Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill

We come now to clauses 1 and 2.

💬 Hon Ruth Dyson: Go on, let him take a call.

The CHAIRPERSON (Hon Chester Borrows): Oh, Grant Robertson.

Actually, you normally say—anyway. I do want to take a call on clauses 1 and 2, the title and commencement clauses. Firstly, to deal with the commencement issues—as is fairly typical in taxation legislation, there are a number of commencement dates. I think it is important for the Committee, whenever it is debating these clauses, that it does take note of retrospective commencement dates, because they are not the best things to have. It is not really the way Parliament should behave. I could now do Chris Hipkins’ speech on retrospectivity, which he often gives when there are commencement clauses, but suffice it to say that the idea that Parliament has the power to be able to retrospectively change people’s obligations and the rules under which we operate in the taxation system is one to be judiciously put in place.

I do want to point out clause 6 of the bill, which has a retrospective element in terms of the right to cancel a loan contract. That is, in fact, an empowering part of the bill, in that it allows an action by a borrower to be able to do that, and so I do not think anyone here in the Committee would have any particular problem with that.

Clause 6 relates to an issue that is going to come up in another taxation bill, which is the great debate about the difference between notifying and formally notifying, which the Finance and Expenditure Committee somehow managed to spend a significant amount of time discussing. Is there, in fact, a difference between notifying somebody of something and formally notifying them of something? Once upon a time, formal notification would come from writing—putting something in a letter and sending a letter. But is an email formal notification? Because it is like a letter—[Interruption] Yes, but is it seen to be a formal communication? I think the general consensus was that that needed to be clarified, and that, actually, is where clause 6 came from, which actually changes the words from “formally notifying the loan manager” to “notifying the loan manager in writing”. So now we are absolutely clear: it is in writing, and that can also be an email, as well, for those who are following along at home.

The other retrospective clause is a very minor one, which I have now completely forgotten—clause 37B, that is right. That is not a major issue, but it relates to the question around when someone has acquired land under the residential land withholding tax issue. The other clauses are largely coming in in the future. There are clauses 37 and 37C, which, again, are around the issues of definitions of residential land and disposal within the 2 years of the brightline test—changing the phrase “in land” to “in residential land”. My colleague Stuart Nash earlier identified why that was changed.

This, of course, is another example of us having to tidy up legislation. The reason it has a retrospective commencement date is that we are having to tidy up the law that was passed in 2015—that is, clause 37, which is dealt with in the commencement clause, at clause 2(4). Otherwise, the majority of the clauses come into force later this year or in 2017.

In the remainder of this contribution, I do just want to refer to the title because, as I have mentioned in previous tax bill debates, often quite innocuous or very general words are used. In this bill’s title we have some specific ones here: “Residential Land Withholding Tax,”—good; a new thing being introduced—the “GST on Online Services,” and the randomly stated “Student Loans”. I am a fan of perhaps more specific wording in these types of bills, so that people have a better idea of what we are debating.

But, more to the point, there is clearly, for me, some words missing from this title. It would be remiss of me, given the contributions I have made on this bill thus far, to not say that the words “Missed Opportunity” should be in the title, because, actually, that is what this bill is about. It is about the fact that the Government, yet again, has a tax bill it could have brought to the House to make some real and significant changes.

The biggest missed opportunity of all is in the GST on online services aspect of this bill, because this was the bit where the Government could have stood alongside small businesses in New Zealand and said: “We get it that you’re doing it tough. We’re going to level out the playing field in GST. There will be a process and a pathway towards GST being charged at a decent rate in terms of tangible goods brought in from overseas.” But that did not happen, and that is a missed opportunity in this bill.

There are other missed opportunities—

There is one thing I would like to talk about—well, a couple of things. But first of all, as Mr Robertson alluded to, clause 54(2) comes into force on 1 April 2017. This actually relates—and, again, it was talked about at great length in the Finance and Expenditure Committee—to when, in fact, the GST regime on online services comes into play. The reason this was—not debated; that is the wrong term—discussed at great length is that the issue was around how long it takes a foreign jurisdiction to gear up for the New Zealand tax system. We had some submissions that suggested it would take 9 months. Others suggested it would take 6 months. It is hard to believe that in this day and age of high-level computer programs—which, of course, all these suppliers are on—it would take any more than just a simple fix of a database. But apparently it does take a little longer than anyone would imagine. In Australia, I think they have allowed 9 months—am I right, Mr Robertson? You might remember.

💬 Grant Robertson: Yes.

They have allowed 9 months. This is why we have said that this does not come into force until 1 April 2017. It is not some way to avoid paying tax before then. I doubt we are going to see a massive download of iTunes songs on 31 March, but you never know. But that is the reason why that clause is coming into play in a year’s time, or just under a year’s time—we do have to allow these online suppliers enough time, and the Inland Revenue Department (IRD) believes there are going to be about a hundred of them. As mentioned, it believes it is going to raise about $40 million—or, no, not “raise”. We are missing out on about $40 million. The IRD is unsure of the impact that this sort of tax will have and whether it will change behaviours. I suspect it will not, but let us see.

The other thing, as Mr Robertson alluded to, is that the title is a little misleading. Let me explain why. The title includes the words “Taxation Residential Land Withholding Tax,”. This is a capital gains tax; let us make no bones about that. The Government said it would not put in a capital gains tax, but there is a capital gains tax, and this is what it is. This taxes the capital gain on properties bought by overseas investors who buy and sell a property within a 2-year period. It is interesting that the IRD actually recommended a 5-year period because it thought that a 2-year period would be too easy to avoid and that it would allow a lot of gaming behaviour and aggressive tax planning to take place, which we have seen in recent days and which is going on, I think, in a way that not many of us ever realised or contemplated or could imagine.

This bill should probably be called the “Taxation (Capital Gains Tax, GST on Online Services, and Student Loans) Bill”. As Mr Robertson alluded to, this is a missed opportunity in terms of online services. There are a number of reasons why the Government and the IRD say we should not be collecting tax on tangibles. Personally, I do not think that many of them stack up. The reason I say that is what this does is it provides an immediate competitive advantage to online overseas suppliers as opposed to New Zealand ones. As well, the argument is that we live a long way away and that with shipping costs of more than 15 percent, it is more than easily made up. But that is simply not true in this day and age.

I think that the Government has really missed a trick here. It could have gone all the way. It would have pleased the Retailers Association—of that there is absolutely no doubt. When we read in the paper that the IRD is concerned that, in fact, putting GST on online services might change the behaviour of New Zealanders—i.e., they may, in fact, now buy products from New Zealand suppliers as opposed to overseas ones, or they may be put off buying products or intangibles from overseas because of price increases—well, imagine what that would do to our retail sector. Imagine if the impact on our retail sector was that people would now go down to their local store and buy New Zealand - made products as opposed to going online. So this is a missed opportunity.

This bill is a capital gains tax and it is a missed opportunity in respect of GST and student loans. The student loan stuff is reasonably pragmatic. I would like to see the sort of arrangement that we have got with Australia expanded. The reason I say that is, as mentioned earlier, when a student enters into a contract with the Government to undertake that student loan, there are a whole lot of terms and conditions that I think are pretty clear—you start earning money and you start paying your loan back. If you live overseas, again, the IRD is very clear on that, and I would like to see these sorts of agreements instigated with other countries around the world. Thank you very much.

Clause 1 agreed to.

Clause 2 agreed to.

Bill reported without amendment.

Report adopted.