Cosgrove Clayton: Taxation (Bright-line Test for Residential Land) Bill — In CommitteeText is incorporated into the Bound VolumeCosgrove Clayton: Taxation (Bright-line Test for Residential Land) Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7825. Text is incorporated into the Bound Volume.]Hon CLAYTON COSGROVE (Labour): To just put on record it is the Labour Party’s position that we support measures to cut property speculation. However we would argue that this piece of legislation is not only weak but it has been done in haste. It will not achieve the objectives it sets out to. In fact I suspect and I predict that we will be back here before the end of the parliamentary term amending legislation.I want to use an example in terms of the lack of coherence and the problems associated with this bill and turn directly to clause 15(9): the part of the definitions that deals with the “main home”. I want to quote from an article of 9 November 2015 from one Terry Baucher who is an accounting expert who said: “We do not believe that the introduction of a bright-line test for residential land is sound tax policy.” Now that was not a quote from Mr Baucher; that was from the Chartered Accountants Australia and New Zealand—that is CANZ—and was the opening sentence to its submission to the Finance and Expenditure Committee on this bill. If you look at clause 15(9) as an example of a lack of coherence and one definition I think that one could shoot peas through it talks about the “main home” meaning for a person: “the 1 dwelling—(a) that is mainly used as a residence by the person (a ‘home’); and (b) with which the person has the greatest connection if they have more than 1 home.”I would like to start by asking the Minister in the chair the Hon Michael Woodhouse and through him his officials how on earth officials are going to be able to police that “the greatest connection”. Is there going to be some sort of levitation or is the Inland Revenue Department going to sort of find its softer side and start judging people’s feelings and how they define their connection with their main home? The Minister has said in his statement about this bill that “the bill will ensure that people pay their fair share of tax” and “by supplementing the current intention test in the Income Tax Act it will make rules simpler for taxpayers to understand and easier for the IRD to enforce”.Yet if you look at the counterargument put forward in the officials’ report to the Finance and Expenditure Committee in the submissions of both the Chartered Accountants of Australia and New Zealand and Ernst and Young they say: “The Government could achieve its policy objective by supplementing the ‘intention test’ more simply and coherently by amending section CB 6.” They go on to say that the “differences between the brightline test and the current land sales rules are likely to increase uncertainty and cause confusion”. So on the one hand you have got the Minister who says that this piece of legislation will be nirvana will create a simpler regime for taxpayers and will ensure that there is certainty. Then you have the experts—and I know Mr Bennett who chaired the committee is I think actually a chartered accountant or from the profession. So I am going to be really interested in the contribution of that learned member who I am sure knows far more about this legislation than anybody else in the House and whether he joins with Ernst and Young and the Chartered Accountants Australia and New Zealandwho say this will cause increased uncertainty and cause confusion.The basic principle of tax policy as I understand it is that it has to be simple it has to be clear and transparent and generally speaking not retrospective—as parts of this legislation are. I would be grateful if the Minister could tell us how the Inland Revenue Department is going to judge a person’s “main home” in terms of clause 15(9) and the person’s “greatest connection”. What are the criteria for that? How is that going to be defined so that people have certainty and so that this legislation will not create confusion and will stand up to the basic rudimentary analysis that one would expect perhaps from a court of law?There are other exemptions dealt with in this legislation—for instance farmland. I would like the Minister to take us through the definition of “farmland” in terms of the definition of exemptions around farmland. For instance what is the situation where a farm has a number of houses situated on it—perhaps for the farm manager per se. How is that going to be dealt with in respect of this legislation?I would also like the Minister to outline for us why it was that the Government did not take Treasury advice and put in a brightline test of 2 years rather than the brightline test that was suggested that being 5 years. A number of submitters have said that the unintended consequence of this 2-year brightline test—well maybe it is the intended consequence from the Government—is that those that the Government purports allegedly to be going after and that is the speculative community will change their behaviour and will simply hold for 2 years and move after that.Whereas one of the consequences—and where this will actually whack people—is if there is a death in the family an unintended consequence of somebody losing their job hardship per se which is not dealt with in any way shape or form in this legislation that person may well be forced to sell their home inside the 2 years because of the change in their personal circumstances around hardship; where you will get I suspect inequity. A number in the accounting profession—remember the Law Society also opposed this not only the chartered accountants—raised this issue. Nowhere in this bill is it dealt with. So I would like to ask the Minister what happens to Mr and Mrs Bloggs if there is unintended hardship. Say they do lose their job somebody has cancer there is a death in the family—name a number of scenarios that you like—and they are forced to liquidate in order to survive. Where is that dealt with in this legislation? Because it is not.And why was it that the Government refused the Treasury advice to make the brightline test 5 years? I suspect we know the answer and the answer is that this is really a fictitious piece of legislation. It is designed as many actions of the Government are to make it look like it is doing something about property speculation in Auckland because after years of this side of the House putting its feet to the fire and public opinion growing and growing and growing the Government has woken up read its polls and said: “Hey we’d better be seen to be doing something.”—seen to be doing something. And so it has said: “Look we’ll bang out a 2-year hold.” Let us get real about it. If you are making 17 to 20 points per annum as many people are in Auckland in terms of capital gain well you are going to hold for 2 years. Why would you not? Where are you going to get a better return than an Auckland property anywhere in the economy?But if you are Mr and Mrs Bloggs who fall on hard times and something happens in your financial arrangements and you are forced to sell within that 2-year period you get whacked whereas many submitters in eminent accounting firms and others pointed out that the inequity will be a change in behaviour by the speculative community which will simply hold on for 2 years and then do what it has always done. And as noted in the submissions that I read out by Chartered Accountants Australia and New Zealandand Ernst and Young if the Government was really serious about tackling this issue it would deal with and strengthen the intention test—which is as loose as today; in fact the Inland Revenue Department has lost court cases around it—and it would actually deal with that. But that intention test which could be defeated by simply saying: “What was your intention in buying the property?”. “Well my intention was to move to Auckland but then my partner changed their mind and said they didn’t want to move to Auckland so we sold.” That in law is very very difficult to defeat—extremely difficult.So why is it—and what is the meaning of “greatest connection” in terms of the “main home”? That would be a really interesting one to do. Maybe the Inland Revenue Department is going to as I say get the softer side going do a bit of levitation and work out what people’s feelings are towards one of the residences that they deem to be their main home. How is that actually going to work in practice? Because you could shoot peas through that definition. So those are some of the questions as we go through this shambolic piece of legislation—