McClay Todd: Taxation (Bright-line Test for Residential Land) Bill — First ReadingText is incorporated into the Bound VolumeMcClay Todd: Taxation (Bright-line Test for Residential Land) Bill — First Reading[Sitting date: 08 September 2015. Volume:708;Page:6327. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue): Thank you Mr Assistant Speaker and I thank you for the compliment. Can I also thank you for your ruling and agree that it is something that needs to be looked at in greater detail and—The ASSISTANT SPEAKER (Hon Trevor Mallard): Yes but the member will not refer to it.Hon TODD McCLAY: I thank all members for their understanding on this.Continuing with the speech on this important issue the Government is committed to ensuring fairness in the tax system and making sure that everyone pays their fair share of tax. This bill continues that focus. Its objective is to improve compliance with the current tax rules for land sales. The current land sales rules can be difficult to enforce particularly when they are based on a person’s intent. In this case for the gains made from the sale to be taxable the Inland Revenue Department has to be able to determine that a person bought a property with the express intention of selling it for a profit or property speculation. The Inland Revenue Department applies its current intention test which makes gains from the sale of land purchases with a purpose of intention of disposal taxable. That test stands. The Government is not proposing any changes to that.What this bill proposes is a simple but effective measure for the buttressing of that test. The brightline test will require income tax to be paid on any gain from the disposal of residential property that is acquired and disposed of within 2 years subject to some limited exceptions. The proposed brightline test applies to only the disposal of residential land. It does not apply to land used predominantly as business premises or farmland. Residential land is defined as land that has a dwelling on it land for which the owner has an arrangement to erect a dwelling or land that because of its area and nature is capable of having a dwelling erected on it.The brightline test will apply to gains from residential property that is acquired on or after 1 October 2015 and disposed of within 2 years. The 2-year period for the brightline test runs from the date of the acquisition of the land to the date of disposal. The date of acquisition is the latest date on which the person acquires an estate or interest in that land. Generally this will be the date that the title is registered for the purchase of that property. An additional rule applies for off-the-plan sales. The date of disposal is generally the date that a person enters into an agreement to sell the property. When the disposal is other than by sale—for example by gift—the date of disposal will be determined by current tax rules.The objective of the bill is to target people who seek to make a profit from property speculation. There are therefore three specific exemptions to the brightline test. These are for the disposal or transfer of property that is the main home of the owner inherited property and property under a relationship agreement. A property will be the “main home” of the owner when it has been mainly used for most of the time that the person has owned that property as their residence. Where a person has two or more homes their main home is the property with which the person has the greatest connection. If the property is owned in a trust the main home exemption applies when the dwelling is the main home of a beneficiary of the trust subject to limitations. A person cannot use the main home exclusion if they have already used the exclusion twice in the previous 2 years.Members may recall that this brightline proposal was announced in this year’s Budget as part of a suite of proposals to improve property tax compliance along with the requirement that a New Zealand IRD number is required as part of the land transfer that offshore persons will need a New Zealand bank account before they can get an IRD number in order to buy a property and that non-resident buyers and sellers must also provide their foreign equivalent of an IRD number from their home country. Together these measures and the proposed brightline test introduced by this bill will help improve tax compliance with the tax rules for land sales. It is with pleasure that I commend this bill to the House.