implement. They gave us an example of a trust or a partnership where the partner with a 1 percent share could make the entire partnership into an offshore person and that would then put in place a set of obligations that would have been difficult both for that entity and for the Inland Revenue Department to follow up.So we on this side of the House accepted that change and agreed to it on the grounds that what we are trying to do is create a basis by which those who do invest in New Zealand from offshore have an understanding of what the requirements on them are. That should not be read as members on this side of the House believing that we do not think those who are offshore persons have obligations because we do. They should have obligations that make them part of a globally transparent system.Although in this particular aspect of the definition of “offshore person” we can see sense the Minister in the chair might want to take a call here and talk about the consistency now of the obligations of offshore people across the Income Tax Act. What we are setting up I believe as a result of the changes that we are making here is a system where we are putting certain obligations on offshore persons with regard to the residential land withholding tax and then completely ignoring making those obligations tighter for instance around foreign trusts. The Minister might want to stand up and let us know whether he thinks we are being consistent. Yes we are changing and amending the legislation to make it different from the two previous pieces of legislation that we passed but is that consistent across all of the tax legislation that we have?The other point that I want to pick up here is whether or not we can use the term “offshore person” at all. That was an amendment that we made again in the committee. So we now have in the Act an “offshore person” and now under clause 45(8) an “offshore RLWT person”. The Government has got itself in a position where it is trying so finely to define within this part exactly who will be covered by the new residential withholding tax that it has had to create a new class of person within the Act. [Bell rung] Mr Chair—The CHAIRPERSON (Hon Trevor Mallard): Grant Robertson.GRANT ROBERTSON: I will not take a full second call on this but I just want to make the point that this level of complexity around what the Government thinks it is trying to achieve with the brightline test highlights to me the fact that it did not think through all of these particular policies together. This is the third bill in a series of three.At each part of the select committee process the large accounting firms in New Zealand have come to the committee and said “The Government’s policy position is confusing us because we have now had a series of changes”—I am using clause 45(8) to highlight this—“where we have different definitions and different meanings.” The accountancy profession which for various reasons is getting a bit of a hauling over the coals at the moment was telling the select committee and telling New Zealanders that it does not believe that the Government has consistent policy here or policy that is easy to follow.My fear is that this will not be the last time possibly even this year that we end up amending legislation we have only just passed. That really comes down to poor work by the Minister in my view in not having a decent and consistent plan for how we are going to be able to do this. So we now have an offshore residential land withholding tax person alongside an offshore person and a definition of “offshore person” that we have changed as well. We are making those three changes all in one go because the Government basically could not get its act together.I just wanted to make those points on Part 2. I am going to returnshortly in a later call to the other change that we have made around bank account requirements for offshore persons. This is largely dealt with under the Tax Administration Act provisions that fall under Part 4 but it does bear mentioning that these clauses within Part 2 also indicate where the Government has not been able to get its act together and have a coherent policy.JACINDA ARDERN (Labour): I would like to base my contribution on Part 2 around some of the discussion contained in the regulatory impact statement because that canvasses the degree to which the Inland Revenue Department (IRD) under the direction of Ministers explores alternatives to the tool that was eventually settled on to underpin the brightline test which is the residential land withholding tax that is set out in Part 2. I think that what is interesting is in the setting out of the problem definition before the officials went out and consulted on the options that are then contained in Part 2—the problem definition that we see the Government has used in that consultation document and in the subsequent regulatory impact statement is obviously quite broad. It says: “The Government is concerned with high house prices”—something we can all agree is of major concern—“particularly in the Auckland area. … Other possible causes both on the supply and demand sides are being separately considered.”—we wait with bated breath but—“Property speculation is seen as one of a number of causes of the current prices.”So there is obviously up front some acknowledgment of the issues but there are some limitations to our ability to use an evidence-based approach in dealing with some of those issues and those limitations are included in the regulatory impact statement. It does set out that one of those limitations is of course the lack of information that we have on the exact breadth of the offshore speculator issue. We see that on page 1 of the regulatory impact statement it states: “The exact fiscal and compliance cost figures for the proposed bright-line test are not available because Inland Revenue does not currently have accurate data on the types and levels of land sales occurring or how much is collected under the current land sale rules.” So we have had to make some assumptions but I think it is fair to assume—as Labour obviously has—that the issue of overseas-based foreign speculators is significant in terms of the impact it is having which is essentially what Part 2 speaks to.The other limitation is also set out in the regulatory impact statement. It states that “The analysis in this RIS needs to be considered in light of the additional constraint faced by Inland Revenue at the present time”—which is not just a lack of data—“which is its inability to make significant systems changes in advance of the relevant stage of development of its Business Transformation programme.”So I guess my question to Minister Michael Woodhouse is on the consideration of the various mechanisms in order to underpin the brightline test which include: “Option 1:Relying on existing compliance measures … Option 2: Status quo but provide more guidance on tax obligations;”—a bit of an education programme—“Option 3: Status quo but review effectiveness of bright-line test in three to four years;”—so have a punt and see whether or not it is working—“Option 4: Introduce a withholding tax on sales of residential property made within the two-year bright-line [test].” In amongst all of those options what options were not canvassed as a result of the constraints that the IRD has articulated are as a result of the significant systems changes it is experiencing as part of its Business Transformation programme? Was there anything that was not considered because of those constraints? I am interested to know. There may not have been—we may have canvassed everything in the submission process that we are now debating in Part 2 but I doubt that would be the case because we have heard of instances before where the IRD has expressed concerns over those limitations and its ability to alter the rules under which it operates.But I do want to come to the question of compliance because the reason that we have fallen on the residential withholding tax option is that obviously the IRD has determined that other forms of compliance would be less effective. As I mentioned previously option 1 is to rely on what is existing—so the status quo—and having more guidance around obligations was dismissed. Why was that option dismissed?Well the reason that the withholding tax option in Part 2 was chosen is set out in the regulatory impact statement which says: “7. New Zealand taxes its tax residents on their worldwide income. New Zealand also taxes foreign investors on income that is sourced in New Zealand. When a foreign investor has a branch or controls a subsidiary in New Zealand tax can be imposed on the New Zealand-sourced income of that branch or subsidiary in the same way as it would be on New Zealanders. However when the foreign investor does not have a New Zealand presence it is more difficult for New Zealand to collect tax from them. 8. New Zealand’s tax system operates on the principle of voluntary compliance which relies on taxpayers understanding their tax obligations and how the wider tax system works.”—keeping in mind that we do operate somewhat of a “don’t ask don’t tell” operation here as well—“9. Foreign investors may not always have the same level of understanding as taxpayers based in New Zealand and they do not have the same level of connection to New Zealand that would otherwise create an intrinsic incentive to voluntarily comply with their New Zealand tax obligations.”I think that last statement is quite interesting—“they do not have the same level of connection to New Zealand that would otherwise create an intrinsic incentive to voluntarily comply with the New Zealand tax obligations.” I think you could apply the same rule of thumb generally where one who might use New Zealand for instance as a tax haven might also not have concern for perceptions and the reputational risk for New Zealand around their use of a New Zealand- based tax haven as well.I guess that what the IRD is pointing out there is that unless you have a domestic connection to New Zealand your sense of obligation to us—be it in your literal tax obligations or even in the reputational risk you may pose by the way that you conduct your affairs—is not top of mind.It is a reason perhaps for us to be somewhat more concerned about compliance by those who should be covered not only by the brightline test but also probably more broadly within our tax system. I hope I am not being too subtle in drawing that comparison there.I think it is a point well made in the regulatory impact statement. Actually it is canvassed in option 2 of the regulatory impact statement as well. Option 2 of course was simply maintaining the status quo but providing more information and guidance on tax obligations in relation to residential property. I am glad that option 2 was not opted for. From my perspective the idea that with a bit of a pamphlet we could assume that tax obligations would be fulfilled would I think be a bit naive. In fact that is expanded on in paragraph 42 of the regulatory impact statement. It says that “the success of this option is dependent on another major assumption—that non-compliance with the proposed bright-line test will arise from a lack of information and knowledge about the tax implications of sales of residential land.” Saying “I’m sorry I didn’t pay. I just didn’t know.”—if only that were a basis for not complying with one’s obligations I am sure many will think.It goes on to say “There will be instances where an improved understanding of the tax rules and one’s tax obligations in relation to a particular transaction may lead to higher levels of compliance.”—if only that were the case—“However there will be taxpayers who regardless of their level of knowledge will not voluntarily comply with their tax obligations.” Sadly the IRD is articulating here what many of us will know which is that just because people know about their tax obligations it will not mean that they will merrily skip to their IRD office in order to fulfil them forthwith.So there are a lot of interesting issues playing out in this paper where the IRD is freely acknowledging that knowledge is not enough and that connection to a country is not enough; in fact if anything it probably undermines our system. It has built in assumptions in this case that non-compliance is often deliberate. I am glad that the officials have done that because it is a realistic take on people’s approach to taxation in New Zealand let alone the approach of those who do not have a connection to New Zealand. So although I think that probably the option that officials opted for was the right one we would do well to reflect on the rationale for why it is that we opted for something more proactive. But I would like to highlight again that I would be very interested in having the Minister expand on whether other options were canvassed.BARBARA KURIGER (National—Taranaki - King Country): I move That the question be now put.STUART NASH (Labour—Napier): I would like to just finish elaborating on the example that I gave earlier. There is a clause in the bill that basically says that first and foremost resident withholding tax must be paid after the New Zealand mortgage is paid off. However the commentary on the bill says: “If this would result in sufficient funds being available to pay [residential land withholding tax] the amount of [residential land withholding tax] payable will be restricted to the difference between the current purchase price and the amount required to discharge the … mortgage.” In the Finance and Expenditure Committee the thing that we talked about was how that sort of situation would arise.Let me give you an example: an investor buys a property for $1 million sells it 18 months later for $1.5 million—not unheard of in any way shape or form—so they have made a profit of $500000. If it is a company there is a $140000 tax liability there. But the interesting thing about this is for this clause to come into play there would have to be a New Zealand mortgage above $1.36 million. I am not too sure how that could arise unless there was some sort of negative gearing going on. Negative gearing in the property market—it could never happen could it? I remember trying to buy a house in Auckland at one point in time and I thought that I had put in a very good price. The house had a valuation of about $700000—it was a long time ago—and I was told that the guy had a $1.5 million mortgage against it. It was a well-known property developer who had just geared this up. So we just have to be a little bit careful about the games that people play. I suppose as Jacinda Ardern has just outlined there are those who will seek to game the system no matter what.I think it is probably worth looking at the definition of “residential land” in New Zealand because we probably all have a reasonable person’s definition of “residential land” but it is slightly more complicated than that. In the commentary on the bill the definition of “residential land” is “land that has a dwelling on it;”—well that makes sense; I suppose that is what we would automatically assume—but it is also “land for which the owner has an arrangement that relates to erecting a dwelling;”.For instance an investor has bought a bare piece of land upon which there are plans and consents to put a dwelling; the dwelling perhaps does not go up and the investor sells that bare piece of land within 18 months—well that is still classed as residential land. The definition in the commentary on the bill continues: “bare land that may be used for erecting a dwelling under the rules and the relevant operative district plan;”—so again this relates to a circumstance where perhaps an overseas investor has bought a chunk of land upon which they were planning to put six units. If that does not go ahead and the land is sold—the units are not erected—it is still classed as residential land and an investor still has to pay residential land withholding tax for that. The other thing is that residential land “does not include land that is farm land or used predominantly as business premises.” Again we saw clarification around what business premises predominantly are and I think we came to an elegant solution but by and large those other three definitions will preclude farmland and commercial property.One thing I note in the commentary is that “this reference to income under the bright-line test means that there will not need to be a land title transfer”. Ordinarily with the sale and purchase of a house there is a transfer and that triggers the sale but “there will only need to be a residential land purchase amount.” There is a little bit of nuance there but it is important I suppose that we understand this—and certainly conveyancers are undertaking this if in fact they believe that it does not kick in because there has not been a land transfer—it still triggers. “This means that off-the-plan sales for example will still be subject to [residential land withholding tax] if other conditions are also met.”The other thing and it has been brought up before is that the brightline test does contain an exception if the residential land that is being disposed of is the vendor’s main home. There is of course no main home exemption in this bill because we are talking about only overseas investors. By any definition an overseas investor buying a New Zealand property could not claim that that is their main home because they do not live in it. It makes sense.The other thing in the commentary is that “there will be an exemption or rollover relief from [residential land withholding tax] for inherited property and for transfers of relationship property … under the brightline test.” Again keep in mind that we are talking about only a 2-year window here—so I suppose that if someone dies within 2 years of buying a property and their estate or the beneficiaries of their will inherit that property there is no liability triggered. However there is still the 2-year—The CHAIRPERSON (Hon Trevor Mallard): The member has had four calls. He does not get any more.PHIL TWYFORD (Labour—Te Atatū): You have had quite enough Mr Nash. I want to come back to some of the comments that were made by Jami-Lee Ross earlier in the debate when he talked about the rationale for this bill and the argument that we have touched on today about whether in fact the associated legislation—the brightline test and the requirement for non-resident foreign buyers of residential property to register with the Inland Revenue Department which Part 2 is enabling—has had any effect or not.We have data right now actually—a right-up-to-the-minute release by the Real Estate Institute of New Zealand—that shows that in fact in the last month the median house price in Auckland which is the market most affected by the problems that this bill is purportedly trying to address has gone up by $70000. That is 1½ times the median income and I think it really undermines any kind of optimism that we have been hearing from members on the Government benches that the brightline test the residential land withholding tax and the requirement for non-resident foreign buyers to register with the Inland Revenue Department has had any kind of sustained impact on the speculative pressures that have been overheating the Auckland housing market.Jami-Lee Ross mounted a great spirited defence of the intention test as if this was enough and as if this was working but he is completely stymied by the fact that the Government introduced this legislation and these measures presumably to tackle some kind of real problem—or was it an imagined problem? It was not clear from what Jami-Lee Ross was saying. The residential land withholding tax is in place there in Part 2 of this bill to ensure that the brightline test applies to non-resident foreign buyers. As Jacinda Ardern pointed out the Inland Revenue Department in its advice on this bill raised the point that we do not have the data—that we do not know what the scale of non-resident foreign buyers in the Auckland market is.When the policy announcement was made that led to this bill and others I think it was the Hon Steven Joyce who said that the Government would release the data that it would be gathering on non-resident foreign buyers by way of the requirement that they open a bank account and register with the Inland Revenue Department and that it would make this data available by 16 April. We are getting very near to 16 April and yet there has been nary a whimper from the Government on the question of this data and what it shows.But interestingly Shamubeel Eaqub the independent economist said a couple of weeks ago in the media that—and it appeared that he has some kind of access to the data that has been gathered—330 properties per month on average have been bought by non-resident foreign buyers over the last 6 months. That is 330 properties per month since the law came into force requiring foreign buyers to register with the Inland Revenue Department. That volume of sales—330 on average per month over 6 months—would account for 5 percent of all house sales across New Zealand which is significant I think. But as Shamubeel Eaqub said at the time it is probably more likely to be 18 percent of all sales in the Auckland market because the presence of non-resident foreign buyers has been so heavily concentrated in Auckland. If it is anything like 18 percent of sales in the Auckland market it is no wonder that the Government has not made any kind of move so far to release that data and I would guess that it will not.Colleen Milne of the Real Estate Institute also said recently that these new tax rules seem to be having limited impact and she predicted that the decline in sales that has been seen—I think over November December and January when there was no doubt that there had been a sort of softening in the Auckland market—would be transitory.ALASTAIR SCOTT (National—Wairarapa): I move That the question be now put.GRANT ROBERTSON (Labour—Wellington Central): I think my colleague Phil Twyford was making some very good points there. The Finance and Expenditure Committee was told when considering the bill that the quantum that the Inland Revenue Department thought it would be able to gain from the brightline test had not changed from what we had initially been told which was the whopping sum of $5 million a year. It also concluded in its assessment to us that it was going to cost about $2 million to set the whole thing up so things are not looking good in terms of the scale of income from such a weak instrument as this.I want to return to the definitional issues around “offshore person”—or in fact an offshore residential land withholding tax person or “offshore RLWT person”—as is now included in clause 45(8). There are two reasons why I want to do that. The first of those is that I am not sure that everybody listening to this debate will fully understand the definition and who is captured by this. Then once we have clarified what that definition is I want to raise a couple of questions for the Minister in the chair the Hon Michael Woodhouse around who is considered a person in terms of a trust.The definition in clause 45(8) would tell you that for the purposes of this bill a residential land withholding tax offshore person is a person who “is a New Zealand citizen who is outside New Zealand and they have not been in New Zealand within the last 3 years:” or “the person holds a residence class visa … and they are outside New Zealand and have not been in New Zealand within the last 12 months”. That is actually a very important point in the context of who is considered by the Inland Revenue Department at any given moment not to be a New Zealander for tax purposes—to be an “offshore person” for tax purposes. The idea that those who hold residence visas—and there are many New Zealanders who have lived here for a very long time but do not have citizenship—you have to have not been here for only 12 months. It is actually a very tight provision. I wonder whether the Minister wants to let us know whether that reflects other parts of tax law in terms of that. Then you have 3 years for a citizen and the third class is a person who is obviously not a New Zealand citizen and does not have a residence class visa.So we have set up there who the offshore person is—and as I say I think a lot of New Zealanders would perhaps be surprised to learn that if they have a residence class visa but they have been away for 12 months they are no longer considered to be this and they then fall under the provisions within the bill here. But then if we go further into the definition we see that “a person that is a trustee of a trust if—(i) more than 25% of the trustees of the trust are offshore RLWT persons:”—and then—“(ii) more than 25% of the people that have the power to appoint or remove a trustee of the trust or to amend the trust deed are offshore RLWT persons:”.Here we get into the inconsistencies that are now emerging in our income tax law about exactly what is considered here to be an offshore trust. When we have got under the foreign trust rules that you can establish yourself and claim to be an offshore person or be an offshore person and simply have a trustee who is set up to run the trust for you as a means of avoiding tax—Mr Bennett is poised because he wants to get up and talk about people who avoid tax—that is the danger in having a range of definitions about who an offshore person is across different parts of our legislation and that is now effectively created here in the definition in clause 45(8).But then we move further down in clause 45(8) and we get into what I think is perhaps an even murkier area and one that the Minister in the chair might want to take a call on. We see that we are talking now about people who are offshore residential land withholding tax or RLWT persons. The select committee has inserted the words “the person is a partner in a limited partnership or an owner of an effective look-through interest in a look-through company (LTC) and more than 25% of the partnership’s partnership shares”are effectively held by offshore residential land withholding tax persons.The rules around look-through companies were changed in this House in 2011. They were changed by the Government in such a way that those look-through companies could be zero-rated for tax purposes. That is the heart of the concern that a lot of New Zealanders now have about the massive growth in foreign trusts because those look-through companies sitting alongside foreign trusts are part of the combo pack that Mossack Fonseca has been selling to its investors.David Bennett: He’s not even on the bill.GRANT ROBERTSON: It is the great combo pack where you can get away without paying any tax whatsoever and one of those parts Mr Bennett I say for your benefit is a look-through company that is now zero-rated for tax purposes. In this clause if more than 25 percent of the people who have an interest in one of those look-through companies is an offshore person for residential land withholding tax purposes then that look-through company is considered to be a person under this bill. That is setting up yet another situation in which look-through companies could potentially be exploited.Given what has been happening in terms of the release of the Panama Papers and given what has been happening here I think the Minister in the chair might want to get up and tell us whether he is confident that we have the arrangements around look-through companies and that he is confident in terms of putting them within this definition of who an offshore residential land withholding tax person is.We did not discuss I have to say in the committee whether or not that was a sufficiently tight definition or whether there are sufficient safeguards when it comes to look-through companies but I do know that that change has been critical in the growth of foreign trusts that are being used for tax evasion purposes in New Zealand. There is absolutely no doubt because when you put foreign trusts alongside look-through companies which can be zero-rated in New Zealand for tax purposes that we—I am sure Mr Chair the frown on your face might indicate that there is a point at which I am going a little beyond the bill here but I think it is a relevant consideration because the rules around look-through companies are now the subject of international attention and here we are making a change to how they will be used in terms of defining offshore persons for residential land withholding tax. I think it is a legitimate question to be asked. Clearly the fact that property is owned in New Zealand by one of these look-through companies may mean that that is less of an issue but that is something that the Minister might choose to have something to say about in a moment.As I still have the call the other point that I will make at the moment is around the question of the information requirements. This is clauses 44 and 45 again. It is important to note that when we considered these matters in the select committee there was a belief that the information requirements for New Zealand taxpayers were clearly stated and understood but not necessarily by those who were offshore persons. A series of changes has now been made to ensure that we do have that level of information.Again this is an issue of consistency for the Government—consistency around whether or not information requirements across the Income Tax Act and the Tax Administration Act for offshore persons are consistent. It is quite clear to me that because the Government has relooked at these particular provisions around residential land withholding tax it has created a series of information requirements in terms of what information must be provided to the Commissioner of Inland Revenue. There is now new section 54C in the Tax Administration Act inserted by clause 72 and subsection (4) will require vendors to provide at the very least their full name address and IRD number and to state whether or not they are an offshore person. If they are an offshore person the vendor must also state whether they are associated with the purchaser and whether the disposal of the residential land is or would be considered income under the brightline test—ignoring the brightline test’s home exemption.There again you have now a series of things that an offshore person must do under this piece of legislation that we are passing right now tonight. But those offshore persons have a completely different set of requirements and disclosures under other parts of our tax law particularly those around foreign trusts. So once again although this might be the right thing to do to enable the implementation of this residential land withholding tax it sets up in my mind a series of inconsistencies in the law about disclosure and information that I think New Zealanders would want to see ironed out. As other colleagues have stated the heart of our tax system is that it is fair that it is easy and simple to understand and that people are treated fairly. I think we run the risk with clauses like this that we highlight a particular type of offshore person—DAVID BENNETT (National—Hamilton East): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.A party vote was called for on the question That Part 2 be agreed to.Ayes 109New Zealand National 59; New Zealand Labour 32; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Part 2 agreed to.Part 3 Amendments to Goods and Services Tax Act 1985STUART NASH (Labour—Napier): This is the part that there was quite a bit debate on in the Finance and Expenditure Committee. We just do not think it went far enough at all. The principal Act the Goods and Services Tax Act applies to all consumption that occurs in New Zealand. The reason for that is that it is fair it is efficient it is simple it is easy to understand and there are no complications. But the thing about this is that when GST was introduced in 1986 I do not think anyone had ever heard of the internet let alone the online purchasing of goods and services.GST was set at around 10 percent it then went up to 12.5 percent and now it sits at around 15 percent after this Government said that it would not increase GST but it did. But that is the way it is I suppose. The concern we have is that this is about putting a goods and services tax on intangibles. This is online services—cross-border supplies of remote services. So it is targeting a certain area. It was colloquially called the net services tax. If a company generates New Zealand receipts exceeding $60000 over a 12-month period then it has to pay GST. That is consistent with a New Zealand company.But the thing with this bill is we think it should have gone a whole lot further. What this is in effect doing is providing a 15 percent competitive advantage to all goods purchased offshore and not just electronic goods. I mean it is good that we are levelling the playing field in terms of electronic goods and services. We agree with that and that is why we are supporting this part of the bill. But here was an opportunity to go even further. I come from a provincial city where a lot of our retailers are struggling at the moment. Part of that is because there is not that much money in the economy because things are a bit rough in provincial New Zealand but also part of that is due to the massive explosion in online shopping.You can go online these days and buy a pair of jeans anywhere in the world and they can be delivered within a week and do you know what? You get an automatic 15 percent discount on those because there is no GST and yet those retailers down on Main Street New Zealand have still got to pay GST. We think that this part of the bill should have gone a hell of a lot further than it has. It is a start. It is a start—we recognise that.There has always been this argument that “Oh well. It costs more money to police the compliance than what you would collect in revenue.” I do not agree with that in this case. Sure we are only doing this on online goods so it is easier. It does not place an impost on the Customs Service to handle physical goods in any way shape or form. But what it is in effect doing is burying our heads in the sand and saying that this is too difficult or we don’t really care about middle New Zealanders who own the retail shops who are competing with these offshore multinationals.It was a classic case. Part 3 of the bill provided the Government with the perfect opportunity to actually level the playing field and that is all—not tilt the playing field in terms of New Zealand suppliers or retailers but just level the playing field for New Zealand retailers. Instead what I believe it does is it actually tilts the playing field towards the large multinationals as opposed to the good hard-working middle New Zealand families who own the retail stores and who are missing out on these things.We hear time and time again how people have bought a fantastic book on Amazon or they have bought something from Abercrombie and Fitch or any nature of goods over the internet. It is becoming part and parcel of the way we shop. One of the reasons why New Zealanders have embraced this form of retail therapy is that it is cheaper—it is cheaper. What we are talking about here is not tangible goods and services that cannot be bought in New Zealand. If that were the case you could sort of understand that. You know—“I can’t buy this down here. The only place I can buy it is overseas. Therefore I’ve got to.” Well that sort of makes sense. But when the same goods and services that you can buy downtown you can also buy on the internet for a 15 percent discount first and foremost because there is no GST then that is plain wrong.The Inland Revenue Department admits as does everyone—and I suppose this is a common theme throughout the speeches today—that a tax system has got to be fair it has got to be efficient and it is got to be simple. This part of the bill misses a great opportunity to address a real problem we have got in retail New Zealand—that is GST should be charged on online tangibles.GRANT ROBERTSON (Labour—Wellington Central): I want to talk first about the good bits of Part 3 of the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill and then about the bits that have not been dealt with. The thing that is good is that we are taking a step forward here in understanding the new way that commerce is done. You know it has taken us a little while as a Parliament to catch up with that but the truth is that there will be very few parliamentarians and very few people listening to or watching the debate tonight who have not bought something online in the last year or so. It is now a very core part of how we do shopping. Everything from booking holidays to downloading your favourite tunes on to your iPod to use when you go out for your walks—all of those things are now part and parcel of daily life and so it is important that if we are to create a fair tax system that we begin to look at that.What this piece of legislation does as my colleague Stuart Nash has said is deal with what are called remote services or intangibles which are essentially e-books music videos and software that we purchase from offshore websites. So it is an important thing and there were certainly strong submissions made to the Finance and Expenditure Committee from people who do provide in that area. The easy one is to think about the difference between Netflix and Lightbox with Netflix being the international offshore provider of streaming television services and Lightbox being the one provided ultimately by Spark a New Zealand - based company. Those two companies will now be treated fairly under this piece of law and that is good for GST purposes. That is an important step forward for us and one that the Labour Party does strongly support.Where our concern arises is that the opportunity has been missed to then take that to the next logical step and that is around tangible goods. The reason why it should have been taken now is that we are now setting up a very very unfair situation. If I want to go out and buy a birthday present and buy a book and I go on Amazon—I personally do not own an e-reader but I prefer hard-copy books; I prefer to hold on to books and read them—and order online a hard-copy book and it comes into New Zealand for me that is not going to create a GST obligation. But if I download it as an e-book to an e-reader—if I did have one—then it would. That is the unfairness that retailers in particular across New Zealand have rightly come to the committee on and said: “Good on you for taking one step forward.” But if we really wanted to support New Zealand businesses and if we really wanted to support those main street retailers as Stuart Nash called them then we would have taken that extra step.The arguments that were raised when we raised this in the select committee were largely around compliance and around the cost of that at the border. But I actually think the wherewithal is there for us to step beyond that if we are serious about having a fair tax system. It was disappointing to us that some of the very very good submissions that came through to the committee particularly from the retailers were ignored by the Government. It is this part of the bill where we feel that the missed opportunity is the greatest because this was the chance to create that truly fair base to our tax system.There are rules that have been put in place. My colleague Stuart Nash mentioned before that the supplier of remote services to New Zealand consumers has to exceed $60000 worth of services in a 12-month period. That will capture those larger providers but the truth is that in terms of the ones that could really be effective for New Zealand we are not going to be reaching those because the system does not go beyond the intangibles. The suppliers of remote services by non-resident suppliers to New Zealand will not be subject to GST unless the supplier and recipient agree otherwise in which case the supplier will be zero rated. The supplier will then be able to claim back any New Zealand GST costs in making zero-rated supplies.Another change that has been made is that offshore suppliers will be required to determine whether a customer is a New Zealand resident on the basis of two non-conflicting pieces of commercially available evidence of residence. So we have to prove here that someone actually is in New Zealand for GST purposes. Those sorts of rules are useful.The Commissioner of Inland Revenue has got some discretion when working out whether someone is genuinely in New Zealand. I do know from some of the work that was put in front of us at the select committee and from the reading that I have done that those suppliers at the other end of the chain—the Amazons the Apples and so on—feel that sometimes with some jurisdictions it is quite hard to establish exactly where somebody is particularly now around the way in which telephone numbers can transfer across borders. So the idea that a billing address and a country code of a mobile phone SIM card are required to be able to establish whether or not somebody is actually resident in New Zealand is important. It is less of a problem in New Zealand I suspect. I do not think New Zealand phone numbers are used in quite the way that some other phone numbers are but that is an important aspect of deciding whether or not somebody falls under the provisions here.If a GST-registered business is inadvertently charged GST it will have to seek a refund from the non-resident supplier. However if the payment for the supply is $1000 or less the non-resident supplier will have the option to provide a tax invoice to the purchaser to allow them to claim a reduction rather than to refund the GST charged. This was raised in the committee by some submitters as effectively being a base threshold for involvement within this regime and again we were happy to accept that as providing the appropriate level of compliance burden.As I said the Commissioner of Inland Revenue does have the discretion to require a person to register and pay GST in cases where the person provides false or misleading information about themselves in order to avoid GST if the GST amount involved is substantial or the behaviour is repeated. There have been concerns again about where people appear to have a company that is based in New Zealand but actually they do not. This has not yet become a major issue but it could if somebody was genuinely working very very hard to avoid their GST obligations. We need to find a way and the committee felt that the Commissioner of Inland Revenue deserved a level of discretion to be able to deal with that.There are a series of things in here that are useful and that will make the system work for tangibles but I just return to the point that that is only half the story—in fact it is less than half the story because it is the movement of tangible goods that has the biggest impact on New Zealand businesses. There are good solid retailers across New Zealand that are struggling to compete with people because they are not being treated the same way. To me that is a fairly basic principle of what our job in Parliament is: to set the rules so that there is as level a playing field as there possibly can be.The Government is right in bringing forward a bill that makes that playing field level for those who supply intangible goods—digital goods. It is right to do that. But it has completely let down those who work hard every single day in the retail sector of New Zealand by not doing the same thing for tangible assets. It is not as hard as the Government is making out. This can be done with the appropriate thresholds. We always accept that there will be a threshold below which you do not go because compliance costs are too difficult but at the appropriate thresholds we could be supporting New Zealand small businesses today through having a piece of legislation that gives them the same GST treatment as their counterparts overseas. Government members might want to stand up take a call and tell us why they have not done that because in the absence of someone explaining it we have a piece of legislation here that is letting down a group of New Zealanders.FLETCHER TABUTEAU (NZ First): It is a pleasure to rise actually in support of this part of the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill. As I have said before there are good parts to this bill and this is one of them. Part 3 “Amendments to Goods and Services Tax Act 1985”—we absolutely support its intent but as noted by several speakers on this side of the Chamber it does not go far enough.Why do we say that? New Zealand First and I acknowledge that peers all across the Committee will have been consulting with businesses. We know that businesses have been waitingfor a long time—probably 9 years to be fair—for this Government to actually act to level the playing field to ensure that small to medium sized enterprises in New Zealand in particular are able to compete with big business from overseas. That is essentially the summation of the competition game we are talking about here. We are talking about small to medium sized enterprises that are suffering based on the fact that they must comply with their GST obligations whilst those predominantly large overseas international corporates sell their goods into New Zealand and for the last 9 years—as a random selection of time—those corporates have not been required to pay their GST obligations.The submissions to the Finance and Expenditure Committee were very clear and consistent. Each and every submitter who spoke on this part of the legislation said that “It was past the time to do something. We are grateful for what you have started to do for small to medium sized businesses in New Zealand.”So New Zealand First could not agree more with what I would class as kind of like the first step in part of a solution because as has been noted before—and I cannot say it emphatically enough—this is not the whole solution.It does not go far enough andthe arguments as to why we should not implement GST on all goods and services from merchandise traders and tangible goods as well as these intangible or—what is it called—“cross-border ‘remote services’ provided to New Zealand-resident consumers.” are half-hearted.A classic example is when I go and download a CD from some online music store. [Interruption] Download an album—thank you everyone. There we go. This is remote services—Kris Faafoi: I thought you were old school.FLETCHER TABUTEAU: —I am old school—to New Zealand residents and we are obliged to pay the GST. But if you buy the CD and get it mailed to you for some reason you are not obliged to pay the GST on it. It is nonsensical. It makes no sense and so—David Bennett: Get a gold card and you won’t have to pay anything.FLETCHER TABUTEAU: Good idea—get a SuperGold card and you might get a discount on it. Thank you Mr Bennett. We need to apply GST to all goods and/or services—intangible or tangible merchandise—that come into the country.The Government for some reason has put up an argument around insufficient funding for the Customs Service or it not being geared up adequately to address the issue but we were told by Retail New Zealand for example—it was only one group that put the numbers in front of us—that the top 20 online providers in terms of online stalls around the world offshore international corporates account for 86 percent of New Zealand activity in terms of purchasing online. What we were further told is that those companies are required to comply with GST or VAT obligations in many diverse parts of the world so they have point-of-sale software systems geared up ready to go to implement GST on intangible and tangible goods. They literally have to click a button and that practice of applying GST to the sale of goods to be shipped to New Zealand is enacted. At the point of purchase a New Zealander will pay the GST component. The offshore entity will account for that in its accounts and make its GST obligations paid because all of them as all in the room will know are above that $60000 threshold. So companies are there they are ready to do it and the arguments against it are not sound.ALASTAIR SCOTT (National—Wairarapa): This is a short call on Part 3 of this bill which refers to GST. GST is a very good way of collecting tax for the Government because it is broad-based there are no exemptions and it is a disincentive to consume. It taxes those who consume for goods and services so it encourages in other words people to save and invest which is of course why GST was increased from 12.5 percent to 15 percent at the time. Of course it enables the Government to reduce direct taxes which is essential if you want people to work harder earn more and become more productive.So I just wonder what might happen once we see the universal benefit that is proposed by the Opposition. I wonder where GST might go to if we all got paid $11000 on the day.I would like to come to the bill which talks about the goods and services tax relating to cross-border services and intangibles with the refinement in the Finance and Expenditure Committee to make it a little bit easier in regard to people who provide services on a collective basis. I am talking about insurance where you might have a group of people in a country or around the world supplying insurance to a base of people in New Zealand. Prior to the select committee process every one of those suppliers would have had to register for GST and collect and pay GST. It has been a positive improvement in the select committee where those offshore people can use an agent and be represented by one entity so enabling the tax to be collected by one agent and returned to the New Zealand Government. That is a very positive improvement.The other positive improvement through the select committee that I would like to mention is around the choice of zero rating for those offshore companies that are dealing with New Zealand companies that are GST-registered obviously in New Zealand. That offshore company can automatically say “We are to be zero rated and therefore there’s no need to collect any tax.” because there is no tax on a GST-registered business in New Zealand. We are aiming only to collect tax that would otherwise be paid by consumers. This is very much focused on the New Zealand consumer who purchases these intangible goods and services from offshore suppliers.The Opposition talked about some discussion around tangible goods. It is not true that tangible goods are exempt. There is GST taxed and collected at the border. I think the Opposition is referring to the threshold that applies to tangible goods so there is discussion. Of course if you had a zero threshold or a very low threshold that would be a loss-making venture for the Government because of the transaction costs that are involved in that work.Of course there is work to be done on the tangibles but that is not part of this bill. This bill focuses on the intangible services and that is only going to be growing as we purchase more and more Netflix online films and data. More and more data is going to be travelling this way and this is a very simple way of collecting what is quite rightly GST that is paid by the New Zealand consumer and is currently not being collected. As a result of this bill it will be collected. This is a positive approach to GST legislation. Thank you.KRIS FAAFOI (Labour—Mana): I rise to take a call on Part 3 of this piece of legislation the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill. Before I look towards a specific clause I do want to just point out one thing that the previous speaker Alastair Scott said. I am going to have to look back at some of the media reports at the time when the National Government increased GST from 12.5 percent to 15 percent because I did not see it pushing very hard that GST had to go up to incentivise savings. I do not remember that being one of the John Key lines—“We need to increase GST so more Kiwis will save.” I will come back to the Committee and see how that Google search goes for how many times the Prime Minister or the Minister of Finance said that GST had to go up so Kiwis could save more. “We do not want people to spend so much”—God forbid we go out there and buy food—“so GST has to go up from 12.5 to 15 percent.” That was what the member who just resumed his seat said.The CHAIRPERSON (Lindsay Tisch): Yes well come back to the bill now.KRIS FAAFOI: I do want to go to clause 48 of the bill—it is something that no one else has raised—and subclause (1) which inserts a new section 5(10B) in the Goods and Services Tax Act. I think the Minister in the chair may take some interest in this. For the benefit of the Committee that says: “For the purposes of this Act when a person who is resident in New Zealand pays an amount of money to participate in gambling or in a prize competition through a supply of remote services”—which have already been described in this debate—“that are physically performed outside New Zealand the payment is treated as a payment for a supply of services by the person who conducts the gambling or prize competition as applicable.”In English that means that if someone resident in New Zealand were to go and gamble on a race on an online betting site based in Australia or in the UK currently my understanding is there is no GST charged on that bet. If they were to use their phone and place a similar bet on a race here in New Zealand they are charged GST. So there is a disparity between the experience with the New Zealand TAB which we all know as a place to go and put a bet on and overseas betting websites that take bets from New Zealand.There was a submission from the New Zealand Racing Board—and I think this is a good part of the legislation—where it talked about the imbalance there and some revenue that the Racing Board could be missing out on. If I can turn to the submission from the Racing Board because I think it is a good one point 4.1 said that the Racing Board estimated that New Zealanders are betting $58 million annually—and that is 15 percent of the total betting expenditure by New Zealand—on overseas websites. It went on to say that “The New Zealand community receives no benefit from this activity”—because all that money goes overseas there is no GST so none of it comes back to New Zealand—“but does incur any costs associated with problem gambling.” It went on to say that it has calculated that the loss of GST revenue on that $58 million could be close to $8 million. So the forgone revenue from not charging GST on bets placed on overseas gambling websites could be close to $8 million which the Government would miss out on.The Racing Board believes that if that money went back to New Zealand then not only would there be obviously that $8 million for the Government in revenue but also sports—the likes of rugby rugby league basketball and cricket which do allow sports betting on their events—would get an additional $5 million of that $58 million because the Racing Board pays them a fee on those events. The racing industry itself would get close to $40 million more if that revenue was staying here in New Zealand which I think within this piece of legislation is a good thing. It is my understanding that GST will now be charged on betting on overseas websites. The Racing Board went on to say later on in its submission that GST was a factor in this differential in competitiveness and that “In this respect NZRB is no different to any other retailer in suffering a competitive disadvantage in being required to charge GST while offshore providers do not.”I think that this is a good addition and a good change to the piece of legislation because it does give that New Zealand entity—the TAB or the New Zealand Racing Board—the ability to take away that competitive disadvantage that it is experiencing with the leakage of the betting money going overseas. It is not just an issue around GST. I think they are now predicting that it is somewhere around $500 million that we could lose over the next 5 or 6 years from the sports betting industry itself—and a big chunk of that obviously is in the racing industry—if we do not attend to the issue of leakage from New Zealanders betting on overseas websites.Can I turn now to the other issue around retail in general that has been raised by other members on this side of the Chamber. I am a bit of a laggard. I like to see and feel things when I buy them from the shop. I do not buy a lot online unlike Fletcher Tabuteau who I believe downloads his CDs online. I do not know how that happens—maybe he has got one of those 3D printers and that is how he does it. I do not do a lot of online shopping. I like to support local business and make sure that I can see things and that they fit. Or books—like my colleague Grant Robertson here I like to hold the book. I do not like to have a tablet or something to read the book.I think that this piece of legislation that we see here today is a start but it misses a trick because it has not gone far enough. I think Retail New Zealand in its submission made that point strongly in that yes we have made a start with these intangible goods or intangible services—the likes of Netflix. I think that the likes of Spark will be happy because its alternative Lightbox was charging GST and again like the TAB example—that puts it at a competitive disadvantage to the likes of Netflix not only with its content—which has arguably a bigger range so there is a competitive advantage there but also with its pricing. It is having to price with a GST component worked into its pricing which was not so for the likes of Netflix.My mother always was a good gardener. She said that if you start a job do it properly. That is why she never let me do the garden because I would never do it properly. I think that we have got another example of this here in this piece of legislation. It is a good start but we have not gone far enough to make sure that we are looking seriously at the issue around the tangible goods that could be picked up from online purchasing.I pick up on the point that many other people on this side of the Chamber have made which is that online purchasing has worked to the detriment of retail—certainly in my area of Mana where I think we have seen some retailers really struggling on the street now because people are looking offshore because the range and the price may be better. Retailers may have to deal with that and look at how they compete product to product but when you are looking at a 15 percent price differential that is hard to go up against. I think that is probably why you will see an increase in the number of people like me—I might have to start looking at shopping online as a more serious option.But I think that we need to cut those small to medium retailers a break as was submitted by Retail New Zealand and say that if we are going to start this process let us do it properly and not just take the low-hanging fruit of the intangible services which is contained in this piece of legislation. Let us do it properly and look at how we deal with this issue to make sure that small businesses that do want to set up in our cities and in our towns do not have a massive disadvantage there. I would like to maybe ask a question of the Minister in the chair Nikki Kaye about what work has been done and how much priority this Government will put on that continuing work—which I think is the hard stuff instead of just concentrating on the easy stuff here which is the intangibles—to make life better or easier for those retailers in our small towns and in our cities.STUART NASH (Labour—Napier): I just want to build a little bit on what Mr Faafoi said in his first contribution. It is generally recognised that GST should apply evenly across all consumption. GST is what they call basically a tax on domestic consumption. There is a destination principle which means that you tax the good or the service in the country within which it is consumed. It makes sense; we all understand that. That is why this tax has been brought in and this is why we do have such a problem with the non-taxing of tangibles when we think we could have gone a lot further.One of the interesting things that the Inland Revenue Department (IRD) commented on—it said: “The proposals could impact on the level of competition by discouraging offshore suppliers from entering or continuing to supply to the New Zealand market. However this impact may depend on the extent to which compliance costs are imposed on offshore suppliers and the extent to which consumers alter their purchasing behaviour in response to the change.”I do not know whether that has been put in as an advantage or as a disadvantage. I would say that if this sort of law encourages New Zealanders to actually purchase domestic intangibles which is what we are taxing here then surely that is not necessarily a bad thing. What we absolutely want to do I would have thought is to encourage New Zealanders to purchase domestically. In fact as mentioned one of the principles about this is fairness and equity. The IRD talks about fairness and equity a lot.One of the things that came up a lot in the Finance and Expenditure Committee was the effectiveness and fairness of this option. We talked long and hard about this. One of the big questions I suppose is: would offshore companies actually pay this? How could we be sure that a Netflix or an Apple or any other large supplier—officials reckon it is about a hundred companies—would actually comply? The interesting thing is that when we looked at overseas examples we were told that particularly large international suppliers account for the majority of these cross-border services. I think that if we think of Apple and downloading iTunes etc. that is probably right.We were told they have a willingness to comply and we were told that for these suppliers failure to comply with their obligations would pose a significant risk to their reputation which I suppose could be right. But it is an interesting comment when you consider that the Googles of this world—and Facebook and Apple—do not pay any tax anyway. They do not seem to care that their reputation may be sullied because they do not pay tax in a country because they live on the strength of their brand. They have all got massively valuable brands and it is why they can get away with paying no tax.Where this sort of fell over was Starbucks in the UK when it was actually shamed into voluntarily paying more tax because there was a consumer boycott of its stores. That is the power I suppose of consumer action. But I doubt—and I could be wrong here—that companies like Apple like Facebook and like Google really care about their international reputation in New Zealand on whether they pay tax or not. That may change when a lot of the OECD work on base erosion and profit shifting comes to fruition but at this point in time I think what they care about is the goods and sales that they can sell into the country.I would like to talk about the impact of this and some of the underlying data around it. There is an acknowledgment—and I think it is fair enough—that because of data limitations it is not possible to accurately determine how many offshore suppliers may be required to register and return GST but from experience in similar countries the IRD has calculated it is probably around about a hundred offshore suppliers that may register for GST. Again owing to the data limitations we just do not know the value of offshore purchases and how much money this will bring in or how much we are missing out on. Again the best estimate of the IRD officials is around about $270 million of purchases. It is quite a lot when we think about it. Those are purchases of services and intangibles. We are not talking about tangibles here; just online stuff. The estimate means that there is around about $40 million of GST that is forgone in these purchases and again there is an estimate that online purchases have grown by about 10 percent. Is it not interesting? We think that there is $40 million in forgone GST and this is only on intangibles. Imagine what it would be if we charged GST on tangibles. I think you would find it would be at least double that.JOANNE HAYES (Third Whip—National): I move That the question be now put.GRANT ROBERTSON (Labour—Wellington Central): In many ways my contribution picks up from where Stuart Nash left off. It is perhaps a little unusual what I am going to do but I am going to focus this contribution on one particular submission because I think it is important that it is on the record of the House and the Minister in the chair Michael Woodhouse may have something to say about this.Three options were considered of how to implement the GST on intangibles and the one that was the officials’ option which is what we have now got in the legislation is what they call offshore supplier registration. So this is effectively that the companies we are talking about are registered for GST and it puts the onus in a sense on them. It deals with them by means that are appropriate and are used by other countries. In the regulatory impact statement it talks about the European Union Norway South Korea Switzerland Japan and South Africa which adopted this kind of option. They register and they return GST if their suppliers are over the $60000 mark and it is endorsed by the OECD guidelines. But other options were considered and in particular the one I want to refer to was what was option three in the regulatory impact statement—that is the question of whether there could be a payment-based GST collection system.I want to say at the outset that I am not necessarily advocating for this but I do think it is an option worthy of some consideration. Essentially what is proposed there is that under a payment-based GST collection regime when remote services are supplied the supplier does not actually necessarily have to be involved in the collection of the GST on behalf of New Zealand in this case. Instead you could actually use the bank or the payment supplier if it was not a bank—if it was a sort of a PayPal or something like that—in the country where the person is resident and it would add the GST to the value of the incoming transaction. How that would effectively work is it would debit the GST amount from the person’s bank or credit card and retain the GST information with the transaction for future reference. Pretty much all of these purchases are now made using a credit card online and obviously as the GST is collected it would be forwarded on to the Inland Revenue Department (IRD) using the existing mechanisms that the bank and IRD have for working together. This submission was put to the Finance and Expenditure Committee by Miles and Associates Ltd and I just want to mention in the interests of transparency that it was the organisation that came to us and put forward this idea.There are some immediate benefits that are easy to think about which are that it is a simplified design it does not require reregistration all the time it uses the mechanism that we all know is used in the way that purchases are made it simplifies the overall approach that is being taken and it probably captures an increased amount of revenue potentially because the registration process does mean that some suppliers will not be registered. In my earlier contribution I talked through the fact that there are fines involved for people who do not register and that the Commissioner of Inland Revenue can chase that up. But again you do not know what you do not know and it may well be that some people will slip through the cracks. So having a payment-based approach for implementing the provisions in Part 3 would potentially add to the amount of revenue that people could get.There are no additional costs to New Zealand businesses that are exporting goods and services going the other way if you adopted this regime across the board and the seamless handling of goods—you can expand this out to the tangible sector more easily as well which is another point that many people would like to see happen. It creates a neutral set of relationships between businesses if businesses are importing goods by putting it only in the hands of the payment providers.I am not saying it is simple and I am not saying that it has even really been tried anywhere else but it is the kind of option that as we look to the future of how we are going to create the level fair playing field for taxation in New Zealand we should be considering. It was a little bit unfortunate to my mind that the submitters had in fact already submitted when the IRD’s discussion document came forward. The committee did not consider that submission in detail and I just want to put on the record that I think it still deserves consideration.BARBARA KURIGER (National—Taranaki - King Country): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.Part 3 agreed to.Part 4 Amendments to Tax Administration Act 1994STUART NASH (Labour—Napier): I stand to talk to Part 4. It is largely technical in nature. It is the amendments to the Tax Administration Act 1994. Whenever we have a tax bill through the Finance and Expenditure Committee and it passes through the House there are always amendments to the Tax Administration Act because as the title suggests it is the Act that governs the administration of the tax system. It just makes sense that when the tax system changes then so does the administration of that system.There was not that much that was contentious under this part. I suppose that one clause there was a number of submissions on was clause 71 “Section 24B amended (Offshore persons’ bank accounts and tax file numbers)”. There were a number of submitters including Chartered Accountants Australia and New Zealand New Zealand Racing Board PwC—Dr David Clark: PwC?STUART NASH: Well good point. I wonder why it submitted. We could take a deeper look at that one.In a similar vein in clause 71 is the requirement for an offshore person to have a New Zealand bank account number in order to apply for an IRD number. Again there were submissions from Chartered Accountants Australia and New Zealand Corporate Taxpayers Group KPMG and OliverShaw Ltd. I must admit—and I do not mean to curry favour with anyone—whenever I see a submission from OliverShaw it tends to be the first one that I read because those two gentlemen who are the partners in OliverShaw know a little bit about the tax system. I think Robin Oliver is—is there such a thing as a master taxation expert? If there is then Robin is one of those people. He is that rare individual who takes absolute joy in poring through tax bills in minute detail and finding the errors and places where things can be changed and all power to him. Without someone like Robin I think a lot of things that are not that pragmatic would disappear but he is very much a pragmatist as well and he understands the role of tax legislation.What this clause is about is that from 1 October 2015 which is when the brightline test came in a person who is an offshore person or a resident withholding tax person must have a functioning New Zealand bank account in order to apply for an IRD number. The requirement to have a New Zealand bank account is part of our anti - money-laundering identification verification requirements that apply only to offshore persons and it was introduced in Budget 2015 in the suite of changes to tighten up our anti - money-laundering rules. Unfortunately in that Budget it did not have anything about offshore trusts or anything like that. I suspect we know the reason why but that is beside the point.Hon Michael Woodhouse: Why is that Stuart?STUART NASH: Well because it was unknown Minister and the interesting thing is—now that the Minister has asked that question I feel bound to respond because the Minister actually said in the media that New Zealand does not have a problem with multinational companies not paying tax. The interesting thing about that is the Obama administration the Cameron Government and nearly every single OECD country has identified the fact that there actually is a problem; it is the solution they are grappling with. We know the problem but apparently our Minister of Revenue believes that we are the only country in the OECD without a problem.Dr David Clark: It doesn’t mean the Government doesn’t have a problem; it means the National Party doesn’t have a problem.STUART NASH: Oh maybe that is what it is Mr Clark. But we do have a problem and unfortunately what has been shown in recent days is that our tax system has come under increasing pressure—The CHAIRPERSON (Lindsay Tisch): Order! Come back to the bill.STUART NASH: Sorry Mr Chair I was just responding to the Minister—The CHAIRPERSON (Lindsay Tisch): No no.STUART NASH: Oh OK.The CHAIRPERSON (Lindsay Tisch): Come back to the bill.STUART NASH: Yes sure. What I was saying is that this comes into—any more comments Minister you would like me to answer on? An offshore person—this is basically for anti - money-laundering rules which are incredibly important for the integrity of our tax system. We talked about the fact that an individual will be an offshore person for the purposes of a bank account requirement if they are not a New Zealand citizen and they do not have a residence class visa. We talked quite a bit about this because there are certain residents like Recognised Seasonal Employer scheme workers who come into the country and are here for about 3 months. They earn very little in the scheme of things to be honest and we asked whether they needed to have a bank account. I think in the end we did not require that they had to have a bank account.Hon Michael Woodhouse: No they do.STUART NASH: They do?Hon Michael Woodhouse: Of course they do.STUART NASH: Well hmm. We talked long and hard about this and there was a very good discussion between the expert advisers. But anyway a New Zealand citizen will be considered an offshore person—we have discussed this—if they are not present in New Zealand and have not visited in the past 3 years. But as has been out outlined in another part of the bill all a New Zealand resident has to do is enter the country on holiday show their passport and out they go again and that is scrubbed. It is very easy to get around this if you are a New Zealand passport holder.Dr DAVID CLARK (Labour—Dunedin North): I have been waiting for a while so I appreciate getting the call. This part of the bill of course tidies things up as my colleague Stuart Nash has pointed to and I want to speak specifically to new section 24BA(1C) in clause 71 which relates to when there is no requirement for the normal procedures to apply in respect of due diligence in terms of anti - money-laundering. I will read it out for those who are following this outside the House: “Subsection (1) does not apply to a person for whom a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 has conducted the customer due diligence procedures required for customer due diligence under that Act and regulations made under that Act.”So this is an exemption we are talking about in the law for people who have already complied with anti - money-laundering and countering of financing of terrorism procedures. We would understand that often these kinds of exemptions are in place to avoid duplication. That is why these kinds of exemptions are in the law. But I raised this in an earlier stage of the bill and I want to raise it here again because again we have a similar instance where we have a piece of law in place designed to make sure that there is not duplication of a service and I would like to ask the Minister what checks and balances are in place.On the one hand there is the juggling of the intention to make sure that we have people paying their fair share of tax so we want to make sure that the rules are fair and persistent and catch out those who would wish to do wrong. On the other hand there is the balancing act where we do not put undue compliance burdens on people who would want to trade and do business with New Zealand. The question that is raised here as in the previous part of the bill is whether we have got that balance right. That is all drawn into particularly sharp focus today as we have just learnt that the Prime Minister has some tax interests that we previously did not know he had or that he uses a vehicle—and I am only just catching up on the detail of what was declared in his—Kris Faafoi: So is he.Dr DAVID CLARK: —register of pecuniary interests and so is he by the sound of it. His tax affairs seem to be more complicated than even he realises and I am sure we will hear more to come on that. But over recent days and probably more pertinently we have seen the Panama Papers come out and they raise serious questions about New Zealand’s integrity and the integrity of our tax system and our reputation more than anything else. We heard the Prime Minister of course say immediately that $24 million—The CHAIRPERSON (Lindsay Tisch): Order!Dr DAVID CLARK: —was raised. I will come to the point—The CHAIRPERSON (Lindsay Tisch): Yes back to the bill.Dr DAVID CLARK: —which is about whether we have the correct measures in place in new subsection (1C) of section 24BA whether the tests in place are stringent enough whether they are avoiding unnecessary duplication or whether they in fact too lax because we are finding that New Zealand’s reputation is under threat. If New Zealand’s laws are too lax we risk having people come through New Zealand’s system who are participating in money-laundering and the financing of terrorism and that is terrible for our reputation. We have heard that in these Panama Papers there are 60000 instances—The CHAIRPERSON (Lindsay Tisch): Order!Dr DAVID CLARK: —where New Zealand is mentioned.The CHAIRPERSON (Lindsay Tisch): No no.Dr DAVID CLARK: In this bill here—The CHAIRPERSON (Lindsay Tisch): Order! I have ruled previously. I ask the member to come back and focus on what the bill is about. You can mention those things in passing but do not spend the whole speech on examples that are outside the scope of the bill.Dr DAVID CLARK: I will bring it back because the point of those references is to ask whether here in this bill we are creating more loopholes. If people have complied with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 requirements once are they exempt for ever? For how long are they exempt? If somebody has proven themselves in one jurisdiction or in New Zealand to have complied with the law in that respect are they for ever protected? If they have arranged their affairs in such a way that it is not detected on the first time through are they protected for ever?If the Prime Minister—to use a hypothetical—denies having any of this kind of involvement in one instance and it later transpires that he has arranged his affairs differently and he is captured by this does that have an effect? Is that something that is protected by this bill? Does it have tests that can be applied again and again or are we saying here—and the Minister will I am sure be able to direct us—in new subsection (1C) that this is a once-and-for-all test? Is this a test that applies for ever into the future or is this test is a one-off? I think that burden of proof is something we need to look at again.GRANT ROBERTSON (Labour—Wellington Central): I want to look specifically at clause 71 which contains as I foreshadowed in an earlier contribution the amendments that have been included to look again at offshore persons’ bank accounts in so far as that requirement was put in place in the Tax Administration Amendment Act 2015 which for those who have been following closely was an earlier piece of legislation as part of the suite of legislation that the Government has put in place to establish its new rules around resident—The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member. The time has come for me to leave the Chair for the dinner break.Sitting suspended from 6 p.m. to 7.30 p.m.GRANT ROBERTSON: I will try to make it as interesting and stimulating for the Chair as I possibly can. Part 4 of this bill however is about the Tax Administration Act so we have got only limited material to work with here. But the contribution I was making before the break was around the fact that this is the clause—I am referring here to clause 71 of the bill—where again we are amending a piece of legislation that the House passed only months ago and that was the Tax Administration Amendment Act 2015.What that Act did was create a requirement for offshore persons to have a New Zealand bank account in order to apply for an IRD number. In part this was to ensure that the anti - money-laundering identity verification requirements that New Zealand has signed up to apply to offshore persons. I am sure everyone in the Committee would agree that New Zealand’s being party to all of the anti - money-laundering requirements that have been internationally agreed is important because we do not want to see New Zealand out there as an outlier in the world in terms of providing good standards of probity in our taxation and financial arrangements. That would be a terrible thing and one that we on this side do not think should have any place whatsoever in the way that New Zealand presents itself to the world.However after that piece of legislation was passed it became clear that some of the compliance costs involved in everybody getting a bank account in order to get an IRD number were a little high. Officials went away and came up with some solutions. Some of them are non-legislative and are not covered in here but they were described to the select committee in some detail. However some of them are legislative and they are the ones contained in clause 71. In particular there was one that was a pretty obvious one which was around seasonal workers employed under the Recognised Seasonal Employer scheme. Clearly it would be quite difficult in some instances to immediately get bank accounts—things like identification and all of those sorts of things are a little hard at times to get—so non-resident seasonal workers under the Recognised Seasonal Employer scheme are going to be allowed a grace period of 1 month after arriving to get a New Zealand bank account and inform the Inland Revenue Department before the higher withholding tax would apply. All members of the select committee supported this as being a practical way of dealing with that.The other category of person is a person who has already had anti - money-laundering verification undertaken by a New Zealand reporting entity and would not need to obtain a bank account to avoid duplication of that process. So in law what that equates to is “a person for whom a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 has conducted the customer due diligence procedures required for customer due diligence under that Act”. There were some questions asked at the committee as to whether that would provide exactly the same level of assurance as somebody who had a bank account but apparently it is a consideration within all of the provisions of that 2009 Act I mentioned and therefore those people are exempt as well. Then the bill already exempts non-resident suppliers of remote services from the requirement to have a bank account and the committee has recommended that other non-resident suppliers also be exempt as long as the IRD number was being supplied solely because they were a non-resident supplier of services.So this all came about because the Government—Hon Ruth Dyson: How do you know that?GRANT ROBERTSON: Well it is amazing that I know all of that is it not?Hon Ruth Dyson: No but how do you know why they supplied it?GRANT ROBERTSON: No well the thing is they supplied it—the only reason a non-resident supplier would supply that would be because they were a supplier of remote services to New Zealand because otherwise they will not have a New Zealand bank account. There is no reason for them to have a New Zealand bank account. They are not an entity operating in New Zealand.Alastair Scott: But you are amazing to know all that.GRANT ROBERTSON: I know. It is—well exactly. Alastair Scott could potentially have taken a very similar call to mine had he chosen to do so. He has not and I am sure he is grateful that we have now traversed that material. [Bell rung]The CHAIRPERSON (Hon Chester Borrows): Grant Robertson.GRANT ROBERTSON: It will be only a brief addition—The CHAIRPERSON (Hon Chester Borrows): Do not apologise. Just get on with it.GRANT ROBERTSON: —to that statement which is really just to sum up my contribution here.So I think this clause 71 is useful but it does highlight the shortcomings with the way the Government has gone about this. We are nearly at the end of the Committee stage of the third bill of three. It is a pretty poor trifecta if you ask me because in those three bills the Government has set up the brightline test that has not really worked it has created a series of obligations that it has had to come back to the House and correct and in the end I do not thinkNew Zealanders are particularly better off for these changes. We are supporting them because they are minute steps in the right direction but actually the Government when it looks back on how it has gone about these three pieces of legislation will probably want to have a pretty serious rethink about whether it has got it right. We do not think it has in terms of the issues that are meant to be being managed by the brightline test but on top of that if you are making law and then correcting it months later there is a problem with how that law is being made and we need to do better than that.STUART NASH (Labour—Napier): Just talking to Part 4 I am going to have a look at clause 72 here. This is talking about residential land withholding tax certificates of exemption. Again this was an area where we discussed in some detail at the Finance and Expenditure Committee why people would get certificates and what the reasons and the rationale would be and basically there are three of them. What I am talking about of course is residential land withholding tax. This is by and large covered in Part 2 of the bill but because this is amendments to the Tax Administration Act it this falls just under the purview of this part.So there are three requirements for people who may apply for an exemption to residential withholding tax under this Act and this includes in new section 54E(3) in clause 72 “a person who carries on a business of developing land or dividing land into lots or erecting buildings;”. The reason we did this is that we did not want to how should I say it dissuade anyone—an overseas investor—from coming over here and erecting residential dwellings especially in a place like Auckland where there is a need for residential dwellings. Perhaps we will reach a stage where it is hard to get domestic funding and therefore overseas funding will be a requirement to allow any sort of development to occur and under this sort of circumstance we thought that the odds of them—well it would be easy for the Inland Revenue Department (IRD) to track them down and have them pay their required amount of tax anyway. As we talked about in the purpose of this we thought that the residential withholding tax is really there to stop people from avoiding their tax obligations so this would make it—well we think it would be very hard to avoid your tax obligations if you were undertaking this sort of work.The second area is where they have already “had tax obligations under the Inland Revenue Acts before when applying for a certificate;”—i.e. this is an overseas investor of good character they have a track record with the IRD and there is no reason whatsoever for the IRD to suspect that they might skip the country or not honour their tax obligations. So it is the good track record—it is the good character test in essence. The good character test is around in a lot of legislation so we thought that that was appropriate.The third one is “has complied with all tax obligations for the 2 years before they apply for the certificate and the Commissioner is satisfied that the person will continue to so comply.” Again this goes back to what I was talking about—the good character test. There is no reasonable belief to think that this person or this investor—whether that be a person a company a trust or whatever sort of entity—will welsh on their New Zealand tax obligations.We did think that those three categories were deserving of the ability to apply for an exemption to the residential land withholding tax. Of course it is not guaranteed. There is a process that has to be gone through but if an investor fits one of those categories then the odds are pretty good that they will get one.There is clause 73 “Section 81 amended (Officers to maintain secrecy)” as well. Actually secrecy was talked about a lot in the select committee in a number of instances and we have alluded to this before in a speech today. It is my understanding and it was certainly reinforced by the IRD that there are a number of checks and balances in place in the contracts of IRD employees to make it very very clear that they do operate under—well I was going to say “a veil of secrecy”. What I mean is that the integrity of the tax system and the integrity of the IRD is completely reliant on the fact that an individual’s tax business will be kept absolutely secret. I have absolutely no reason to suspect that that is ever going to be compromised.In fact I was talking to a very long-serving and just recently retired senior IRD employee. I asked him whether he thought this was an issue in the IRD at all and whether we needed to be a little bit tougher on this to be a bit more transparent or to put better rules in place and he said: “No. Everyone knows that if they break the secrecy clause in their contract then they are gone before lunchtime.” So there is a pretty good culture in the IRD for this.The rest of Part 4—as Mr Robertson and I think every speaker has alluded to—is administration. It is the nuts and the bolts. It is pretty boring to be fair. Not that tax is boring—how could I even suggest that. What I mean is that compared with the student loan stuff or the land withholding tax—Part 4 agreed to.Clauses 1 and 2The CHAIRPERSON (Hon Chester Borrows): We come now to clauses 1 and 2.Hon Ruth Dyson: Go on let him take a call.The CHAIRPERSON (Hon Chester Borrows): Oh Grant Robertson.GRANT ROBERTSON (Labour—Wellington Central): Actually you normally say—anyway. I do want to take a call on clauses 1 and 2 the title and commencement clauses. Firstly to deal with the commencement issues—as is fairly typical in taxation legislation there are a number of commencement dates. I think it is important for the Committee whenever it is debating these clauses that it does take note of retrospective commencement dates because they are not the best things to have. It is not really the way Parliament should behave. I could now do Chris Hipkins’ speech on retrospectivity which he often gives when there are commencement clauses but suffice it to say that the idea that Parliament has the power to be able to retrospectively change people’s obligations and the rules under which we operate in the taxation system is one to be judiciously put in place.I do want to point out clause 6 of the bill which has a retrospective element in terms of the right to cancel a loan contract. That is in fact an empowering part of the bill in that it allows an action by a borrower to be able to do that and so I do not think anyone here in the Committee would have any particular problem with that.Clause 6 relates to an issue that is going to come up in another taxation bill which is the great debate about the difference between notifying and formally notifying which the Finance and Expenditure Committee somehow managed to spend a significant amount of time discussing. Is there in fact a difference between notifying somebody of something and formally notifying them of something? Once upon a time formal notification would come from writing—putting something in a letter and sending a letter. But is an email formal notification? Because it is like a letter—[Interruption] Yes but is it seen to be a formal communication? I think the general consensus was that that needed to be clarified and that actually is where clause 6 came from which actually changes the words from “formally notifying the loan manager” to “notifying the loan manager in writing”. So now we are absolutely clear: it is in writing and that can also be an email as well for those who are following along at home.The other retrospective clause is a very minor one which I have now completely forgotten—clause 37B that is right. That is not a major issue but it relates to the question around when someone has acquired land under the residential land withholding tax issue. The other clauses are largely coming in in the future. There are clauses 37 and 37C which again are around the issues of definitions of residential land and disposal within the 2 years of the brightline test—changing the phrase “in land” to “in residential land”. My colleague Stuart Nash earlier identified why that was changed.This of course is another example of us having to tidy up legislation. The reason it has a retrospective commencement date is that we are having to tidy up the law that was passed in 2015—that is clause 37 which is dealt with in the commencement clause at clause 2(4). Otherwise the majority of the clauses come into force later this year or in 2017.In the remainder of this contribution I do just want to refer to the title because as I have mentioned in previous tax bill debates often quite innocuous or very general words are used. In this bill’s title we have some specific ones here: “Residential Land Withholding Tax”—good; a new thing being introduced—the “GST on Online Services” and the randomly stated “Student Loans”. I am a fan of perhaps more specific wording in these types of bills so that people have a better idea of what we are debating.But more to the point there is clearly for me some words missing from this title. It would be remiss of me given the contributions I have made on this bill thus far to not say that the words “Missed Opportunity” should be in the title because actually that is what this bill is about. It is about the fact that the Government yet again has a tax bill it could have brought to the House to make some real and significant changes.The biggest missed opportunity of all is in the GST on online services aspect of this bill because this was the bit where the Government could have stood alongside small businesses in New Zealand and said: “We get it that you’re doing it tough. We’re going to level out the playing field in GST. There will be a process and a pathway towards GST being charged at a decent rate in terms of tangible goods brought in from overseas.” But that did not happen and that is a missed opportunity in this bill.There are other missed opportunities—STUART NASH (Labour—Napier): There is one thing I would like to talk about—well a couple of things. But first of all as Mr Robertson alluded to clause 54(2) comes into force on 1 April 2017. This actually relates—and again it was talked about at great length in the Finance and Expenditure Committee—to when in fact the GST regime on online services comes into play. The reason this was—not debated; that is the wrong term—discussed at great length is that the issue was around how long it takes a foreign jurisdiction to gear up for the New Zealand tax system. We had some submissions that suggested it would take 9 months. Others suggested it would take 6 months. It is hard to believe that in this day and age of high-level computer programs—which of course all these suppliers are on—it would take any more than just a simple fix of a database. But apparently it does take a little longer than anyone would imagine. In Australia I think they have allowed 9 months—am I right Mr Robertson? You might remember.Grant Robertson: Yes.STUART NASH: They have allowed 9 months. This is why we have said that this does not come into force until 1 April 2017. It is not some way to avoid paying tax before then. I doubt we are going to see a massive download of iTunes songs on 31 March but you never know. But that is the reason why that clause is coming into play in a year’s time or just under a year’s time—we do have to allow these online suppliers enough time and the Inland Revenue Department (IRD) believes there are going to be about a hundred of them. As mentioned it believes it is going to raise about $40 million—or no not “raise”. We are missing out on about $40 million. The IRD is unsure of the impact that this sort of tax will have and whether it will change behaviours. I suspect it will not but let us see.The other thing as Mr Robertson alluded to is that the title is a little misleading. Let me explain why. The title includes the words “Taxation Residential Land Withholding Tax”. This is a capital gains tax; let us make no bones about that. The Government said it would not put in a capital gains tax but there is a capital gains tax and this is what it is. This taxes the capital gain on properties bought by overseas investors who buy and sell a property within a 2-year period. It is interesting that the IRD actually recommended a 5-year period because it thought that a 2-year period would be too easy to avoid and that it would allow a lot of gaming behaviour and aggressive tax planning to take place which we have seen in recent days and which is going on I think in a way that not many of us ever realised or contemplated or could imagine.This bill should probably be called the “Taxation (Capital Gains Tax GST on Online Services and Student Loans) Bill”. As Mr Robertson alluded to this is a missed opportunity in terms of online services. There are a number of reasons why the Government and the IRD say we should not be collecting tax on tangibles. Personally I do not think that many of them stack up. The reason I say that is what this does is it provides an immediate competitive advantage to online overseas suppliers as opposed to New Zealand ones. As well the argument is that we live a long way away and that with shipping costs of more than 15 percent it is more than easily made up. But that is simply not true in this day and age.I think that the Government has really missed a trick here. It could have gone all the way. It would have pleased the Retailers Association—of that there is absolutely no doubt. When we read in the paper that the IRD is concerned that in fact putting GST on online services might change the behaviour of New Zealanders—i.e. they may in fact now buy products from New Zealand suppliers as opposed to overseas ones or they may be put off buying products or intangibles from overseas because of price increases—well imagine what that would do to our retail sector. Imagine if the impact on our retail sector was that people would now go down to their local store and buy New Zealand - made products as opposed to going online. So this is a missed opportunity.This bill is a capital gains tax and it is a missed opportunity in respect of GST and student loans. The student loan stuff is reasonably pragmatic. I would like to see the sort of arrangement that we have got with Australia expanded. The reason I say that is as mentioned earlier when a student enters into a contract with the Government to undertake that student loan there are a whole lot of terms and conditions that I think are pretty clear—you start earning money and you start paying your loan back. If you live overseas again the IRD is very clear on that and I would like to see these sorts of agreements instigated with other countries around the world. Thank you very much.Clause 1 agreed to.Clause 2 agreed to.Bill reported without amendment.Report adopted.