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:10399. Text is incorporated into the Bound Volume.]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—