Williams Poto: Taxation (Bright-line Test for Residential Land) Bill — In CommitteeText is incorporated into the Bound VolumeWilliams Poto: Taxation (Bright-line Test for Residential Land) Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7842. Text is incorporated into the Bound Volume.]POTO WILLIAMS (Labour—Christchurch East): I can assure the Committee that there is no one more surprised than myself that I am taking a call on a taxation bill but I assure you that I will give it my best shot. There is a very good reason I want to speak on this bill and that is that the intent of this bill is to take the heat out of the speculation in the Auckland housing market. There is nothing more difficult at this stage than people trying to buy their first home in the Auckland housing market.I want to acknowledge that the Finance and Expenditure Committee obviously had quite a difficult time because the process was truncated. I am sure that the people who wanted to submit on this bill could have if they had been given the right opportunity and the time to consult widely rather than just being given 10 days to make their submissions. If that had been the case we may have come out with a bill that really did hit the mark in terms of taking the heat out of the speculation particularly in the Auckland housing market.The bill right in its name—the Taxation (Bright-line Test for Residential Land) Bill—tells us that the brightline test applies. I admit I had to go and look up what a brightline test was. As I understand it it is a judicial rule that will help restore ambiguous issues by setting a basic standard that clarifies the ambiguity and establishes a simple response. So right there right up front at the very beginning in the title of the bill is the intent of this legislation—to clarify any ambiguity and to establish a simple response.So what I thought I would do is actually use this test in terms of some of the provisions of the bill. So let us start off with the definition of the “main home”. I admit I found it a little unusual to be looking at the definition of the main home when looking at the exemptions where the property owner may own more than one property one home. But the main home would be the one that they have the greatest connection to. I guess if you are to use the test from that famous Australian film The Castle you are thinking about the one that gives you the vibe. It is the one that has the vibe. But when you are asking officials from the Inland Revenue Department to make a determination about what the main home should be should you not have a stronger test than the home that gives you the greatest connection?Then we look to the fact that this bill covers only residential land. It does not cover farms or commercial land. It just covers residential land. But under the definition of “farmland” in this bill it says farms but not lifestyle blocks or hobby farms. So if we were to apply the test of establishing a simple response and clarifying ambiguity what is the difference between a farm and a hobby farm? Is it how much income the farm takes? Is it the size? There is no clarity around that and if the Minister in the chair Minister Bennett is of a mind it would be great if she could give us some clarity on that.Next I want to have a look at the date of disposal. In terms of applying the brightline test to that within the definitions the commentary on the bill states: “We recommend using the term ‘bright-line date’ instead of ‘date of disposal’ ”. I am unsure what the difference between those two dates is and again I seek clarification from the Minister. It would be very good to know what that is.My colleagues have already talked about the intent of this bill being to curb speculation by requiring any properties that are held for 2 years or more to when they are sold be subject to tax in that period of time. But we have also heard that about 17 percent or 18 percent of properties come up for resale within that 2 years—actually within 17 or 18 months; that is what has been told to the select committee. But Treasury has recommended 5 years. We can be fairly sure that anyone who is interested in purchasing property for the sole purpose of making money from it will just hang on to that property for 2 years and 1 day before they sell it.But there is a real danger that some people will be caught unintentionally within that 2-year period and they will be for example those for whom there might be a matrimonial property issue or people who may have had some financial concern that would require them to sell off the additional property. When we look at how much this tax—and it is a tax; let us be clear about that—is likely to achieve each year we are looking at $5 million. I would suggest that the $5 million is actually going to come from this cohort of people who are not in a position to purchase homes for speculative gain. The people whom are not intended to be caught by this are those who have matrimonial property disputes. I suggest that that is where the bulk of this $5 million will come from.If we are actually looking to take the heat out of the market we would be looking to the longer period that Treasury has recommended which is the 5-year period. As a previous speaker has already said about 8 percent of homes are sold within the first year and 17 percent or 18 percent are sold within 2 years and then for homes resold within 3 years we are looking at about 26 percent. So if we are really looking at being intentional with regard to ensuring that we take the heat out of the Auckland housing market this Government should actually do the right thing which is to take Treasury’s recommendation and move the period from the 2 years currently to 5 years. There are other issues I am sure that will come up during the course of this debate but at this point I thank you very much for the call.