Ardern Jacinda: Taxation (Bright-line Test for Residential Land) Bill — In CommitteeText is incorporated into the Bound VolumeArdern Jacinda: Taxation (Bright-line Test for Residential Land) Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7835. Text is incorporated into the Bound Volume.]JACINDA ARDERN (Labour): I know that my other colleagues are eager to speak because there is quite a lot to be said about the Taxation (Bright-line Test for Residential Land) Bill. I concur absolutely with those of my colleagues who have spoken previously and have outlined our hope that this bill could have done more but unfortunately it has not. No one on this side of the Chamber is disputing the need for action when we have 50-plus percent of the Auckland population renting and the lowest homeownership rates since the 1950s. The fact that this bill has minority reports from every party in the House—almost I believe every party on this side of the Chamber—demonstrates the need for there to be great debate on this bill and to highlight the areas where it is lacking.I wanted to start though by speaking on the regulatory impact statement and some of the alternatives that it canvasses in terms of the definitions within this bill. It talks about the problem definition. It outlines that the Government is concerned with high house prices particularly in the Auckland area. It does highlight property speculation as one of the number of causes of the current prices and talks about other possible causes both supply and demand and says that these have been separately considered—6 years later these are still being separately considered. But on the problem definition around trying to target speculators if that was the major objective of this piece of legislation then I am very confused by clause 4 in Part 1 inserting in the Income Tax Act new section CB 6A “Disposal within 2 years: bright-line test for residential land”. New section CB 6A(1) states “An amount that a person derives from disposing of residential land is income of the person if the bright-line date for the residential land is within 2 years …” and then sets out criteria that sit under that. As has been raised in the House this appears to be totally arbitrary in terms of picking the 2-year cut-off. So I wanted to have a little look in the regulatory impact statement to see the justification for the 2-year line and what the evidence was that was brought to the table in order to determine that 2 years was the place that it needed to be.On the second page of the regulatory impact statement it talks about residential property churn. It says: “There is significant churn and short term speculation in residential property particularly in Auckland.” It then goes on to state that there is particular evidence around churn “for new titles and developments in Auckland. The evidence suggests from 2009-13 59% of all new titles were disposed of within a year and 29% of new developments in North Auckland were traded within 3 months.” That probably speaks to the nature and arrangements of some of this property development but when you look at existing residential properties and sale of dwellings within 1 year 2 years and 3 years existing properties sold within 1 year represented 8.4 percent of sales sales within 2 years represented 17.4 percent and sales within 3 years represented 26.1 percent.Presumably if you were genuinely trying to pick up churn amongst speculators you would have been looking at the greatest reach. That is actually supported again by the regulatory impact statement which canvasses the various options and the cut-offs between say 2 years versus 3 to 5 years. Option one with the 2 years is highlighted as the option preferred by officials. Option two looks at a longer period over 3 to 5 years. It says: “This option would create a bright-line similar to option 1 however with the period of the bright-line being longer at potentially three or five years … This option has similar impacts as option 1 but with greater effect owing to its longer period. It would”—and this is the important part—“best meet the objective of creating an easy to enforce rule and would have the greatest positive fiscal and administrative impact … However this option has the greatest risk of capturing sales that were acquired without an intention of resale.” Surely though the issue over whether or not you are capturing those that were intended for resale or not is not necessarily about an arbitrary time line but around your use of definitions. Your definitions are what determine what is in and what is out not just the time line over a period of which someone wishes to resell.I want to come back to clause 6 which then goes on to talk about some of those definition issues. It seems clear that if the primary objective as set out in the regulatory impact statement was indeed around trying to ensure that we are cracking down on speculators and where there was the greatest churn that actually the Government would have gone for a longer period. That is the reason we are supporting Supplementary Order Paper 138 before this Committee which seeks to extend that period because that would have the greatest impact. But again issues around definition are particularly important. I think it was the member from New Zealand First Fletcher Tabuteau who rightly pointed out that there is a real contradiction when we are talking about trying to create certainty because the Minister of Revenue’s commentary on the bill points out in the overview that the Government announced plans to introduce a new land sale rule to supplement—so not to replace but to supplement—the intention test in the current land sales rules. The intention test makes gains from the sale of land taxable when bought with an intention for the purpose of resale.This intention test is difficult to enforce due to its subjectivity. So one would assume that the bill in clause 6 should step away from any subjectivity but in that clause it talks about the main home exclusion and the fact that any disposal within 2 years does exclude the main home. But if you are looking at how the bill then defines “main home” the main home exemption as talked about in the commentary of the bill states: “As introduced the bill would exempt a person’s main home from the bright-line test. Where a person has more than one home the main home would be the one with which they have the greatest connection.” No wonder submissions from the public including from tax specialists called this “professionally confused”. With clarity and without the subjectivity that was brought about by the intention test how do you define something that you have the greatest connection with? As someone has described previously I think it is a bit like The Castle where you are talking about the vibe of the thing.Chris Bishop: Oh here we go.JACINDA ARDERN: Chris Bishop I would be very happy for you to stand up and give us a full explanation around how you define the greatest connection with a home and whether it is in fact the vibe of the thing.Let me put a scenario that would be picked up by Part 1. If for instance—Chris Bishop: It’s very easy. It’s based on case law. It’s leading case law.JACINDA ARDERN: Oh it is based on case law. So we have to go through the courts to establish what Parliament is unable to define. That is poor lawmaking and the member knows it. The member knows it. If accountants and lawyers are telling you that this will be tested in the court you know you have made bad law in that sense. You know that you have.I would like to put a scenario to the member. If for instance an individual is living in a home and goes on to purchase another home and chooses that they are probably going to dispose of that because it has made enormous capital gain could they technically move into that home for the last 3 months before they dispose of it and claim a connection to that property as their residential property? Could that happen? I imagine it probably could because this is an entirely as I say subjective test and surely your connection is the fact that you are a resident within it even if you are a resident within it for a 3-month period or a 1-month period purely in order to satisfy this completely subjective test that has been set out before us. So that is something I would welcome the Minister of Revenue clarifying for me—whether that scenario that I have put forward could reasonably demonstrate connection to a residential property even if an individual had an additional property that they were then tenanting which was their prior residential property.I think that points out the problem with the definitions. As we have stated the regulatory impact statement was saying that longer periods would pick up a greater amount of churn so surely part of the issue is actually the definition rather than necessarily the period of cut-off. I would like some members from the other side of the Chamber to stand up and tell me how that will make a difference. I would also like to highlight that within the regulatory impact statement it is talking about the fact under the fiscal impacts that it would be difficult to quantify the fiscal impact of the 2-year bright-line test because of “the number of sales that would be delayed in order to exceed the 2-year holding period.” Officials are acknowledging that the system will be gamed by speculators to simply get around this flawed bill. That is a complete lost opportunity when we have a housing crisis in Auckland.