Taxation (Land Information and Offshore Persons Information) Bill

It is a pleasure to take a call on Part 1 of the Taxation (Land Information and Offshore Persons Information) Bill. I mainly want to focus, in this first call on this part, on the definition of “main home”.

But before I do come to that, it is important to note that the purpose of this bill, the huge Government initiative that lay behind this bill, was to respond to public concern about the lack of information about who was buying and selling homes in our country. I have to say that ultimately when we look at Part 1 of this bill, which amends the Land Transfer Act, it is a seriously underwhelming piece of legislation in terms of achieving the goals that the Government has set for itself in trying to address this issue of the lack of information. The shorthand for this bill for people has been the “Foreign Buyers Register Bill”. That is the thing people say when you talk about this legislation in the communities and cafes and halls of New Zealand, as they no doubt will be discussing this bill. It fails utterly to live up to that anecdotal name. There are so many loopholes. There is such a lack of clarity about the definitions within the bill.

Ultimately I believe we will be back before very long, possibly under a new Government, changing this because we have failed to do the rhetorical thing that the Government said it would do, which is create that register, give New Zealanders the confidence and the information to know who it is who is purchasing homes, get past the anecdotal issues about who it is, and actually get down to the nitty-gritty of making policy based on evidence about how we can ensure New Zealanders can live the Kiwi dream of being able to buy their own home. For New Zealanders of long standing or New Zealanders who have recently arrived, whoever they are, that ideal of being able to buy their own home is being compromised at the moment, in our view. This piece of legislation could have been the vehicle by which we gave New Zealanders that confidence and that information but, unfortunately, it fails on many counts.

The first of those counts that I want to come to is the definition of “main home” that is contained in clause 4 of the bill—the redrafted section 156A of the Land Transfer Act. The Finance and Expenditure Committee has made some changes to the definition of “main home”. It did this, in part, in response to submissions raised by a number of people. I think particularly the New Zealand Law Society submission was influential on members of the committee in terms of where the definition should go. It would be fair to say that we are in uncharted territory here. This is not a definition that we will find, apart from the Act that we passed yesterday, anywhere else in New Zealand law, and that was of concern to the select committee. I think it is worth noting—

💬 Dr David Clark: So many changes.

I know. I think it is worth noting that the changes that have been made in the definition of “main home” drew the attention of the select committee. There is a minority view from the Labour Party, and from the Green Party as well, but even the Government’s own members in their responses in the report back noted just how difficult and interesting this definition would be.

I just want to quote briefly from the committee’s report, just the final sentence. So this is National members on the committee: “We recognise that there could be some confusion about the rules, and have been assured that guidance material would be provided for buyers, sellers, and conveyancers, in addition to more detailed explanatory material provided in IRD’s tax information bulletins.” That is as good as it gets from the Government in trying to create a register of foreign buyers. It puts in place an exemption for the main home—and I will come back to why I am concerned about that exemption—and its own members, in the select committee report, say: “We recognise that there could be some confusion about the rules,”.

Why on earth is the Government bringing to this Parliament law that it is confused about? That is not what we are here to do. We are here to create clear lines for people to follow. This is an area where we want accurate information. The problem here is that the definition of “main home” is the creation of an exemption within this law that, effectively, can turn into a loophole. The confusion, as it has been stated for us by Government members of the select committee, comes in this part of the bill.

The definition of “main home” within the bill has been changed. One of the key elements that was removed after the Law Society’s intervention was a reference within the definition to members of a person’s family. The original definition of main home was “for a person, the 1 home—(a) that is mainly used as a residence by the person and any member of the person’s family living with the person;”. So the Law Society, among others, came to the select committee and said: “Well, that’s going to cause some trouble, isn’t it?”.

Members of Parliament will be very family with this scenario. Potentially, if somebody spends a lot of time away from their home but their family stays in the home, that is the main family home. If an MP, as an example, were to own a home in Wellington and a home in Dunedin, as Dr Clark does, which would be the main home depending how much time they spent there? If an MP comes—as many MPs in this House do—from far away from Wellington and moves their family to Wellington in order for children, for instance, to go to school but they keep the home in their home electorate, which most wise MPs would do if they want to be re-elected, which is the main home? That is just an example from MPs, but you could take that to a lot of other jobs that require people to be in two cities or in more than one city at a time.

So the select committee looked at that and, quite rightly, decided to deal with that issue by removing the reference to a person’s family living with them. So the new definition of main home is “main home means, for a person, the 1 dwelling”—dwelling rather than home; we will return to that issue in a moment—“(a) that is mainly used as a residence by the person (a ‘home’); and (b) with which the person has the greatest connection, if they have more than 1 home”. This is the nub of the problem with this clause. The phrase “greatest connection” is an invention. It is an invention of this piece of legislation. It has got no case law that lies behind it. It has not been tested, and I venture to suggest it will be interpreted wildly differently by different people as they go through this process.

Again, what we are trying to establish here is a register that can let New Zealanders know who is buying and selling houses in our country. By creating an exemption for the main home in that register, the Government opens a loophole. Then, in the definition of “main home”, it creates a further loophole by putting in place a definition that says “the 1 dwelling … with which the person has the greatest connection,” I would venture to suggest that this is going to be a significant problem, and I would ask perhaps the Minister in the chair, the Hon Louise Upston—and I feel a bit reluctant to ask the Minister to take a call or get to her feet, but I would ask Government members or the Minister to actually help explain to Parliament and to New Zealanders why they need to exempt the main home at all.

My colleague Julie Anne Genter has Supplementary Order Paper 121 to, in fact, delete the definition of “main home” because this is not a question of whom a tax applies to or anything like that. That is a different piece of legislation we have dealt with. This is simply about creating a register. There is no great encumbrance upon people having to register the fact that they have a main home. I would say 99 percent of the people who have a main home in New Zealand will already have an IRD number and already have a bank account, which are the two tests that come in Part 2 of the bill in terms of being on the register. So there is no great compliance issue. In fact, all we are doing is creating a gap in the information that we are trying to create—the information database we are trying to create. So from our point of view, and we say this in our minority view, there is no reason to create a main home exemption, and, in fact, by creating such a loose definition within “main home” we have a significant problem.

When we look at the question of greatest connection, this does offer an element of subjectivity, which is the reason why Government members on the committee have described the potential for confusion in what happens. I do need to say this. The officials who came to the committee did say to us that it will not be subjective; it will be an objective test. I simply do not believe that.

I do want to put on record, firstly, my thanks for the work that the Finance and Expenditure Committee has done. I appreciate that a truncated period of time makes that challenging, so I do want to just first of all put that on record, and also I appreciate the officials who have worked very closely with the select committee.

I do want to make sure that those who are listening to this debate are clear about the intention of this legislation. It is one of a number of measures and pieces of legislation that we announced in Budget 2015 that are predominantly about making sure that we collect tax from property speculators, and there is a view from some that that is a component of housing affordability. So I do want to correct the member Grant Robertson, who spoke before me. The intent of this bill is not to have a register; the intent of this bill is to make sure that those who have houses, those who invest in housing, particularly those who are speculating, pay their tax fairly and squarely where it lies.

As I said, this is a suite of a number of pieces of legislation. Another bill was introduced yesterday around the brightline test. Actually, there are a number of pieces in this puzzle to make sure that hard-working New Zealanders are comfortable and confident that somebody who speculates in property in New Zealand, whether they live in New Zealand or are from overseas, pays the tax that is due. So that is why in terms of the exemption, for the majority of New Zealanders who own their own home or live in their own home, this does not apply to them. That would have been incredibly bureaucratic. What we are trying to do in this Government is make sure we do not create additional rules and regulations for no reason.

This bill exempts the majority of homeowners who buy their own home and who may sell it, change it, in 5 years’ or 10 years’ time, so that there is not a requirement on them to provide this information. The bill is very clear about those whom we want to collect tax from, to make sure that we have the right information so that the Inland Revenue Department can enforce actions on those property speculators. Also, I think an important point that has not been raised today is that it also makes sure we have information to ensure that New Zealand and housing in New Zealand is not used as a place to launder money. Thank you.

I find the suggestion from the Minister for Land Information this bill increases compliance somehow and that it makes things simpler rather extraordinary when the evidence presented by the speaker prior, my colleague Grant Robertson, pointed clearly to the strange legal concoction that sits in this bill: the notion of feeling the greatest connection to a property. It is something that appears in no other legislation and is something that makes the definition of a “main home” very vague indeed.

I want to just reflect for a minute on the kinds of greatest connection people may feel—to explore this loophole. I suspect for many speculators the properties with which they will feel the greatest connection are the ones they make the most money from, because that is why they are connecting to the New Zealand property market. It will have very little to do with where their family is living. It will have very little to do with those things that we may regard—those of us who live in one home and own one home—as the reasons for connecting to a home.

This legislation is designed, it seems, to have big loopholes in it. It is designed in a way that will not collect the kind of information that the public is very interested in: the register of buyers, which has been sought for some time. This is legislation that will encourage offshore parties to obtain New Zealand bank accounts for no practical reason and to make no use of the accounts other than to obtain an IRD number, and it is legislation that is unlikely to achieve its goal.

Those who wish to exploit the loopholes are given every encouragement through this legislation. It is not, as the Minister suggested, legislation that will increase compliance or make life easier and simpler; it is bad legislation. We on this side of the Chamber are opposed to the putting through of bad legislation. The only reason that we will be issuing any support for this bill is that it is a gentle step along the way. It is highly likely that a future Government will be back here correcting the mistakes in this legislation and a future Government will be making it legislation that increases compliance and that actually achieves the principles that were laid out in the arguments for having such legislation in the first place. I hope that that Government will be a Labour Government, because I doubt very much that this Government will have the audacity to come back again in such a short time to correct legislation with so many loopholes and impracticalities about it.

I wonder what other reasons for “greatest connection” there may be. Why else would people have reasons for having a great connection with properties? What legal issues will be fought? What tests will be put in place to understand what the most legitimate reason for the greatest connection to a property is? It seems an entirely subjective test on the surface and it is going to require a great deal of legal debate and, probably, litigation to sort out what that may mean in different contexts. It is very strange that the main home has been exempted. People who have a main home here are highly likely to already have a bank account and an IRD number. Simply to complete the purchase of the original home for most people, I would suggest, involves having a bank account in New Zealand—or for most New Zealand citizens, in any case.

So this legislation is vague, open to misunderstanding and confusion, and although it does improve on the current lack of information regarding overseas house purchasers, it is needlessly weak and a half measure—the kind of half measure we are coming to expect from this Government. It is disappointing that we will find ourselves revisiting it before too long when we could be doing it properly in the first place at more limited expense to Parliament, rather than spending a million or more dollars of costs to put through a new piece of legislation to tidy up after this Minister. I would ask the Minister, again, what she understands by “the greatest connection” to the property, how that will be legally defined, and what kinds of debates she expects will happen before that definition is tied down. These are questions that this Parliament needs answers to if we are to understand how this legislation will work.

The previous speaker, Dr David Clark, obviously has some sort of selective hearing. The exemption of a family home does not increase compliance. The increase in compliance is relevant to offshore purchasers of property; it is not aimed at the 99 percent of Kiwis who own their own home and will only ever have one home. So there is no issue. That is why there is an exemption—it is just common sense, and it is a very simple concept to understand. The house with the “greatest connection” is quite clearly where the person spends most of the time, has their family, and there is a case for it being where their heart is. That is the home where the person has the greatest connection, and it is very sensible and very much common sense, and one only needs to think in a practical and reasonable manner to understand what a home is and which home would be of the greatest connection.

This legislation is not aimed at the average Kiwi person. It is aimed, as the Minister for Land Information has said, at the speculator, and it is aimed to gather information so that we can understand who is buying the houses and how long they are holding them for. It is part of a suite of legislation, and we have already talked about the brightline test legislation in its first reading. This is the bill that gathers that information, which enables more work to be done around assessing what is only fair and reasonable—that is, to tax people who are gaining, speculating, and making profit through trading of property. Although that is already in the tax legislation , this bill makes the intention to tax those who purchase a property with the intention of making a profit much more clear.

So this is all that this legislation is doing: it is clarifying and making very clear that the aim is to tax those who buy a property with the intention of making a profit, whether they are New Zealand residents or reside offshore. This legislation is a way of forcing people to reveal information about themselves and reveal information around their tax status in their offshore country. It forces them to identify themselves by making it compulsory to get a bank account and an IRD number, as the Minister has said, to go some way—or a long way—to nail potential money-laundering.

It is not as complicated as the Opposition would make out. It does not create the loopholes that are suggested. It is very simple. The house with the greatest connection is the main home, and that is the house that will be exempt from these information-gathering regulations. I commend the bill to the Committee.

As speakers in this debate have already indicated, this bill is one part of a suite of bills, and the Green Party would like to congratulate the Government on taking this very tiny, probably ultimately ineffective, step towards cracking down on property speculation in the Auckland housing market. That is what this suite of bills, as the Minister for Land Information said, is intended to do.

This particular bill is about collecting IRD numbers in respect of property sales and purchases. We support that. It is going to be incredibly useful to understand exactly what is going on in the property market, because up until now we have not known how many of the buyers are using foreign capital to purchase homes in Auckland. We do know that almost half of the sales in Auckland at the moment are to investors, so that is part of the reason that it is more difficult for first-time home buyers to afford houses. We have a huge number of investors in the market, and, of course, you would, because the tax treatment for property investment is favourable to property investors and not favourable to first-time home buyers. So this bill is just about getting the information—getting the IRD number.

We heard from submitters who are professionals involved in this field that it is not going to be an overly burdensome task to get the IRD number because they are already collecting a whole bunch of other information at the same time. I am sure everyone knows that the IRD number is a pretty short number that does not add a huge administrative burden when the conveyancers already have to collect information, and Land Information New Zealand is already collecting information on the property sales and the purchases, so all that it is doing is attaching the IRD number. We heard in the Finance and Expenditure Committee this morning from officials that it has been problematic not having the IRD number because people use different names or different spellings of the names—they use all different sorts of things, and it makes it more difficult for officials to understand whether or not it is the same person buying and selling homes.

So that is why the exemption that is put into this legislation is so problematic—the “main home” exemption that most of the speakers here have referred to. It means that we are not going to be collecting information for a whole heap of property sales and purchases. We continue to have this difficulty for officials in knowing who it is who is buying and selling houses because—

💬 Hon Louise Upston: I raise a point of order, Mr Chairperson. I would be concerned if that member was referring to matters before the select committee that were not related to this bill. There may be implications for that member if she is.

The CHAIRPERSON (Lindsay Tisch): So I just remind the member if you are quoting information from a select committee and the select committee has not reported back, that is privileged information, and the member would be in trouble if you were divulging information in this debate that has not been released and has not been tabled by way of a report back. So from now on be very careful about anything one might say.

Thank you, Mr Chair. What officials said during the select committee in respect of this bill was that it was going to be helpful to have IRD numbers because when we do not have the IRD number, we do not know, simply, whether it is the same person, because all they can refer to is the name and there can be quite a lot of variance around that. So it makes it more difficult.

The Minister here in the Chamber today, Louise Upston, and other speakers from the Government have claimed that requiring people to give their IRD number when it is their main home is an added, unnecessary burden that makes it more bureaucratic. I am just going to read directly from the submission from the Chartered Accountants Australia and New Zealand, which said: “The exemption for a transferee’s or transferor’s main home should be reconsidered.” That was its recommendation. “The main home exemption makes the rules more complex and limits the volume of information on property sales that is gathered and therefore the value of that information.” It said it in the select committee’s own report from the members, not the minority view. 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,”.

So nobody is arguing that we should not have the “main home” exemption in the other bill before us, which is the brightline test bill, but we are saying that it does not make sense to have the “main home” exemption for collecting the IRD numbers. In particular, it is going to make the tax rules more difficult to enforce because there is this added exception that says that you are required to give the IRD number if your main home is the third property that you have sold within 2 years. So if one has bought and sold the property that they consider to be their main home three times in 2 years, when it is the third time they are required to give their IRD number and they will be subject to the brightline test.

The problem is how is anyone going to know if it is their third time buying and selling a property if we have not had their IRD number for the first two sales? Part of the problem that the Government is trying to address here is the fact that our current tax rules around speculation require this intention test and, of course, no one is going to declare their intention to buy and sell a property simply for the capital gain if they know they are then subjected to the capital gains tax. I would argue that here there is a bit of a loophole because, obviously, why would somebody declare and put down their IRD number the third time if that means that they are suddenly going to be subject to the brightline test? It makes more sense to collect the same information on all property sales and purchasers. Then we have all the information that we need. There is no additional, unnecessary bureaucratic burden coming from putting down an IRD number with the information. There is already a lot of information being collected and assimilated by Land Information New Zealand. Having the IRD number simply makes it easier for us to enforce the tax rules.

So I would ask members in the Committee today to rethink their position and to consider what was proposed by Chartered Accountants Australia and New Zealand and what was brought up by a number of other submitters, including Ernst and Young. This is not a dramatic change to the legislation. We are not proposing that people should not be exempt from the brightline test for their main home, but we are saying that in this piece of legislation, which is simply about collecting the information and making sure an IRD number is supplied at point of sale or purchase, the IRD number is collected and we have the information on who is buying and selling homes. It will make the tax laws easier to enforce, it will give us more information, and it does not cost anyone money to put their IRD number down on a form that is already being filled out.

I have Supplementary Order Paper 121 and I would ask the Minister to consider it. I know it is late in the piece to consider changes to the bill, but this whole bill has gone through under a very truncated process and it would be really unfortunate to introduce this unnecessary complexity to the rules. The way that Supplementary Order Paper 121 works is it deletes the definition of “main home” in clause 4 in new section 156A(1). It will, of course, need to be teased out in other legislation if we are going to have the exemption for the main home in the brightline legislation. But, most important, in clause 4 it deletes the new section 156A(2)(a). It just deletes all the exemptions. It means we collect the same information on every property transaction. It will actually make it easier to enforce and it will give us more information.

So I would really ask all members in the Chamber here today to consider making this simple change. It will make this legislation better. It will make it easier to enforce tax rules on speculators, and I think that would be something that all parties in this House could agree on.

Thank you for the opportunity to speak about the Taxation (Land Information and Offshore Persons Information) Bill. I just want to address some of the responses from the Minister for Land Information earlier in the Committee stage. I would suggest that the National Government is kind of deliberately missing the point there. This was supposed to be about a full and comprehensive register, so that we could understand what was actually happening in the New Zealand home market.

This draft bill is absolutely redundant as it currently stands. The Minister pointed out that this is a set piece. It is designed to be used in conjunction with other legislation before the House at the moment. New Zealand First strongly attests that even those two pieces of legislation combined will have absolutely no effect on the actual issue at hand, which is a burgeoning and out-of-control Auckland housing market.

The Minister talked about a multi-pronged approach, and then she spoke about this being a tax-gathering exercise. She said: “We need this data so that we can gather the tax.” But the Inland Revenue Department itself has actually said that this bill, combined with the other piece of legislation, will serve no point whatsoever and next to no additional taxes will be collected. There will be little or no difference made whatsoever. The Minister spoke about it being necessary to simplify the current confusion around legislation, but, again, we were told by experts in this area that this will add another level of complexity.

We already have legislation that seeks to address this issue, and it speaks about intent. Now we are collecting data so that we can use it to apply it to another piece of legislation, which, although not contrary, simply confuses the issue even further. The Inland Revenue Department, again, has told this Government that this legislation will have no effect whatsoever.

I would like to come to the point raised by many of the speakers on this side of the Chamber, and that is the exclusion of the main home. We have heard from the other side of the Chamber that the reasoning for this is that it somehow adds high levels of complexity and it confuses homeowners. They might not know what is going on and they might be concerned that they are going to be taxed, even though 99 percent of them, it was said, own their own home and they are not investors or speculators and it does not apply to them.

But it was eloquently put by the previous speaker that the lack of that collection of information actually does create a big hole in the whole process, because there are exemptions to the main home exemption, and they are those people who are in the process of buying their second or third property. This was well pointed out—how do we know that they are up to that stage in purchasing property if we are not keeping a full and comprehensive database of all people buying residential property in New Zealand? It does not add complexity. It has been stated by experts and it has been stated by the Inland Revenue Department that it is a simple process. Most New Zealanders already have an IRD number—certainly those buying these properties do—and it will add no level of compliance cost to the whole process.

I would like to add the point that our own Institute of Chartered Accountants of New Zealand has said that the use of IRD numbers in all transactions is sensible. It does not add to the level of complexity. Mr Bayly will appreciate that that is coming from a group of experts who are telling us that it is sensible and well meaning and will serve a purpose.

I will just finish off by talking about this use of the definition “the greatest connection” in section 156A(1), inserted by clause 4. I would add that this Committee, by talking about the greatest connection, is adding another level of complexity to what should be simple legislation. We were told about where the heart is, and there was immediate rebuttal from this side of the Chamber about how you measure that. They talked about—

I would just like to pick up on what the last speaker, Fletcher Tabuteau, was talking about, and also what Mr Scott alluded to. He said that the main connection in new section 156A(1) in clause 4 is very easy, because it is where the heart is. But when we were in the Finance and Expenditure Committee this is where the problems really arose. Obviously “where the heart is” is not a definition at all, but the concern that Labour members had was that often it is not where the heart is but, perhaps, where the wallet resides. So what we actually did is we asked the Inland Revenue Department, as well as our expert adviser, to go back and provide us with a number of examples of how this might work in certain circumstances. The Inland Revenue Department, to its credit, obviously, came back with a whole lot of examples that laid out “main dwelling”, but I suppose my point for relaying this story is that it is not an easy test. Mr Robertson pointed out that members in this House are often very much in the same position. We spend 3 or 4 days a week in Wellington and 3 or 4 days a week in our home electorates. We could claim, theoretically, that our main dwelling is in Wellington because the one that is owned in Eketāhuna is not worth nearly as much as the one in Wellington. So I am just saying there that there is the possibility for a little bit of moral hazard.

I would like to also talk about what Julie Anne Genter was discussing in her Supplementary Order Paper 121. The point she made was actually quite an interesting point. She said: “If you have to give your IRD number on only the third time you do this, then why would you do it?”. Well, the simple answer I have got is that that is the law, and under the law you have to do it. But what it does introduce is a level of moral hazard in that if everyone says “Well, you know, it might be the law but, you know, I travel at 55 kilometres in a 50 kilometre zone. It doesn’t really matter. It might be breaking the law, technically, but it doesn’t matter.”, then what you actually end up with is a piece of legislation that does not meet the intended purpose.

We just think that it is quite easy to remove that moral hazard. There is something called the sale of purchase agreement. It is a standard agreement. It is actually put together by the Auckland District Law Society, which is in the middle of a review process at the moment, as we speak. We discussed this with the Inland Revenue Department. We discussed it at the select committee. We thought it would be very easy just to add in a field “IRD number”. There are about 10 or 12 different clauses in this agreement. You just tick the box for the IRD number and you enter it in. It just removes any sort of moral hazard and it removes any complexity.

The reason I say that, also, is that the Minister for Land Information herself stood up and said: “Well, we want to remove complexity from legislation. We want to remove complexity from the whole process of buying and selling property.” I found that slightly interesting, because there is something called Landonline and it is acknowledged, actually, as one of the top pieces of land transfer software in the world. New Zealand is rated, usually, first or second in the world in electronic transactions. As it is at the moment, every land transaction that occurs in this country has to be registered online with the Minister’s own department. So what we are not doing here is asking for added complexity; in fact, I would argue the opposite. What we are actually doing is removing the level of complexity of asking people to make a choice or a decision around whether they have to provide an IRD number or not. We just say, let it be compulsory. Let us make sure that everyone has to provide an IRD number. Then there are no questions, there is no instance of moral hazard, and there is no complexity.

When we talk about complexity, I would like to come down to section 156D in clause 4. This talks about omissions and errors. I have a couple of concerns here, because what it seems is that we are getting into the intention test yet again, which I think has bedevilled a little bit of the whole question of whether we do or do not have a capital gains test in this country. Obviously, we have to have a clause in the legislation that governs omissions or errors of information.

💬 David Bennett: Is this in the bill?

Yes, it is. It is new section 156D, “Omissions and errors”. What it says here is: “An omission or error … must be corrected …”. That is true, but section 156D(2) says—and this is where I am slightly perturbed—“An omission or error in any tax information provided in accordance with section 156B(2) or (3), or any other failure to comply with sections 156B and 156C, does not—(a) affect the validity of any registration of an instrument to transfer a specified estate in land;”. So what this is actually saying is that if there is an omission or an error, then the contract is still binding—the contract is not void.

I have come across this before in other land information legislation, where what is happening with overseas investors, for example, is that they are just doing things retrospectively, but where it gets a little confusing for me is when you go down to section 156E, where it talks about false or misleading tax information. It defines what is actually false or misleading. It says “to that person’s knowledge or with intent to deceive,”. I wonder whether that “or” should be “and” because I do not know whether you could actually have an intent to deceive without having that person’s knowledge, if you know what I mean. So what I am saying here is that if you have an intent to deceive, then you are doing that with knowledge.

This is where I come back to—I am jumping around a little bit, but it is still in the “Omissions and errors” section. Where it talks about omissions and errors, to me there is a difference between an omission and an error. For me, an error is something that is done—how do I say this—without malice and without intent, whereas an omission, I would argue, is actually done with intent. So an error denotes a mistake; an omission perhaps implies something more sinister. So actually I would have liked to see new section 156D(2) talk just about an error, and then section 156E talk about an offence of providing false or misleading information with an omission included under there, because I actually think an omission is a proactive action as opposed to just a general mistake.

But the interesting thing is that it talks about the fine for committing misleading information—keeping in mind that it does not affect the validity of registration. So the fine for committing an error does not exceed $25,000. I know on the face of it $25,000 sounds like a lot of money, but, in essence, when we are talking about large-scale property deals, even if we are talking about buying a house in Herne Bay or a single dwelling in Auckland, a $25,000 hit, if you give false or misleading information, is not a lot. The deal still goes through, and I assume this is governed by the—what is that piece, the contracts administration—

💬 Grant Robertson: Credit contracts.

Credit—no. Anyway, what you could actually do—and, again, it comes to that moral hazard—is you could say: “You know what? I’m going to provide that misleading information or false information. I’m going to take the hit for $25,000. It’ll go through, I’ll pay the fine, and then what I have to do, under this legislation, is go ahead and correct that information. So I’ll do that, but the $25,000 hit is actually worth it.”

What happens is if an investor provides false or misleading information a second, third, or fourth time, that fine increases to $50,000—well, I should say that it does not increase; it does not exceed $50,000. So, again, we may find that $50,000 for jaywalking would be hugely excessive, but $50,000 for providing false or misleading information when we are talking about a high-end property deal in a place like Auckland or even Tawa—this is not just defined to residential property—is actually a price that people are prepared to pay to get that deal to go through. I actually would have, in this case—and I am pretty liberal on this—liked to see those penalties be a lot harsher. The one thing I really would have liked to see, in fact, for false and misleading information is that the deal is automatically void, so that what it really does is it deters people from entering into that sort of moral hazard of providing false or misleading information but taking that hit, which I think is actually quite important.

We have had a number of speakers talk about main homes, and, again, I just want to come back to this, because it is important and it did take up an inordinate amount of the select committee’s time. I think Julie Anne Genter’s Supplementary Order Paper 121 is, in essence, talking about a main home register. But where the confusion arose, and I think where the—

I want to pick up where my colleague Stuart Nash left off. I want to do that by responding the intervention Mr Scott made earlier, when he told us that we have nothing to worry about in terms of the definition of an exemption for a main home being based on the idea of “greatest connection”. He said it is fine because “home is where the heart is”. So now we are going to base law in this House on some kind of Hallmark greetings card basis. That is how we will do it. We are trying to provide certainty to the people of New Zealand, and we have to go on Mr Scott’s feelings—what is in his waters. That is what we have to base the law on—Mr Scott’s feelings.

I am actually not surprised that Mr Scott is struggling a bit with this law, because he could easily get up in this Chamber and be the embodiment of the problem here. Is home—and home is where the heart is—in the lovely suburb of Kelburn in Wellington Central? Or is it in Martinborough, where you might want to represent some people? Where is that—where is the heart there? Is it where you live? Actually, we will, if I get some time, Mr Scott, use you as an example as we work our way through the definition of “greatest connection” because I think you are living proof of the problem that we have got here.

It is completely ridiculous to have a member of the Government stand up and tell us that it is fine because “greatest connection” is “home is where the heart is”. That cuts to the internal inconsistency of this part of the bill, because, on the one hand, we were told by Minister Upston, when she took her call, that this is fine and it is an objective test, and then Mr Scott got up and said that it is based on a feeling about where one’s home and heart are.

💬 Sue Moroney: It’s the vibe.

Exactly—the vibe. That is the problem here: an untested definition is brought into this House and it creates a loophole. This is not an objective test, no matter how much the Government might want to tell us that it will be an objective test.

To make that point, in the commentary on the bill provided by Government MPs, they say, in the same paragraph where they say that there will be confusion, that they expect the factors to define “greatest connection” to include a series of things. They do not say “These are the things” that will be defining what the greatest connection is, but “We expect”. That is as certain as this law gets—an expectation of Government members about how the term “greatest connection” will be defined. That is poor lawmaking. It is rushed lawmaking. It is not going to help New Zealanders understand as much as we need to about who is buying and selling properties in this market. It is emblematic of the confusion that lies in this law.

To make that point even further, in one part of the commentary on the bill, the Government members have removed the original reference that was in the bill as to whether any member of a person’s family is living with that person. That has now been deleted out of the bill because, according to the Government, that is not relevant in terms of the definition. I am reading here that “It is irrelevant to the definition of ‘main home’ whether or not a person’s family lives with them,”. If you go two paragraphs down you will see that one of the expected factors for deciding whether somebody has a “greatest connection”, which will be the thing that defines where their main home is, is where their immediate family lives. So they take it out of one section of the bill and then include it in the list of expected factors for deciding whether or not someone has a “greatest connection”.

This is confused lawmaking. It is not clear, in an area where we need to be clear. But, fundamentally, what no Government member has been able to do is say why the main home should be exempted from this process. Louise Upston, when she stood up to speak before, said that it is because this is not actually a register. She said it is about making sure that people pay their tax fairly. Well, actually, that is in another bill. That is in the Taxation (Bright-line Test for Residential Land) Bill. This bill is actually about collecting data and collecting information.

The Government’s reasoning for why it would be so complex for people to provide an IRD number on the purchase of their main home is laughable. I want to read again from the commentary on the bill: “… the majority of us accept that not making such an exception [for the main home] 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.”

Let us unpick that justification for exempting the family home—that “it would greatly increase the volume of information to be managed by Land Information New Zealand and the Inland Revenue Department,. It is absolute nonsense. Most people purchasing what would be their family home already have an IRD number. There is no increase in compliance for what I would venture to suggest is probably 95 percent of the people involved in those transactions. As Julie Anne Genter and Stuart Nash have already said, it is a regular part of conveyancing to simply fill out a form and include one box on it that has your IRD number in it. I know my IRD number off by heart. I am not going to say it now lest someone tries to steal my identity, but I do know it off by heart. Most people would.

💬 David Bennett: Phil Twyford might put it on a list for you.

David Bennett’s number is 3, or 4, as he is so old—is it not? But their IRD number is easily remembered by most people. It is not a difficult thing. In terms of the Inland Revenue Department, there is no compliance increase at all, and for Land Information New Zealand the increase is a very, very minor one. Again, there is a confusion here—and we will come to it in Part 2 of the bill—as there is an unnecessary compliance burden being put in place by the Government. But this is not it. In this part of the bill, it is absolutely one of the easiest things we could do: make a small change to the sale and purchase agreement. Conveyancing lawyers do this work anyway. Most people buying their main home will already have an IRD number. That is not a decent justification for exempting the main home.

The second part of the Government’s justification for exempting the main home is that it could lead to people worrying needlessly that the transaction would be taxable even though in most cases it would not be. How does that work? You are not given an obligation to pay tax just because you supply an IRD number. People who have IRD numbers know that they have IRD numbers. You supply IRD numbers at all sorts of times of your life and you do not have an expectation that you will necessarily be paying tax. These are empty reasons for exempting the main home, and in the end they compromise the quality of the data.

This is a confused piece of legislation. Part 1 is a particularly confused piece of legislation. I do urge members of the Committee to consider supporting Julie Anne Genter’s Supplementary Order Paper. We will have a much better set of data if we do not have silly exemptions in the law as proposed by National.

In the time I have remaining I want to move to a couple of points that have not been raised. One of those is the changes in new sections 156A(2), 156B, and 156C in clause 4 around the meaning of exempt transfer. This really is a classic example of how complicated it can get once you start making exemptions. This is about the idea that you would not be able to exempt transactions that were not undertaken by individuals—that were perhaps undertaken by trusts or companies. The original drafting of the law apparently did not make this clear, and so the Finance and Expenditure Committee had to find a process through this to clarify the situations in which a piece of land might have multiple uses.

Again, here we get ourselves into a confusing situation. So now we end up with an amendment to section 156A(2) to specify that the main home exemption would be available “when most of the land was used for a home by the owner, and when it was so used for most of the time the person owned it.”, as the commentary on the bill states. Well, we are opening a can of worms about what “most of the land” and “most of the time” means. The obvious examples here are perhaps farms where people will live on different parts of the land at different times. They might have a home that they have on the land plus a property further away within the farm. Which of those is their main home? Creating exemptions around that, creating exemptions around that kind of land, is simply creating loopholes and is unnecessary.

This may well make for a tidier definition—I accept that; I accept that the officials have proposed things that will make a tidier definition—but by creating these loopholes and exemptions we simply make for complex law.

Very briefly, the last clause that I want to mention is one that we actually support, which is around the question of the changes to the information to be supplied in tax statements.

I move, That the question be now put.