Taxation (Land Information and Offshore Persons Information) Bill

The purpose of this is, I suppose, to ensure that we comply with a number of international anti - money-laundering pieces of legislation—the work that is going on around the world. We agree with that. However, again, what we see with this is just the adding of a whole lot of complexity that does not necessarily have to be there.

The main concerns that were brought up around this sort of thing is how long it actually takes for the Commissioner of Inland Revenue and the Inland Revenue Department to allocate certain numbers—bank accounts, and transfers, and all that sort of carry-on. It is actually quite a complex process if you are an overseas investor. Well, no, the definition is not “overseas investor”; actually, the definition is “offshore person”. This is where a little bit of confusion arises, and I think that what you will find is that there will be some Kiwis who are a little perturbed to find that under legislation they are treated differently from New Zealanders who actually live in New Zealand. If we have a look at the definition—this is in clause 9(3)—“offshore person” actually means: “(a) … (i) a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last 3 years:”. This would apply, I would suggest, to nearly every single young Kiwi who has finished university, has gone over to London or wherever, and has done their OE. Who knows?

Of course they have got bank account numbers here; most of them have got horrendous student loans and that sort of carry-on. But what they may find is that they have earned some money, they have come back, and they want to buy a house in New Zealand, and this is not a hypothetical situation in any way, shape, or form. I would suggest that there are many people—probably all of us in this Chamber—who would know people in this situation; that is, if we have not been in this situation ourselves. In fact, I wonder whether when Mr Scott came back to New Zealand, he was defined as an offshore person when he was going to buy his vineyard in Martinborough. Mr Scott, had you been back within 3 years when you bought your vineyard? You might well have been described as “an offshore person”, and a number of Kiwis actually are. We know this.

What happens is that they go overseas, they have got student loans, they have not got much money, they work incredibly hard—well, maybe not for the first year, but in the second, third, and fourth years, they work incredibly hard—and they are on the internet the whole time looking to put roots down in this country. Actually, about 3 weeks ago in my electorate office, I was talking to a guy who came in because he wanted to get involved. He had just come back to New Zealand from overseas to settle down. So this is not a situation that is hypothetical. I think he, or any Kiwi, would find it a little perturbing to find that they are actually subject to different rules from New Zealand citizens, especially when the only passport they hold is a New Zealand one. They are New Zealand citizens, but according to this legislation, they are also classed as “offshore persons”.

So what the offshore person has to do is they have to give a tax number and a bank account number to the Commissioner of Inland Revenue—when we say “Commissioner”, that stands for the Inland Revenue Department itself. But what it says here in new section 24BA, “Offshore persons’ bank accounts and tax file numbers”, is that “(1) The Commissioner must not allocate a tax file number”—so an IRD number—“in response to an offshore person’s request unless the Commissioner first receives a current bank account number for the offshore person.”

The discussion around this that opened up in the Finance and Expenditure Committee was about timing and requirements. For example, if a person wants to open a New Zealand bank account, then they have got to have various forms of ID—and we have tightened this up quite significantly in this country, which is good, because we needed to. I think the world has done this, as mentioned, due to anti - tax avoidance measures around the world. But what a person has to do is provide a whole level of authorisations and identifications in order to get a bank account number, but they cannot get a tax file number until they have got a bank account number.

Often when you are looking at property, there is the imperative of time, and so if, first of all, an investor has to get a bank account number and then a tax number, we do not know how long this will take. We have quizzed the Inland Revenue Department about this, and it gave us assurances that it would not be onerous. It would get it done within a reasonable amount of time, but it could not pinpoint down a certain number of days. So what we were really pushing the Inland Revenue Department for was to give us a number that the lawyers—

I want to pick up this question of the way in which this particular part deals with the bank account.

💬 Jami-Lee Ross: Nashie—another 5 minutes?

There will be plenty more opportunities for Mr Nash. We share and share alike over here, Jami-Lee Ross. Actually, what I would really like is for Jami-Lee Ross to get up and take a call and tell the House why it is that every single person who is purchasing a home in New Zealand now has to provide a bank account number when the Inland Revenue Department, the people we rely on for the advice on this, told us it was not necessary. That is what it said. In its regulatory impact statement, this is what the Inland Revenue Department had to say. It said that the requirement to have a New Zealand bank account to obtain a New Zealand IRD number is unnecessary for individuals and of limited benefit, as the Inland Revenue Department already has the power to require relevant identity verification upon application for an IRD number. That was the advice of the Inland Revenue Department.

We heard before, in Part 1 of this bill, the deep concern of Government members about unnecessary, complicating bureaucratic processes being put in place—it is a terrible thing to have to provide an IRD number that you have already got, that you already use for a whole lot of other purposes. Government members are very worried about adding layers of bureaucracy and adding complexity, but then they get advice from the Inland Revenue Department to tell them that it is completely unnecessary for people to have a bank account number, and they ignore it. They are utterly confused.

I actually honestly believe that members opposite do not really understand what has happened here. This was a rushed piece of legislation, just as the Taxation (Bright-line Test for Residential Land) Bill was a rushed piece of legislation, and I just do not think they have got their heads around it. We had some pretty odd and interesting situations as amendments were proposed at various points in the process, and the officials went away to see whether they could deal with them. It was a shambles, and this Part 2 of the bill really is where the rubber hits the road in that regard.

So let us be absolutely clear here. The Inland Revenue Department has said the provision of a bank account is completely unnecessary. In fact, when people go to get an IRD number there does need to be identity verification, but I would suggest that it is actually somewhat more rigorous than just opening a bank account. It is pretty clear that if someone offshore is going to purchase a property in New Zealand they will get a bank account. It will be the only thing it is used for—in order to get the IRD number. It will not actually be used for anything else. Perhaps unsurprisingly, banks may not be too worried about that. There will be a little fee involved that will be of some use to them, so they are not too worried about it. But actually it is completely unnecessary and completely bureaucratic.

Again, I want to refer, as colleagues have already done, to the submission of Chartered Accountants Australia and New Zealand. It made the same point that the Inland Revenue Department made in its submission—that there is no assumption that there will be any greater assurance achieved in this process by our looking to have to have a bank account number. It really does very, very little in regard to that.

The second point made by the Inland Revenue Department and, indeed, made by Chartered Accountants Australia and New Zealand—and I will just quote the Inland Revenue Department here—is: “It is not apparent that, for individuals, the general anti-money laundering (AML) checks that a New Zealand financial institution would carry out would yield significantly more information than Inland Revenue collects as part of the current IRD number application process;”.

So that is the process here. There is not actually any benefit, but there is a significant additional burden of cost, burden of complexity, and burden of bureaucracy. We are not achieving anything by having the requirement for a bank account number.

I simply ask members on the other side to consider what it is that they are doing here. On the one hand we have been told that this is not about a register and it is not about providing that information; it is about making sure that people are paying the right amount of tax, as Louise Upston said. That is actually another bill; it is not this bill. In this bill, it is about getting data. So on the one hand we are now not getting the comprehensive data that we should get, because we are exempting the main home, but on the other hand we are, in fact, through this legislation, placing an unnecessary burden on people in terms of providing a bank account number.

I want to hear from members of the Government as to why it is that they are imposing this when the Inland Revenue Department told them not to and when the chartered accountants told them not to. What do they know that those people do not? Because it is not clear to me.

I join my colleague Mr Robertson in requesting that advice, because members opposite do seem to know a lot better than others, or they think they do, if we are to take this bill at face value. As I have suggested in my previous contributions on different parts of the bill, I think that this is actually about providing convenient loopholes. I really do. I find that the most plausible explanation for the higgledy-piggledy mess that we have here.

I want to draw attention to some of the information supplied in the commentary on the bill that goes through the information exemptions under the regulations. For those watching eagerly at home or listening to their wirelesses, those listening to wirelesses will hear the rustle of paper as I flick through. Those watching on the big screen will see there are pages of exemptions and amendments and definitions and so on required by this legislation, which, I contend, would not be required—would not be required—if it was the case that this was just a simple register of offshore buyers, plain and simple. We would not need complex descriptions of when a person meets the test and when they do not, and I refer here to Part 2 clause 9, which amends section 3 of the Tax Administration Act—page 11, for those with the tracked changes copy of the bill, and on to page 12. It defines what an “offshore person” means.

It means—and I will read it out for those who have not been following the debate—“(i) a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last 3 years: (ii) a person who holds a residence class visa granted under the Immigration Act 2009, and who is outside New Zealand and has not been in New Zealand within the last 12 months: (iii) a person who is not a New Zealand citizen and who does not hold a residence class visa granted under the Immigration Act 2009:”. Then a series of regulations that will be created lies under the description of “a body corporate or an unincorporated body of persons” and trusts, unit trusts, and so forth.

We have this complex system for describing it in the legislation and then a requirement for regulation that sits under it precisely because the Government has exempted the main home and is trying to exempt various categories of person from having to fulfil this requirement, because it is not actually interested in collecting a full database of who is buying and who is not buying. It wants to appear to be doing something, but the only logical explanation for where we have got to as a Parliament with this kind of weak legislation, these half measures, is that the Government is doing this quite deliberately.

I want to look specifically at the types of person who would qualify under a trust, if I can find the right page—as I search madly through the many, many pages of description of who is in and who is out—to find the definition of that “offshore person”. A person will be described as offshore—generally speaking, a non-individual when we talk about trusts and others—if it is a body corporate incorporated outside New Zealand or 25 percent or more of its shares are owned by a body corporate incorporated outside New Zealand. You can see that these little tests that we have got along the way are going to require advice from accountants and others, who will be advising people who are trying to get through loopholes in any case. You have got here a whole support structure for an industry of persons who are dedicated to foreign speculation and supporting foreign speculators in New Zealand. That is precisely what we were told this Government wanted to counter.

Here we go: under clause 9(3)(b), referencing section 7(2)(b) to (f) of the Overseas Investment Act, offshore person means a partnership or other unincorporated body other than a trust if 25 percent or more of its partners or members are offshore persons according to those sub-definitions. Then we have got various subcategories of 25 percent and whether their voting power is exercised, in which way, and where they live. A trust is an offshore person if an overseas person or persons constitute 25 percent or more of its governing body or have a beneficial interest in or an entitlement to 25 percent or more of the trust property, or are 25 percent or more of those who have the right to amend or control the amendment of the trustee, or are 25 percent or more of those having the right to control the composition of the trust’s governing body. There are layers upon layers of definition of a trust, of who would be in that 25 percent. An overseas person means a unit trust if the manager or trustee, or both, are overseas persons or if they have a beneficial interest in or an entitlement to 25 percent or more of the trust property, and so on and so forth.

In clause 10 there are rules around the nature of the bank accounts that can be set up. Whether they are non-bank deposit takers or what people would consider regular banks has to be specified in the law. There is a whole bit of the legislation in Part 2, I think, dedicated to the penalty regime that must be set up to try to catch those people who do not wish to comply and want to find their way through the loopholes in the legislation, and exactly what kinds of ways through the legislation they can construct and not construct. So, overall, what we have got is legislation that does not achieve and is designed, it seems, not to achieve the kind of register of interest that an ordinary person at home would have expected from this kind of legislation.

The whole Parliament sits here and spends a considerable amount of time putting this through, officials report to committees, we have advice from members of the public, from the chartered accountants as volunteers or as society members, and the Law Society puts in submissions pointing out the much more logical way things could be done—then over on the other side of the House we have a Government that is either too arrogant to take that advice or too out of touch, or somehow thinks it will get away with this and people will not notice that it is making law that simply obfuscates and does not achieve what it is designed to achieve.

It is part of a suite of similar half measures. Treasury estimated, I think, that $5 million in tax might be collected—and that was in the other accompanying measure—but if a much more simple system was set up, $30 million to $40 million in tax would be collected. It saw that there are holes in this suite of legislation that you could drive a bus through. Then, in the commentary on the bill, we have got advice around becoming an offshore person—for anyone who wants to become an offshore person, there is advice in the commentary. The penalties, of course, are specified, as I have already said.

I want to draw my contribution to a conclusion by saying that this is the kind of legislation that we might expect from a Government that is trying to make it look like it is doing something when in fact it is trying very hard to do nothing at all.

There is one thing that we have not discussed that was brought up at the Finance and Expenditure Committee. It did take a little bit of time to work through it and understand the consequences. This is actually going back to section 24BA, in clause 10, which is headed “Offshore persons’ bank accounts and tax file numbers”. A little bit has been said about this, and I will quote section 24BA(1): “The Commissioner must not allocate a tax file number in response to an offshore person’s request unless the Commissioner first receives a current bank account number for the offshore person.”

Where the Labour members had some concerns about this is that, as we know, we are a destination for a lot of young travellers. People who come over here work in the orchards. They work during the tourist season, and then they disappear. Back in the day when people were paid wages, obviously everyone had a bank account. That is how transactions were done. But what we saw as an unintended consequence of this—and this was also, I must admit, brought up in a submission from Chartered Accountants Australia and New Zealand—was that if a traveller, or a young person, was passing through and wanted, say, an orchard job or a grape job, they would need an IRD number to get paid. In Hawke’s Bay there are a lot of travelling seasonal workers. But what they will require in order to get an IRD number is a bank account.

The unintended consequence that was raised by Chartered Accountants Australia and New Zealand, and the Labour members, was that this provides upon a certain group a level of compliance that perhaps should not be there or is unnecessary—so, for example, if I want to go and work in an orchard, or a Chilean person, for example, does. We have a number of these agreements with different countries. Let us say they want to go and work in an orchard in Hawke’s Bay. They need an IRD number in order to get paid. Well, gone are the days when you got paid under the table in Hawke’s Bay orchards. I do not know what it is like in the Wairarapa, but it certainly does not happen in Hawke’s Bay.

So they need an IRD number, but they also need a bank account. To have a bank account you need various forms of ID. I am assuming that your passport would do, but normally when you open a bank account you need two forms of ID, and it is usually two forms of picture ID. What has happened in recent times is we have tightened up the law due to, as I mentioned earlier, tax-avoidance provisions and concerns. In fact, it is in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. It is quite a large piece of legislation. But what it has done is tighten up the means to achieve a bank account.

So what the Chartered Accountants Australia and New Zealand said, and what we said, is that we do not think that actually having a bank account in the first place should be a prerequisite for getting an IRD number, because it may provide a level of compliance that is unnecessary for a certain group of people who are coming in here. In fact, one group that was actually used as an example was oil rig workers. They come in here, and they earn a substantial amount of money. This is not my example, but it was certainly brought forward—it might have even been by the Inland Revenue Department but it was certainly by someone with much greater understanding of this than I have.

They come in here, and they are paid in New Zealand dollars because they are in the New Zealand tax jurisdiction. They sort of fly in and fly out. But their money is paid into an offshore bank account because that is the nominated bank account and that is the way it apparently works in the industry. But they will now need a New Zealand bank account. Again, it just provides a level of compliance that we think is unnecessary, and I say that especially because the Minister has stood up and said that they want to limit compliance and get rid of complexity. But we think that this is just opening up a level of compliance and complexity that does not necessarily need to be there.

But, as the Chair knows incredibly well, how the select committee process works, and the reason I think it is fantastic, is that we get a whole lot of experts in and they put forward their views on how to better draft legislation that is workable in the real world. In terms of Part 2, we heard from Ernst and Young and the Chartered Accountants Australia and New Zealand. PricewaterhouseCoopers put in a couple of submissions—three or four actually. We heard from the New Zealand Bankers’ Association, ANZ, and Chapman Tripp. They were all querying the need to actually get a bank account number before you get an IRD number. The concerns ranged from the time it actually took—

I move, That the question be now put.