Nash Stuart: Taxation (Bright-line Test for Residential Land) Bill — Second ReadingText is incorporated into the Bound VolumeNash Stuart: Taxation (Bright-line Test for Residential Land) Bill — Second Reading[Sitting date: 03 November 2015. Volume:709;Page:7601. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): I have had a lot to do with Grant Robertson and I have read most of what he has written and never once in his role as finance spokesperson has he ever said that Labour wants a capital gains tax. So let me put on the record now for everyone listening that Grant Robertson did not say Labour wants a capital gains tax. What he did say is that this is a very poor piece of legislation.When you get the finance Minister admitting that he did not know what effect this legislation would have we know that we are in trouble. There are a number of tests that define good legislation: fairness but also ease of compliance; that it captures the right people; that it is hard to avoid. This test this brightline test just blows all this sort of stuff out of the water. It is a dreadful piece of legislation. It is a political piece of legislation and David Bennett knows it.This is a piece of legislation that is poll-driven and it is not pragmatic. The reason I say that is that a number of submitters who understand the tax system a lot better than anyone who sits on the Finance and Expenditure Committee came and said: “This will not work but we have some ideas that will make this a much better piece of legislation.” They were ignored. They were ignored because this is what this Government wants to force through and it is simply wrong. I think that the taxpayers actually expect more. The main criticism of this piece of legislation from the experts is that it is piecemeal that it does not address the issue.The last speaker talked about the intention test. We all know that the intention test is not working; it simply is not. What the intention test is—if an investor is buying a property for capital gain and they sell it they have to pay tax. If they are buying it for rental yield and they sell it they do not have to pay tax. It is about literally the intention of purchasing a property. But we all know and certainly the members of the Inland Revenue Department know that it is very very difficult to enforce this intention test because all you need to do is you need to say: “Oh well shivers I bought it for yield but someone offered me a price I couldn’t turn down. I had no idea I was going to make a capital gain and that was not my intention.” It is almost impossible to prove them wrong or to take a court case that the Inland Revenue Department will win. They know this because they have tried it. An investor would have to be a little bit of a fool to go and say to everyone “I’m buying this for a capital gain but don’t tell anyone.” and then when they make the capital gain come and say: “Oh no it was about yield.” It is an extremely easy test to avoid.We are supporting this legislation because we support anything that would have an impact on cooling down the market even though—I must admit—this sort of legislation is not really designed theoretically to cool a market. What it is designed to do is bring taxpayers into the tax system who in fact are not in the system at this point in time. It is simply not fair that if people are buying and selling houses with the intention of making a capital gain—however difficult that is to prove—that they are not paying tax. That is what we need to sort out.It is actually interesting. The Inland Revenue Department put forward two options. The first option was the 2-year brightline test and that is what we are debating now. The second option that it debated in the regulatory impact statement was a 5-year option. The Inland Revenue Department admitted that that would actually make it fairer because it would capture a lot more people. What it said that the first option the 2-year brightline test would do was: “This option creates an economic distortion as it creates a ‘lock-in’ effect. In other words it creates an incentive for people to hold property for longer than two years to avoid the bright-line test.” The key word there is “avoid”.What we are going to see yet again is people avoiding paying their fair share. All they need to do is hold on for 2 years. After 2 years and 1 day they can sell the property. Of course their intention was never to make a capital gain—it was about yield. They pay absolutely no tax on that property yet someone who sells an investment property as a result of an unfortunate circumstance like Mr Robertson outlined is caught by this test. This is just not a good way to make tax legislation. There will be amendments to this bill I have absolutely no doubt about that in the future.As we have talked about the main home test is something that we debated substantially in the select committee. We went back and we asked for further definitions. We asked for a depth of information. It came out that the main home test was actually about the home you have the greatest connection with. There is no definition in law about what defines “greatest connection”. The classic case is actually that of a number of MPs ourselves. We could conceivably argue that we have a greater connection with our apartments which we spend 2 or 3 or 4 nights a week in than the family home. You could see how this is easily gamed. Taxpayers especially property investors are not stupid. They may say that their main home is the bach that is now worth $1 million versus the family home that is worth $250000. How do they define that? “The bach has been in the home for a long time it is part of my family it is where I grew up and it is where I feel the greatest connection.” Therefore that is not the house that is caught in the 2-year brightline test. All I am highlighting here is that you could drive a bus through this piece of tax legislation—you could drive a bus through it and that is not the way to make tax legislation.The ASSISTANT SPEAKER (Lindsay Tisch): Order!STUART NASH: But that is not me saying that; that is people from Chartered Accountants Australia and New Zealand the New Zealand Law Society and KPMG. There are a number of experts who actually said—The ASSISTANT SPEAKER (Lindsay Tisch)18020151103 18:00:03The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member. The time has come for me to leave the Chair for the dinner break.Sitting suspended from 6 p.m. to 7.30 p.m.STUART NASH: I think what I was saying is that the Parliament needs to consider tax legislation very carefully before it brings it into the House and certainly before it takes it out to the general public. The point that I was making is that there were a number of submitters including Chartered Accountants Australia and New Zealand the New Zealand Law Society KPMG etc. who actually came and presented to the select committee and told us that this was not good legislation. They told us that this legislation was piecemeal that it would not solve the problems that better enforcement of existing rules would be preferable to the brightline test that the burden of proof already existed with the taxpayer and that the brightline test would tax only those who are forced to sell the property due to circumstances outside of their control.The bottom line as I have mentioned and as Grant Robertson mentioned before me is that we are supporting this legislation but we are very critical of the fact that this could have been so much better. In fact the Inland Revenue Department as I mentioned put forward two options for consideration when they were deliberating on this bill. The first one is the one that we are debating at the moment which is a 2-year brightline test. The second one is a 5-year test and we think that that would have captured by far a much higher percentage of investors who are seeking to make profits in this market without paying any tax and in fact distorting the property market.There is no doubt that something needs to be done about the Auckland housing market. There is no doubt—Hon Maggie Barry: And we’re doing it.STUART NASH: —it is out of control at this point in time. But if the honourable member believes that putting a 2-year brightline test is going to solve the problems of the Auckland housing market then I suggest that she should stop taking as much 1080 as she is and start getting with the picture because it requires a lot more than this sort of rushed poll-driven political legislation as opposed to a pragmatic solution that would have dealt with the problem we are facing—Hon Maggie Barry: Where’s Maryan Street?STUART NASH: —in Auckland at this point in time. It is good to see that that member reads the left-wing blogs. I would have thought she had a lot better things to do than that.Part of the problem at the moment is that we have a test called the intention test. This legislation just goes to show that the intention test is not working. This piece of legislation is sort of a tarpaulin that is supposed to cover over the inadequacies of the intention test. What that test is about is that if an investor buys a property with the express purpose of making a capital gain then they have got to pay tax when they sell it. But if an investor buys a property with the intention of getting a rental yield then when they sell that property they do not have to pay tax.Even though Labour is supporting this legislation I hope the House does not view this as support for the measures that the Government is taking to do something to address the major issues that are affecting the Auckland housing market. Thank you very much.