TWO MINISTERS LOSE BATTLE TO CLOSE LOOPHOLES IN BILL TO MEASURE FOREIGN PROPERTY BUYERS
By Richard Harman (author)
The Government has rejected the advice of two Ministers and now a Select Committee that its foreign house buyer legislation contains loopholes which will limit its role in providing information on the extent of foreign property buyers.
The Taxation (Land Information and Offshore Persons Information) Bill provides for “öffshore persons” to have both a bank account and an IRD number before they can register a property purchase.
But when the Bill first appeared at Cabinet Inland Revenue Minister Todd McClay and Land Information Minister Louise Upston both argued that the IRD number provision should apply to all property transactions.
Not only was this intended to close loopholes over whether a person was a New Zealand resident or an öffshore person"but also to assist Inland Revenue track rental property income for tax purposes.
In a paper released under the Official Information Act last week, Nick McNabb, Treasury's Housing Affordability Team leader said the policy would make it easier on those buying and selling property to enable tax to be collected more easily on taxable gains and rental income.
But that has now been watered down, first by Cabinet and now the Government majority on a Select Committee.
Under Mr McClay's proposal – detailed in the papers released last week by Treasury – all property buyers and sellers would not only have to provide their IRD number but also proof of identity such as a passport or driver’s licence.
Foreign buyers would be further required to supply their home country Tax Identification Number.
Land Information Minister Louise Upston agreed.
She said: “I have discussed this with my colleagues and they agree that offering New Zealand residents the option of not providing an IRD number would create a loophole that could be exploited by property investors seeking to avoid scrutiny of their activities.
“Given this I have instructed that the Bill does not include an “opt out” provision for New Zealand residents.”
The joint media statement by Finance Minister Bill English and Revenue Minister Todd McClay on May 17 announcing the new policy confirmed that the requirement for an IRD number would apply to everybody – New Zealanders and offshore buyers.
But the papers released by Treasury also show that when the announcements were made at a National Party regional conference in Wellington, Cabinet had not actually signed off the final details of the proposals.
That was done the next day and it appears that that is when the change was made to exempt New Zealanders.
When the Bill containing the change got to the Finance and Expenditure Select committee last month, executives from the EY accounting firm criticised the change.
The problem was defining who an “offshore person” was.
EY’s Executive Director, Government Administration, David Snell told the Committee that EY thought the Government could take a bold approach.
“Why have the offshore definition at all?” he asked.
“Instead have all parties to purchases and sales of property providing their IRD numbers.
“We think it will be much easier for people to provide a known number rather than make potentially complex judgements in a specialised area round tax residence.”
The committee however rejected this and the earlier advice of Land Information Minister Louise Upston and Revenue Minister Todd McClay.
In its report, it said: “We acknowledge that making an exception for a person’s main home adds complexity to the rules, and would limit the information available about property transactions, as many involve the acquisition or sale of the family home.
“However, the majority of us accept that not making such an exception would greatly increase the volume of information to be managed by Land Information New Zealand and the Inland Revenue Department, and could lead people to worry needlessly that the transaction would be taxable, even though in most cases it would not be.”
The reference to the volume of work seems odd given that both departments actually opposed exempting the family home.
In a dissenting view, Labour's MPs on the committee, Clayton Cosgrove and Grant Robertson said "we are concerned that this legislation in its current form will ultimately prove ineffective and inadequate as it has many loopholes that will result in the necessary data not being accurately collected."
They say the bill creates new measures that will improve upon the current lack of information regarding overseas house purchases.
"But it is needlessly weak and is a half-measure with inadequately considered provisions compounded by the hastened period for submissions and committee consideration.
"It is disappointingly likely that Parliament and the committee will need to revisit the legislation again in the future to amend the inadequacies in the bill."
The Government has persistently touted the Bill as the answer to the call by Opposition parties for a foreign land register.
But given its complexity and probable loopholes, it may not deliver what has been promised.