Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

Tēnā rā tātou katoa e te Whare. Members, the House is in committee on the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. The question the committee has been considering is that Part 2 stand part. The Hon Michael Woodhouse had the call and has four minutes remaining.

Thank you, Mr Chair, and can I begin, firstly, by apologising to the committee of the whole House. In the start of this intervention, prior to the maiden statements, I was referring to my tabled amendment to GST provisions, and I realise that actually that is in Part 3, so I will pause my comments around GST on global roaming charges until we get to the appropriate part of the debate.

But my central point remains: my surprise and disappointment that Labour members would seek a closure motion on a part of the substantive matters in which we haven’t even commenced debating. We have spent a considerable amount of time on new additions to Part 2—that is, the Government’s announced brightline tests—and that’s as it should be.

💬 Hon Scott Simpson: So how’s that democratic?

Well, that’s a very good question, Mr Simpson: “Not very.” would be my answer, given that the changes were signalled at 9 o’clock this morning and in urgency, without any sort of—

💬 Hon Scott Simpson: No public notice.

—of public notice, public submissions on this, and no apparent communication or consultation with the tax community, we are going to be ramming this through under urgency. But there is going to be a broader debate, I think, now, not only on the Supplementary Order Paper but on the substantive issues that have been considered by the Finance and Expenditure Committee and by submitters, and I want to start by referring to the amendments to new sections GC 20 and GC 21 of the Income Tax Act, set out in clause 40, that of purchase price allocations.

This was, when it came in to the committee, quite a punitive change where, should there not be agreement on the allocation of purchase and sale price between the vendor and the purchaser, then, effectively, the tax department had the right to, effectively, rule out and consider at nil value the purchase price, essentially removing the deductibility of the expenditure—probably depreciable expenditure so it would be depreciation deductions over time. And rightly so, the committee recommended, and the Government’s agreed, that that wouldn’t be a permanent change and that the bill, as it now is, that we’re considering—completely rewrote those clauses to include the fact that it could be treated as nil until the purchaser and the vendor came to some agreement. So if the deduction was disallowed in one year, it could still be deducted in the future once that agreement was reached. I think that’s appropriate.

What still confuses me, though, is the degree of breach of that clause, because it has in one particular issue an exception to subsection (6)(c) of new section GC 21. New section GC 21(11) states it doesn’t apply to “an item of purchased property that is an item of depreciable property, if—(a) the original cost of the item for person A is less than $10,000; and (b) the total allocated amount for the item and for any identical property is less than $1 million;”. Now, “depreciable property” excludes, in the definition, buildings, effectively. The previous Government has ruled out the depreciation expense as a tax deduction. And so, effectively, if I understand this correctly—and I’d just like the Minister to clarify this—regardless of the perception of an exclusion, a carve-out for property valued at less than $1 million, that isn’t going to include any property whatsoever. I just want to make sure I have that understanding of the section accurate.

I wish to speak to a very specific part of the bill in front of us, and I do so in the context that this is a bill that explicitly breaks an election promise. Members on the other side of the House need to remember that they told New Zealanders they would not introduce a capital gains tax on residential property, and, tonight in this House, that is what you are voting—they are voting to do, not you, Mr Chair, I apologise. Although—yes. So that is what is happening here. This is an explicit breaking of a pre-election commitment, and it’s in that context that I want to ask the Minister about exactly what he’s up to with the tricky amendments in this bill around main home exclusion.

It has been an agreed principle across the Labour and National Parties that the main home that someone resides in should never be subject to a capital gains tax. The only circumstances in which it has ever been the case that someone’s home that they live in would be subject to a brightline test is where they are engaging in regular transactional activities in order to make speculative gains from selling property. But what we see in this bill tonight is a step further—now we’re seeing that that exclusion for main homes is not as it used to be; instead, if people are no longer living in their home for a period of more than 12 months, then their home is instantly eligible to be affected by the brightline test. Now, this is significant because it is not uncommon for people—for example, for work—to need to move to another city for a period of time and not to live in their main home. There are many New Zealanders.

Let us take the case study of an Aucklander who’s offered a wonderful job in the ever-growing Public Service in Wellington, a secondment. They choose that they want to keep their family home in Auckland—to which they plan to return one day—and they say, “Right, I’m going to go down to Wellington and I’m just going to rent a property in Wellington, but I’m going to rent that for the duration of two years”. The way I read the rules that are being introduced by the Minister and by Labour tonight, is that if you chose not to live in your main home for a period of more than 12 months, then you would instantly face a brightline capital gains tax on your main home if you sold it within the 10-year period.

So I invite the Minister to address that, because if that is the case then I believe that is the second breach of an electoral promise in this bill tonight, because it is making people’s family homes subject to a capital gains tax against the many promises that Labour have made in this area. And if it is not that, Minister, then I want to understand why you’re doing these tricky changes tonight. Why is it that, having had a tax bill that went through all of the stages of a select committee—all of the examination, all of the submissions—that specifically included reference to the way the main home exclusion was working. In clause 5 we had put some detailed changes through and they had been amended at committee. Why is it that you’ve chosen to overrule those and put in a new series of amendments in your Supplementary Order Paper? What is it exactly that you’re after if not more revenue from capital gains, this time going after people’s family homes? So I think that matter needs to be addressed and we need clarity about the basis on which this is happening. I accept that the part does propose a buffer, but the buffer is only for 12 months, and it is not uncommon for people to have one family home, which they live outside of for more than a 12-month period, and I don’t think that in those circumstances a reasonable person would expect that they should face a capital gains tax for later sale.

I will, in future contributions, also look at this issue of the treatment of short-stay accommodation, because there is a similar issue here. This is potentially a new class of taxation on a type of accommodation that has been fairly common in New Zealand—that is, people renting their property for the purpose of Airbnb or short-term rental—and, again, Labour did not signal, at any stage in the election campaign and it had not been signalled at any stage during the earlier debate of this bill, that people with short-stay accommodation would be facing additional capital gains taxes. So in the same way that I ask why their amendments to the main home exclusion, I invite the Minister to give us a bit more information about exactly why these amendments to the treatment of short-stay accommodation are required and included in this bill.

In respect of the short-stay accommodation, I did address that earlier—I’m not sure whether the member heard it—so I won’t go through that again. In respect of the other issue, I will seek advice from officials and get back to you. In respect of the Hon Michael Woodhouse’s point, neither I nor the officials quite understood what it was that you were driving at. So if you want to repeat that point, I’ll get you an answer.

Thank you. I’ve just been through the documentation because I did ask some very specific questions today and the supply side measures, significant time constraints, lack of empirical data, and projected revenue—there’s nothing there, it’s just a grid with noughts and crosses, and that’s no way to run a tax policy or make significant change of this magnitude.

I just want to ask a couple of specific questions then, because the advisers are here and we might get some work done this evening. The Waikato University economics professor Frank Scrimgeour is reported as saying that the extension of the brightline test could result in stranded assets. I feel very strongly about this. At the end of the day, you want a dynamic housing market, and there’s lots of reasons why people’s circumstances change—you can get older, you can lose your job, you can have a restructure of your family, and you end up in a divorce. There’s all sorts of elements there that have to be considered. So do we not want a tax policy that actually allows assets to move rather than be stranded because there’s tax incentives to hold on to them and there might be a greater benefit for somebody else being a different owner? So if we can’t get anything done because everything’s being passed under urgency, could we please look at that one aspect—providing some flexibility to the people of New Zealand to allow them to actually have some certainty around their lives?

One of the other big problems is that we talked earlier about supply and housing—I don’t think any of my questions were asked about accruals on the tax benefits of the status quo, five years versus 10 years. It’s not there, and I’d like to put that on the record. So, you know, one question that I have is: is this it? Will the Government seek to pass any further tax changes this term under emergency or without scrutiny by the Finance and Expenditure Committee? The difference between this amendment and the income tax increases was that the Government did provide a limited signal that they were going to make changes. But in this case, Grant Robertson explicitly ruled out changes to the brightline tests and is now ramming it home under urgency. So how is this accountable and transparent?

So the Minister has received advice from his advisors about the brightline test. The Prime Minister’s wrapped it up in a package surrounded by supply and demand. But if we get down to the specifics of this test, can we actually give the people of New Zealand some flexibility in terms of passing this law—either tonight or tomorrow—and actually look at not only how these assets are being treated from a tax point of view but just from a life point of view and from a flexibility point of view.

Thank you very much, Mr Chair. We’ve traversed a number of parts of the bill, and one particular part which I think we haven’t asked about, which I’d like to seek some clarification from the Minister, is around the donated trading stock. Now, I understand this is an anti-avoidance rule. It’s been put in around a business’s particular stock. I understand that during COVID there were a number of businesses who were donating goods, and I just want to understand the changes within the bill: what the mischief was that we were trying to solve throughout it, and what was the policy underlying the Minister’s thinking around the donations of trading stock.

Thank you for that question from Barbara Edmonds. COVID exposed something that probably should have been fixed anyway—an example would be that when COVID hit, various businesses gave materials to food banks or may have given away materials for the manufacture of hand wash, for example, which was in short supply. Under the existing rules that gift was a deemed sale, which created a tax liability on the part of the donor. We as a Government thought that that was wrong in these circumstances and so we are changing the law so that that, in effect, is not a deemed sale and therefore it doesn’t create an income tax liability based on the additional income that currently is deemed to be earned on those gifts.

Thank you, Mr Chair. I just want to turn to a conversation before dinner. I asked the Minister for advice or information he had to hand which supported his proposition that the reason for urgency was that, if the Government didn’t bring this in, basically, starting effective from close of business on Friday night, there would be a whole stack of people who would go out and buy properties and try to take advantage of the market. My proposition was that, actually, because of the tax changes, they would make it less likely that people would go and buy properties; in fact, they would more likely want to sell their properties, given they will no longer have interest deductibility and, in fact, they will have to continue to hold the property for 10 years otherwise they will be paying a capital gains tax (CGT). So I’m just hoping the Minister will answer that question, because I think that cuts to the core of why there needed to be an urgent debate and why this is being rammed through like a steam tractor to put this in place very quickly.

The other thing is that we’d just started to have a nice little conversation, before the break, about the difference between whether this is a tax on capital gain or whether this is just a tax on income. So, Minister, I’d really like to have a conversation with you, because I think we should go back. When the Key Government brought in the issue around a brightline test, the underlying philosophy of what John Key and Bill English, particularly, were trying to deal with was the issue of the lack of certainty around what is the intent clause of the Act. Do you intend to sell the property or do you intend to hold it for your own personal use, and what the intent for the short two-year period was, to make it absolutely crystal clear for our good friends at the Inland Revenue Department to be able to enforce the intent clause, which, basically, said, if you hold a property for less than two years, that is deemed to be someone with the intent of buying and selling a house in a short period of time—i.e., flipping houses, which we’ve always talked about previously in this House.

Your decision to move to increasing the brightline to five years—and, of course, today at 9 o’clock, announcing you’ll extend it to 10 years—I think I inferred from your comments earlier that you still saw that as a tax on income. Can I put it to the Minister that the difference between tax treatments is quite important, and presumably, for the Minister of Revenue, it’s very important. So, if I am in the business of buying and selling property, that is an income gain, and I pay tax on it. And so, if I am a property developer, I will pay the gain on that as income. There’s a difference if I am buying and selling a capital item which I do periodically, and so the corollary is that I’m buying and selling a piece of plant, which is a capital item; it’s not my normal tradable stock. So I would suggest to the Minister that, certainly with the five years but very definitely with the move to a 10-year tax, the Government has put in place a regime which means that, if you buy and sell a capital asset—namely, a home—within 10 years, you will pay a gain on that profit from the sale of that capital asset. That is quite a big point of differentiation. I know it’s a bit pointy headed, but I’ve heard the Minister talk about this before, and I’m very interested to see what his reaction is to that.

In respect of that last issue that Andrew Bayly raised: when the brightline test was first introduced by the prior National Government at two years, the then Government was very clear that from their perspective it was tax on the income that is earned if someone sells within that period at a profit, and we apply the same logic to the longer period.

💬 Andrew Bayly: It was a clarification of deemed intent.

Well, you say that was a clarification of deemed intent. They were not the only words that were used at the time. We apply the same language to this. We know that the Opposition disagrees with it, but that’s our logic.

In respect of Nicola Willis’s question, I’m advised that if a person were to have a house in Auckland, they’re away for two years and they rented it out for that period, then there is a change of use and there will be an apportionment in respect of the increase in value depending on the length of period that someone’s away.

💬 Nicola Willis: CGT on the family home!

No, it’s not. No.

💬 Nicola Willis: Yes, it is.

No, it’s not. And if it’s not rented out, then it depends on the facts. If a person regularly visits their Auckland home, then it’s likely to remain the person’s main home and won’t be taxed.

So can I just continue that conversation? What I heard from the Minister was that because someone spoke during the time that the initial brightline test of two years was put in place, you have taken those words and said, “For the first time ever we agree with National and we’re going to now use that as a definition.”, and it’s an excuse to carry on taking it from a two-year period to a 10-year period.

My first point I would say to you, very clearly—and I’m sure your IRD advisers over there who are helping you would be clear that there was a lack of clarity around the intent. What we did was made it very, very simple for people and for the IRD, which acts for all of us, to be clear that if someone was buying and selling within 24 months, they would have to pay a gain on that capital asset, right? So that’s quite different from what we’re talking about, because once you take it out to a 10-year perspective, if you’re not a trader in those assets, then that is a tax on an irregular periodic sale of a specific asset, and it is a capital item.

So apart from relying on the National Party’s words—and I don’t know quite what you were quoting, but I’m just trying to deal with it as a tax issue, and you are the Minister of Revenue—can you tell me why I’m wrong to characterise the sale of a periodic asset, namely a house, that you have to hold for a minimum period of 10 years, and if you don’t you will be paying a gain on the sale of that capital asset?

I’ve already addressed that point.

I think this question of “deemed intent” is very important, because how Minister Parker portrayed the changes the previous National Government has made needs to be looked at in its broader context. Like Mr Bayly, I’m not sure what the Minister was referring to when he was talking about the National Party saying other things. What really mattered was the policy changes that we made. Now, in order for something to be subject to income tax under the Act, there needs to be a consideration of the deemed intent on purchase. The timing of the intent on purchase and what goes on in the mind of the purchaser is at the heart of something that could be liable for income tax. What we found—which is, frankly, true—is that when an investor turns a property around, purchasing it then selling it within two years, it’s a much harder thing to determine whether their intent on purchase was to gain income from rental, for example. And the purpose of the introduction of the brightline test at two years was simply to say, “If you do it within two years, we consider your deemed intent to have been sale for a capital profit, and therefore that’s on the income account. That is taxable.”

Now what we have is every other class of asset where the rule still applies—deemed intent. If I purchase shares intending to get a profit from dividends, I could hold those shares for 10 years. They could appreciate significantly in value on the stock market, but the increase in that value is not taxable. I could buy my plumbing firm with the intention of selling plumbing services to the good people of Dunedin, and if I’m that good at it, and the value of the capital asset appreciates to the point where there is a capital gain, because my intent is to earn income, that capital gain is not subject to a tax. What we’re now being asked to accept is that there is somehow a co-relation between what the National Party did over two years and extrapolating that out over 10 years—and Treasury wanted it 20—to say that regardless of the stated deemed intent that the taxpayer has on purchase, he or she has to hold that asset for more than 10 years to prove to IRD that their deemed intent was not sale for capital gain.

I would like to ask the Minister to check with officials if my assessment of the current tax law is correct, because this is a significant departure in principle from what we are doing. Now, we shouldn’t be surprised by that. We’ve heard a lot in terms of departures from principles, and the non-deductibility of interest expenditure, which the Government signalled today and which they’re going to do a lot of work on, is an egregious breach of those principles where taxable income should be gross income less legitimate expenses. An interest expense is legitimate, according to the Government, in every other circumstance but the gaining of income by the offering of residential property rentals.

So I would firstly point out that it is a very long bow to draw to say that the National Party’s default deemed intent at two years is the same policy decision that this Government is making over 10 years. It is impossible to conceive that the mum and dad investors that Megan Woods slammed on the radio this evening—90 percent of the residential property market is of people who own one or two properties; 90 percent. So we’re not talking about fat cat property investors here. We’re talking about the mums and dads whose intent was to provide an income stream—quite legitimately—over a long period of time. And the Government is saying, “That’s not true.” They’re calling taxpayers fibbers, basically, by saying, “We would have liked to have gone out to 20 years, but, actually, that looks too much like a capital gains tax.”

💬 Andrew Bayly: No, they’re calling them speculators.

Speculators—exactly. Never mind that a nest egg and repaying the mortgage on that is a very good savings scheme—very stable, probably as stable, if not more so, than business investments and the stock market. But now they’re being called speculators. I just want to make sure I understand whether or not I have got my understanding of the Income Tax Act correct, because deemed intent seems to be the case for every other thing but this.

Neither the original brightline test legislation nor this actually use the phrase “deemed intent”. So the members of the Opposition are articulating as they see it. I’ve explained it as we see it. We obviously disagree.

My only request, Minister, as you’ve got a great array of officials here to help you, is that we would very much like to get advice as to whether in fact I am wrong. If I am wrong, I’d like to know so in future—and I know, of course, that the Minister of Revenue would like to know whether he’s right or wrong, because, heaven forbid, we don’t want a Minister of Revenue who doesn’t know the difference between tax on profits and tax on capital gains.

While we’re waiting for that, and I am dying to hear the answer, can I just say to you, Minister, that during the course of the break, I’ve just been informed—in fact, I’ve had quite a few texts from different people today—about a large project worth many hundreds of millions, not a small project, to build a whole lot of new homes—a rent to buy proposition. So we’re talking about creating new homes; we’re not talking about homes that have been there for speculation or in the backyard or whatever. They want to create a new class of homes and build them, and that project, as a result of the 9 o’clock announcement this morning, I’ve just been informed by a senior partner in a very large accounting firm, has, as of this afternoon, been put on hold—

💬 Chris Bishop: Really? Why?

Because when they rang up the IRD to seek advice on whether a rent to buy property was in the rules or not, the IRD could not be categorical in its advice—and I’m not surprised, because they only heard about it today, basically. The issue is that these people are going out to the market to seek investors, and as the promoter, as an officer of that entity, they cannot be seen going out and doing this sort of stuff without reasonable cause and without confirmation, and that project worth hundreds of millions of dollars has been put on hold this afternoon. I’ve had another text from a friend who just told me he’d entered into an agreement to buy a property. It’s all now up in the air. As my good colleague talked about today, you will now see an avalanche of projects going on hold. Anyway, I’m sure you’re not particularly worried about that, or there’ll be a reason.

Can I turn to another technical issue. This is the issue around interest deductibility. Under the rules, you will not be able to deduct any interest, so there’s a phase-in period, and in the announcement he talked about the UK period, for example. What is the phase-down period for the reduction on interest deductibility over the next few years? Is it 75, 50, 25, zero in each of the four years before it gets to a close? It would be quite useful to actually understand some of those concepts behind that and why you did it over a four-year period. And, of course, as we’ve all seen and heard—and we’ve talked about it a little bit earlier today—the advice from IRD particularly around this issue was not that comforting in terms of supporting the Government’s proposition. So why did Cabinet come to a different view?

There’s nothing in this bill about that, so I don’t propose to comment about it because it would be out of order.

I wish to return to clause 5 of Supplementary Order Paper 23, which amends Part 2 as it emerged from the committee. This relates to the main home exclusion from the capital gains tax (CGT), because the context for this bill, and what we have been told about the intent of this bill, is that it aims to impose a capital gains tax on property investors. That is widely understood to be people who own more than one property, mostly, a family home and then another property. But what I now understand, from the comments that the Minister made earlier in response to my questions, is that we now have the novel and extreme situation created by this bill that someone who owns but one property—one property—and that property is their family home, if that person, for whatever reason, is unable to occupy their home for a period of 12 months or more, then they will become subject to a capital gains tax.

Now, I just want to dwell on this, Minister, because is the Minister really telling this House and the New Zealand public that he thinks the following categories of people should have a capital gains tax placed on the sale of their family home? Let us imagine a scenario where someone is gravely ill. They have cancer, or their child has cancer, and they are told that the place where they live—let’s say it’s Hokitika—is no longer a good place to be in terms of accessing the regular daily treatment they will require for their particular kind of cancer. So that individual makes a decision that, whether it’s for their good or the good of their child who has cancer, they are going to rent a property in Christchurch—or perhaps they’re put up in the Ronald McDonald House—for a period of a year so that they can access regular medical treatment. What this Minister, I take it from what you’ve said in your answers to earlier questions, would do to that family—if they chose to keep their family home and rent it out; rent it out for the very good purpose that they’re trying to get a little bit of income to pay for the rental in Christchurch while they’re going through their medical appointments—is say, “Well, it’s no longer your main family home. I’m going to put a CGT on you. I’m going to take tax from you because when you sold your house it was no longer meeting my tax definition of being the family home, because you had the temerity to rent it out.” Now, I find that shocking, Minister, that you would breach what has been a clear commitment to New Zealanders, a very clear promise that Labour would not impose a CGT on the family home.

So I’ve given you the example of someone who has to access medical treatment. Let me give you some other examples of circumstances in which people who only have one property—let’s remember here, in this circumstance this is someone who owns one family home but for some reason is having to live somewhere else for a period of time, could only be for 13 months; might only be for a year and a half—and they, during that period, choose to either rent another place, or perhaps stay with friends, but in any circumstance, that would then mean they become subject to your capital gains tax.

So the other scenarios could be someone who needs to move for work for a period. Someone who, for a period of time, needs to move and perhaps work in Palmerston North for a while because that’s where their business operations are focused while they’re doing a particular project. Or would this, perhaps, be imposed on someone who, for work reasons, is asked to do a specialty secondment?

Let’s think of the example of these wonderful people we have working in our managed isolation and quarantine facilities at the moment. We have army officers, we have medical practitioners, who have moved their lives to run our quarantine systems, and in some cases they may want to keep their family home and rent it out for a while, while they’re gone—rent it out for a little while to keep paying the bills, to keep paying the rates, while they live somewhere else for a short period of time, and what I understand this Minister wants to do is slap them with a capital gains tax.

I cannot understand how this Government is keeping its commitment to make sure the family home doesn’t face a capital gains tax if these provisions are allowed to proceed. What I want to understand from the Minister is why these provisions have been introduced into this bill tonight, and what it is that has caused the family home to now be subject to a capital gains tax, and why that Minister hasn’t given consideration to the life events of people in the realistic circumstances in which some people can’t live in their family home for a period of time. The Minister must explain.

This bill does not introduce a capital gains tax. It is an extension to the brightline test.

I move, That the question be now put.

Thank you, Mr Chair. I just want to go back to the comments that the Minister made about my nomenclature of deemed intent. He may be correct that those specific words are not mentioned, but the general provisions as set out in sections DA 1 and DA 2 of the Income Tax Act make it very clear that deductions are only allowed if they are incurred in the generation of income—and, conversely, the income is only taxable in certain circumstances. So I just want to go back. Regardless of the nomenclature that we use, is my description of intent on purchase of a business or an asset relevant to the question of assessable income on the disposal of the asset? Because I think that’s fundamental. At least if we can clear up the rules of engagement and the degree to which we are deviating from both those principles and rules as set out in the Income Tax Act, it would be much easier to have the conversation about what we’re actually doing.

Thank you, Mr Chair. I’m just hoping the Minister is going to actually answer our questions comprehensively rather than just give us the general flick. I suppose, just on that issue, you know, there’s a lot of worried people listening to this debate—I can tell because of the texts coming through.

I suppose this is a more practical point: all of this comes into force by Friday night. Now, I’m sure many of us down here in Parliament think we’re super important, but I’m not sure everyone thinks we’re super important, and for the many hundreds of thousands of mums and dads that own a property, who are now going to be affected by these provisions, what are the steps that the Government is taking to make sure that they know, basically, what’s going to happen within the next 24 working hours? That’s a pretty short time, 24 working hours, three days. I think it’s incumbent on the Government to make sure that people are aware. I know they’ll be hoping that everyone watches news media and the news, etc. on TV, but not everyone does, of course.

As the Minister said before, unless you make an election—if you are in a position where you’ve made a bid on a house or you’re in a process of doing a tender and you don’t know what the outcome is, you do need to make an election that you’re going to withdraw your offer. And I think that is quite a significant thing. I think, probably more importantly—people who are committed to the offer and find themselves in a situation they really don’t want to be in. So I’d just be keen to hear what the mechanisms are in place to advise—not just advisers, because not every accountant’s going to ring their 2,000 client base of their small partnership firm or whatever. How are people expected to know that in three working days, or 24 hours, they’re going to have to make an election, make it happen, put it through, get all the documentation done, all that sort of stuff. And, you know, it gives rise to the whole question about why do this in such a rushed, urgent fashion. As we all know, this is cutting across the personal rights of New Zealanders who have bought and done things that they think of as perfectly legal, and which have been until today, and are now required to make substantial changes in the way that they are operating.

Anyway, so, hopefully, the Minister will respond to that. We still haven’t had adequate response on the capital versus income test. But I’m going to just turn briefly to the purchase price allocation because it’s sort of related and sort of follows on. Here’s another example of this bill which says that, if you’re selling a property, you have to agree with the purchaser what the tax treatment is going to be. So up to now, if you are selling a property, you could go and say, “Well, I’m working out what will suit my accounts, because that’s the way I’ve accounted for that property over the period of time I’ve held it.” And from the purchaser perspective, there’s been an option—and that’s all worked pretty well.

This measure is designed to raise about $44 million, on a current estimate, and what it does now is require for any transaction involving a business to sit down and do the complicated analysis and reach agreement on any transaction worth a million dollars or more. Now, as many of us now realise, you know, house prices in Auckland are worth $1.1 million median average, so a million dollars for a business is actually an incredibly low threshold. There’s a higher threshold for residential property, but this strikes at the core of business transactions. And the requirement to agree the tax treatment and to agree it between the purchaser and the vendor is quite a lengthy one.

The vendor has a right to nominate, and then if it doesn’t do that and maybe—you know, not everyone has tax accountants on their payroll, and they may have to go and hire a tax accountant, and they may want to not do the work because, you know, time involved for a one-off transaction. Then, if they don’t nominate a process, then, of course, the purchaser has got to nominate a person and an approach. And if neither of the parties can come to a conclusion, then the commissioner has got to come to a final, binding decision. It is a real mess for a low threshold of a million dollars. I think it’s really—and I’ve advocated for this in the Finance and Expenditure Committee, a million-dollar threshold for business transactions, is just minute. It’s another case of a huge amount of regulation being imposed on our New Zealand businesses at a time which is a very difficult economic situation. And I’ll just ask the Minister: why on earth did he go for a million-dollar threshold? It is ridiculously low.

One of the problems we have in considering such a large Supplementary Order Paper with such a short amount of time, and when we’re amending the Income Tax Act, which is a dizzyingly complex piece of legislation, is that it gets pretty hard to find the nugget that’s buried deeply in the legislation. I was struggling, but I found the relevant sections that I think reinforce the point. They are sections CB 3 and CB 4 of the Income Tax Act.

Effectively, what section CB 3 says is you have to intend to make money. It can’t be a hobby. It can’t be voluntary acts where small amounts of money might be granted for it. Section CB 4, basically, talks about purpose and what I call intent. So the property has to be acquired for the purposes of disposing of it, and that’s the distinction that is made between income account and capital account. If one disposes their shares for a profit but that was not their intention, if they didn’t purchase them with that in mind, then any profit on disposal is not taxable. I come back: what I described as deemed intent is that the two-year brightline, effectively, said that if you dispose of that property within two years, it’s considered to be personal property acquired for the purpose of disposing of it.

Now, a 10-year brightline—it cannot be said that people that are purchasing rental properties, the mum and dad investors that comprise 90 percent of them, should be considered to be doing that with a purpose of disposing of the property. It just can’t apply. So we’re breaking one of the fundamental principles of the Income Tax Act, as set out in section CB 4.

Just as a point of clarification, I just wanted to look it up, and it does seem that CB 4 deals with the disposal of personal property, and CB 5 is to do with the business of disposing of—dealing in—personal property. So I’m not sure that it’s relevant to this bill at the moment and, particularly, to the clauses we’re discussing.

Thank you. Just to recap from 9 o’clock this morning, when the announcements were made, 2 o’clock at question time, and now tonight, near 9 o’clock, which is a matter of hours, where this capital gains tax by stealth is being brought in, I still haven’t got answers to my questions. As the advisers are here, I’d just like to recap again what I think’s important and then get an answer, because it’s not in here [Holds up bill], it never will be in here, and the law will be passed before it actually happens.

I have some sympathy for the Minister, because he’s taken the heat for what is an overall strategy by the Minister of Finance and the Prime Minister to wrap several concepts together in one bundle which has implications for our tax system, which nobody’s actually proven yet. So I’ll start with number one.

Treasury’s been reported commenting that they’ve not formed a view on whether a 10-year brightline test is preferable to the status quo and, according to Stuff, rated worse than the status quo in advice. So the question is: what factors were given to the Minister and why was this chosen option potentially similar to or potentially worse than the status quo? I think I asked that question earlier, but I didn’t get the answer.

The second question is: the Prime Minister made the point that the package attempts to balance supply and demand measures. The Minister did partially address this. But what I want to know is what impacts, if any, due to the extension of the brightline test, would not be a result of simply increasing supply, like the Government claims happens as part of the housing policy announced today?

My third question is that house prices have risen rapidly since the extension of the brightline test and have risen more rapidly following the extension of the test to five years. Now it’s going to 10 years. I asked that question earlier. What impacts did the previous changes have on housing demand and why will this now be different? What specific differences accrue at 10 years that do not happen at five years? The Real Estate Institute of New Zealand has come out tonight categorically saying that landlords will hold and this will cause another $100 to $175 on top of the $120 that has already been added to rental prices.

💬 Hon Members: How much?

Between $100 and $175.

So one of the big problems in the housing sector that we haven’t addressed is just that there’s simply not enough housing. The risk we have at the moment is we’re meddling on the demand side and then we’re seeing higher prices on the sale of properties and people are going to have to pass that on to people renting. So the final question I’ve got, apart from the fact that I’d like to see no more taxes from this Government as promised, and to get a commitment to that, is: has the Minister received or requested any advice relating to the impact that the brightline test may have on rental prices? And the second part of that question is: has the Minister received or requested any advice relating to the impact the brightline test may have on house prices, and therefore we can put the economic and tax package in the context that New Zealanders can understand? So I’d like to seek those answers to those questions, please.

I believe I have addressed most of those questions already, but I will re-address them. In respect of the period, as the member will have heard in the debate and probably seen in the papers, Treasury recommended consideration of an extension to the brightline test of up to 20 years. We thought that was going too far. We did think that something has to be done on the supply side. I am struck by the fact that the Opposition seem to think the only thing that ever works is supply side measures and that demand side measures never have a part to play. We disagree, on the Government side. We think we have to do both.

In respect of what will be the effect of the difference between five and 10 years, well, we can’t be absolutely certain as to what will be the proportion of properties that will now be affected, because we’re not sure what change of behaviour we’ll see. But as the regulatory impact statement shows in table 1, the holding period for properties held two years or less is 18 percent; five years or less, 42 percent; 10 years or less, 64 percent; 15 years or less, 83 percent; 20 years or less, 91 percent. So that gives members some idea as to the extra properties that will be affected by this, assuming there is no change of behaviour. There could be a change of behaviour; some people may choose to keep some of their property longer.

In respect of rents, the reason why the Treasury and the IRD, or we in Government, aren’t able to give an accurate prediction of that is because it is the combination of demand side and supply side measures operating together. It may well be that over time that combination of measures means that we see a move back towards a higher proportion of the homes that are sold in New Zealand being sold to the people who live in them rather than being purchased by investors.

This must be the first time I’ve seen a tax law passed with no economic analysis or fiscal oversight. The question that hasn’t been answered is: what’s the difference between the status quo and 10 years, and my point about stranded assets—

💬 Kieran McAnulty: Five years.

—hasn’t been asked as a question. Let me finish, please, yeah? As long as you guys know you’ve put up rents and you haven’t solved the housing affordability problem by this measure. The final question I have is: are there going to be any more taxes or capital gains taxes that we need to consider in the tax foundation of this country, or is it just going to be made up and rushed through in urgency as we go along?

I move, That the question be now put.

I’ve got to say I’m very disappointed at the Government members on that side of the House. The only person who’s stood up and made a contribution is Dr Deborah Russell. She’s done it twice. All the other times, we’ve had the chief whip, who’s johnny-come-lately, come to this debate trying to move motions to close it down. He can only do it once, I note.

CHAIRPERSON (Adrian Rurawhe): This is a time to speak to Part 2 of the bill. Don’t give us a running commentary. It’s not relevant, as far as I’m concerned.

Mr Chair, I want to say to you very clearly: this bill is a very comprehensive bill, and we’ve got about seven more aspects of this bill yet to cover, and we will be intending to speak to them as we work our way through them. So I just want to be on the record that we do not want this debate—because there is a heck of a lot more to go on.

CHAIRPERSON (Adrian Rurawhe): I’m fully aware of what’s in there. Just come to the bill.

I want to continue my question last time to the Minister, which we haven’t yet had a response to. I talked about the purchase price allocation method—how there had to be an agreement around that, and they had to be aligned, and it was for a small threshold. One of the things that we actually did cover in the Finance and Expenditure Committee was, in the event of a vendor making a unilateral allocation, there couldn’t be an allocation that was below the vendor’s tax book value. I was trying to allude to it, but it’s all a bit pointy headed, but this is where you have different treatments between a vendor and a purchaser. A vendor might have a certain tax treatment that they’ve applied to that asset. The purchaser may have a different and very legitimate approach to the way they wish to account for that asset. However, this bill changes that and forces them to come to a conclusion.

One of the things that, as a committee, we talked about is that we were worried about distressed sales. Hey, we’re in the middle of COVID. The Government has borrowed $40 billion and, actually, there’s a few businesses in distressed sale. And maybe if Mr Nash did something, we’d actually talk about tourism businesses, who are definitely in distressed point of sale. They are in the process, and we know it because our good member from that area has told us. Down the West Coast particularly, a number of them will be closing, and this is why this part of the bill that the select committee looked into requested that there should be some forgiveness around those in a distressed sale situation—like a tourism operator, as I’ve said. There are many transactions where the actual market value of the taxable property being sold is less than its tax value.

Interestingly, I’ll give you another example: I was talking to a person I’ve known for many years. They bought printing equipment for $850,000. With the decline in the printing industry, they ended up selling it to Vietnam for $26,000, because, effectively, the market was in distress and there was no market buyer in New Zealand and they have flogged it offshore for literally $26,000—I got told that this morning in the airport. So here is a practical example of people in certain industries right now that are really suffering as a result of COVID, and, in many cases, they will be seeking to make the sale. I know that the Minister also has the hat of reviewing all overseas investment applications, and he puts through the emergency 90-day applications. So he is in the position of looking at transactions and approving every transaction during the 90-day period. He actually has to approve every international transaction.

Here is something that the committee has requested: basically, we recommend amending this rule. Under our amendment, any excess of the aggregated tax book value above the purchase price would be applied, first, to reduce the amount allocated to the non-taxable property and, second, once the amount is zero, to reduce the amount allocated to each class of taxable property, pro rata. So I’m just asking about that. That was some specific recommendation that came out of the committee. It would be nice to hear what the Minister says. So if he could answer both those aspects that we covered before.

In respect of the second issue, the member has put it exactly correctly, and that position, as he recommends, is as the bill sets out, and that is being carried forward. In respect of the earlier issue and the criticism of the thresholds, the member will be aware that this is an integrity of the tax base - issue, where, at the moment, different sides of the same transaction adopt a different value for, or a different allocation of, the sale or purchase price across different subsets of assets. The net effect of it is that the vendor does it to maximise their tax position; the purchaser does it to maximise their tax position, and never the twain do meet. And who suffers the loss? Actually, the revenue, because there’s this inconsistency of apportionment. So these thresholds have to be determined in a way that balances compliance costs—

💬 Andrew Bayly: Why the change?

Well, the member knows the reason for the change, because he’s already mentioned the amount of additional revenue that accrues to the Crown if this change is made. Getting the threshold amounts right is a balance between compliance cost and revenue integrity, and that’s why the Government settled for $1 million on most asset sales but excepted the position that had been recommended by the select committee, or by submitters to the select committee, that because, in the case of residential property, there are not the same integrity risks, you can have a higher limit of $7.5 million. That’s the reason for those different amounts. Without doing this, there is an integrity risk with the vendor doing something for their benefit that doesn’t accord with what the purchaser does. We think that the parties should be required through the mechanisms in this bill to agree and, if there is not agreement, there’s a mechanism to resolve that dispute.

I move, That the question be now put.

I wish to return to this issue of the family home, and I would encourage the Minister to address the questions I’m going to put in this contribution and not dismiss them, as he did previously, by saying “There is no capital gains tax (CGT). It’s just a brightline test.” He can play with the semantics all he likes. I have just put on Twitter that the brightline test will now apply to some family homes, if anyone doesn’t live in that family home for a period of 12 months or more, and the questions are flooding in. I would encourage the Minister to address these questions now for the sake of clarity, or else face the wrath of owners of family homes across the country, who are very concerned about the new taxes that his Government appears to be ready to place on their home if, for any reason, whether misfortune or work—that they’re military or that they’re a diplomat—they have to, for some reason, live outside of their home for a period of 12 months or more and choose to rent that home out during that period.

So here, Minister, are the specific questions I’m being asked that I would like to be able to answer and that I think you should, at the very least, ask your officials about and should clarify for this committee. The first is: if I am a first-home buyer, as of Sunday this week, and I buy my first home, if during the next 10 years, from Sunday, while I own that home, I for any reason—maybe I’m an army officer; maybe I’m a diplomat. Maybe I’m a teacher who wants to do a rural relocation for a period of time—during any time during that 10 years, choose to rent out my family home for a period of 12 months or more, is it the case that the brightline test will be applied to that home so that if I sell that home within the 10-year period, having lived outside of it for 12 months, I will pay a full tax on any profit I make on the sale of my home? That appears to be what the Minister said earlier, and if that is the case, then I think first-home buyers up and down the country need to know that not only do they need to be sure they can pay their mortgage for the next 10 years, they need to know that if they choose to rent out their home for a period of 12 months or more, for any reason, they will now face a capital gains tax on that home due to the sneaky provision that the Minister has snuck into this bill. Now, you can call it what you want, Minister. You can call it the brightline test. You can call it a CGT. I don’t really care what you call it; I want an answer to that question.

The second question, Minister, is around those who already own a home and may, for some reason, during the next period of time, have to live outside that home for a period of 12 months or more and who choose to rent it out. Will they be subject now to the five-year brightline test? That is, are they now captured by the previous five-year brightline, which meant that—we used to have an exclusion for family homes, but as I understand it, these provisions now mean that if anyone in the next couple of years lives outside of their home for more than 12 months and rents that home out, they will then find themselves captured by the brightline test, which is currently a five-year test.

Let’s say this circumstance occurs. A family member gets really sick. The family relocate to get medical treatment for their child. They then return. They maybe live in their family home for a few more months and then realise that, actually, they need to sell the family home, because they can’t afford the mortgage any more. What I understand this bill will do is it will slap them with the brightline test. It will say, “Well, you’ve owned the house for less than five years, and you’ve had the temerity to rent it out for 12 months, so just to make your misery more, we’re going to slap you with the brightline test.” That’s what I understand. So those are the two circumstances, Minister. Rule it out now or that’s what I’m going to go on Twitter and make sure that people know is happening.

I’ll speak politely. For a start, the member misstated what I had said earlier. I said that in respect of the properties that are purchased going forward, subject to the 10-year brightline test, if there was a period of more than a year that it was rented out—for example, if it was rented out for four years of the 10 years, then it’s changed to be an investment property in respect of those four years, and there would be an apportionment. Of course, if it’s held for 10 years, there would be nothing.

Thank you, Mr Chair. I want to speak specifically to the Minister of Revenue’s Supplementary Order Paper (SOP) 23. Now, when you look at the back to the explanatory note, the Minister has covered the extension of the brightline test. He’s looked at the main home exclusion. He’s looked at the business premises exclusion. He’s discussed the proportionality for those different situations. He’s also looked at the application date for it. The Minister has also spoken to loosening the lost continuity rules due to a call from the member Dr Deborah Russell. Then, if I go through the explanatory note again, we then looked at the donated trading stock. This is the call that asked the Minister the questions around what was the policy mischief of these particular clauses in this part. Then we’ve touched on Mycoplasma bovis as part of the second reading and also part of the feasibility expenditure, some of the particular rules—we’ve covered that in length.

The one particular area of the SOP which probably has not yet been touched is actually the Mycoplasma bovis, just clause 33 and new clauses 20E and 20G. So I’d just like to ask the Minister, given that the unclaimed money, which is also in the SOP, will be covered under Part 3 of this debate, I want to go back to just the small area that has not been touched, and that’s the Mycoplasma bovis. If the Minister can just—given the timing—explain the policy intent to that. If I read the explanatory note, it says, “Clause 33 of the bill introduces an option by which owners of livestock culled for having Mycoplasma bovis may spread their income over a 6-year period. The [SOP] proposes amendments giving affected farmers who have already made deposits in the Main Income Equalisation Scheme or [already made deposits] in the Adverse Event Income Equalisation Scheme an option of switching to the 6-year income spreading option, [and] with the tax effects of the deposits then being reversed.”

So the new clauses, Minister: “New clause 20E and G ensure that the income spread is taken into account when determining the maximum annual deposit for the MIES and the AEIES”—my apologies for having to directly quote from this. Now, I understand the member for Tukituki, in her second reading speech, referred to this as a really positive change, and it was one that was brought to the Minister from Federated Farmers. Can the Minister just clarify those amendments that are currently in the SOP, which are the last part of the SOP to be covered—I’m just checking, Minister: are these remedial changes or are these more significant changes to what was introduced earlier in the bill?

My understanding of these provisions, as the member has already mentioned—it arises out of the M. bovis eradication campaign, which at times requires livestock to be destroyed, which then, because the farmer is compensated for the destroyed livestock, creates income for the farmer based on the compensation that the farmer receives. There are various ways in which already, under the tax Act, farmers can spread income across more than one year so as to avoid a peak that might put them into a higher tax bracket. The effect of this is to enable—in respect of a lumpy piece of income caused by compensation for M. bovis—the farmer to re-elect, if their prior election has become less favourable to them as a consequence of that lumpy revenue. So the re-election then allows them to cure that so that they get a more beneficial tax outcome.

Thank you, Mr Chair. We are having a great time tonight, aren’t we? I’d just like to say to the Chair that there’s plenty more to be discussed in Part 2, I haven’t even talked about feasibility expenditure, which is an area that I was particularly interested in.

CHAIRPERSON (Adrian Rurawhe): Well get on with it.

But, what I like to do—I’d just say, we like to do things in a logical order because otherwise you just get random on this.

I want to continue the theme that my good colleague Nicola Willis was pursuing. So one thing I’ve got to congratulate the Minister on is that he’s got every tax accountant in the country up tonight, because it’s interesting how many have sent through comments and questions because they can’t understand this bill and/or are trying to get to grips with it very quickly.

But one area I want to turn to, which is—I think aligned to what Nicola Willis was talking about—this issue about the definition of clause 58 around what is a residential home. And my good colleague has highlighted a very practical issue. I’ve had personal experience of a constituent exactly in the situation that Nicola Willis was talking about where, took on a new job, moved, and actually got caught and was very worried about the situation around the brightline test. And, of course, it doesn’t appear that there’s any ability or exclusion. So we know there’s already three exclusions. One is dealing with your own home, if your matrimonial home, or you inherited. This is a case of hard—someone missing out as a result of changing circumstances. This is more than just bad luck, actually, and I think it will happen to a lot of people over the forthcoming years, particularly when you stretch out the brightline for 10 years, not five even; it was probably OK under two, just. But putting that length of exclusion on it means that there’s going to be a lot more people caught by this issue. And I’m just wondering why the Minister didn’t actually think about adding a fourth, which is, really, a hardship clause, around reflecting some of these situations that are reality and will occur, no doubt about it.

So the question I’ve just had from a tax accountant, we were just talking about the definition of a residential house—what’s a “resident” mean—and that’s been redefined in clause 58 and we’ve talked about the implications of the business. But the case in point was if someone is in the situation where they are renting out their house occasionally, like doing b. & b. on an electronic platform, so it seems clear that the legislative change will mean that if you’re using that property, a second property, for—so this is not your home but your second property, such as a bach—occasionally use it to lend it to people who might want to use it, that’s fine, if you are using it regularly on Airbnb, then the interpretation of the tax law is that it would be caught under this new definition. And so the question I’d like to put to you, and, hopefully, your officials can help you, is: are you caught if you have a bach and you’re using an electronic platform, like Airbnb or whatever, Bookabach, are you caught under these rules? And the second thing I want to ask is: how many days are you allowed to do it before you get caught? So, I imagine if you do it a week a year, out of 52 weeks, it’s probably OK. If you do it for a month is that OK? If you’re doing it for more than two months are you caught? Because, gee, that’s quite significant.

And then what does that mean when you sell the property? Are you apportioned for that one or two months out of that first year? Or are you captured if you do it in one year, are you captured thereafter, even though in the years two, three, four, five, six, seven, eight, nine, and 10 you don’t do it? So a couple of questions there. And, hopefully, our officials can help you, Minister.

In respect of the last issue, I think that’s the same issue that your colleague already raised, which would be an apportionment situation.

In respect of the other issue that you say you questioned me about in respect of a bach, well that’s not a primary residence anyway, so there’s no change there because it’s already covered.

Before I call Andrew Bayly, if you’ve got any new arguments now would be a good time for them.

Well, I’m just responding to that, actually. So just to be absolutely clear, you’re saying—because you didn’t answer one of my questions, actually—if you do allow your bach to be rented using an electronic platform, there is an apportionment. But presumably there is a threshold at which—because if you’re doing it for eight months a year, are you then deemed to be, because it’s not your main home, caught under these provisions? And my other bit, the nuance also was, if you do it in one of the 10 years, does that mean that you’re forever captured or are you captured because you’ve consistently done it over the 10-year brightline?

The bach is not ever a primary residence, and, therefore, it has always—under two, five, or 10 years—been covered by the brightline test.

Mr Chair, under Part 2, you asked for useful argument, if you like, and Part 2 is very extensive—it has quite a lot in it. And I’m just interested for the Minister to perhaps better explain than the bill itself does, under clause 8 New heading and section CC 14 inserted, which deals with International Financial Reporting Standards (IFRS) leases, particularly how they might be affected by the brightline test that comes into play, and, also, potentially, whether or not—in fact, I think it’d be better for me to stop speculating on what it means and give the Minister an opportunity to tell us.

IFRS leases would be affected by the brightline test.

Well, throughout this it talks about the property that might be subject to the lease. So for what reason, then, would that property become exempt from any brightline test?

I just want to clarify how the apportionment that Minister Parker referred to in his earlier reply would work in practice. In the case of a family who rent their family home out for 12 months while they rent another property, how will you work out how much of the property’s gain in value during the period of ownership would be attributable to that 12 months, and therefore the rate of taxation that would apply? That is, if you buy a house, you sell it after nine years, you’ve rented it out for 12 months, how do you work out which part of the gain in value occurred during the 12 months you were renting, and therefore on what basis is the additional tax apportioned? That’s a specific, practical question that I wish to understand.

The second thing I just want to clarify is that, of course, what this Supplementary Order Paper 23 does is it makes the extension to the brightline test to 10 years, but there is a quite separate amendment that makes these changes to the main home exclusion, and that amendment is specifically removing the main home exclusion in these circumstances which we’ve discussed, which is when a main home is rented out for a period of 12 months or more. It seems to be that this would apply to properties that have already been purchased and that would, if they were not the family home, be subject to the five-year brightline test. So I wish to clarify that this new change to clause 5 is not just about homes being subject to the 10-year brightline test but could also capture homes that are already subject to the five-year brightline test.

So there’s two separate questions there. The first is around apportionment, and the second is to clarify that this may apply to homes that have already been purchased and that are subject to existing law around the five-year brightline test. If the Minister could address those, that would be useful.

In respect of this last question raised by Nicola Willis, it only applies to properties purchased going forward subject to the 10-year rule, so it doesn’t have any application to the five-year test. In respect of the apportionment, it’s a fraction of the rented period over a year as a proportion of the total period that the property has been held, assuming it’s less than 10 years.

I would just like, on that last answer, a point of clarification. If a person’s family home is owned for, say, nine years, and for some reason they rented it out for the second year of ownership, is the brightline test apportionment—i.e. the tax calculated, based on the sale price at year nine, or more fairly at the market value at the end of year two?

In respect of the apportionment point, I think I’ve already made that on a number of occasions. In respect of the lease point, officials have indeed confirmed, since I made mention of it earlier, that those leases are only leases of personal property, not real property, so it has no bearing at all on the brightline test.

💬 Damien Smith: Point of order. I’d just like to be really specific because this apportionment box has been opened, and I’d like to get the answer.

CHAIRPERSON (Adrian Rurawhe): That’s not a point of order.

💬 Damien Smith: Well, I’d like to get my question clarified and answered.

CHAIRPERSON (Adrian Rurawhe): Well, then you don’t take a point of order; you take a call.

I move, That the question be now put.

The question is that Brooke van Velden’s tabled amendments to the amendments in Supplementary Order Paper 23 relating to Part 2 be agreed to.

Amendments to the amendments not agreed to.

The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Paper 23 be agreed to.