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:10393. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): There are a couple of things that I would like to elaborate on. Just to go back to a clause that I was talking about before—this is under the subheading “Liability of conveyancers: reasonable reliance”. We are talking about Part 2 clause 44 new section RL 2(6B): “A paying agent is not liable for a penalty under Part 9 of the Tax Administration Act 1994 for a failure described in subsection (6)(b) …”. What we are basically saying here is that even though the lawyer or the conveyancing agent is in fact responsible for paying the tax they are not liable if their client has not given them the information required to make the payment of that tax.I suppose what I am saying here is that what we are requiring overseas investors to do is to provide their conveyancing agent with the correct information that allows the collection of this tax. There was a little bit of concern in the select committee about how this would play out and what would happen if an overseas investor knowingly or negligently gave false information because it is quite hard tracking down people who live overseas who are not part of this jurisdiction and who are often part of a jurisdiction that is completely foreign to the vast majority of New Zealanders—and some of them we do not even have tax agreements with. So we are relying in fact on the honesty of the overseas investor.One thing that I would like to talk about is that we should actually I suppose understand when the residential land withholding tax will apply. It is quite an important part of the bill. It will apply when the property being sold is residential land. Again we talked about what constitutes residential land but the definitions are in the legislation and it is defined for the purposes of the brightline test—and this is one of the bills we talked about earlier. This is the tax bill that gives effect to the brightline test. This is when the vendor or the seller acquired the property—now this is the important thing—on or after 1 October 2015. Any land bought before 1 October 2015 is actually not subject to this so if an overseas speculator has bought something on 29 September 2015 they can hold that for a year or they can hold it for any amount of time and avoid paying this tax at all. And of course the vendor is an offshore person.The other thing that is quite important I suppose is: how much does the person have to pay? Well what will be required to be withheld—and there is a difference between what is withheld and what is paid—is 33 percent or 28 percent if the vendor is a company times the current purchase price minus the vendor’s acquisition cost. So a stock standard example is if an offshore person buys a house for $100000 and they sell it a year later for $150000 then that is a $50000 profit. If they are a company then they have to pay $14000 in residential land withholding tax but they still bank $36000. There is still quite a lot of money there that is in the account or I should say it is the lower of 33 percent or 28 percent if it is a company and 10 percent times the current purchase price. So there are two equations in there that need to be met to ensure that it is very difficult to avoid paying your full amount but let us go back to the amount of money that speculators can still make here. If a speculator buys a house for $100000 and sells it for $150000 within that 2-year period or if it is a company or a trust it pays $14000 in tax they still bank $36000. If they are an individual on the top tax rate and then they withhold $16500 they still bank $33000.It is still quite a lot of money but the interesting thing is that there is a clause in the bill that says that the residential land withholding tax will be paid before other disbursements are made at the time of settlement. There was a concern by real estate agents that perhaps they would not get their commission. We assured them that in fact no they would get their commission—that was sacrosanct—so the real estate agents were quite happy about that. But if the vendor’s conveyancing agent is required to pay the residential land withholding tax this will be paid after the amount required to discharge the vendor’s New Zealand mortgage has been paid. But the interesting thing is that if this would result in insufficient funds being available to pay the mortgage then the amount of residential land withholding tax would be restricted to the difference between the current purchase price and the amount required to discharge the New Zealand mortgage.