Nash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In Committee[Sitting date: 12 April 2016. Volume:713;Page:10388. Text is incorporated into the Bound Volume.]STUART 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—