As introduced, the bill would exempt a person’s main home from the bright-line test. Where a person has more than one home, the main home would be the one with which they have the greatest connection. A second home, such as a beach house or a flat in town, would not be exempt. The majority of us believe this approach is appropriate for the policy intention of the bright-line rule.

The alternative approach would retain the “residential exclusion” in the existing land sales provisions of the Act. This would allow any dwelling used as a person’s residence to be exempt, including a holiday home. Multiple homes placed in trusts by a person could be exempt even if they did not live in them.

We recommend using the term “bright-line date” instead of “date of disposal” to avoid potential confusion with other “disposals” already in the Income Tax Act. This change mainly affects clause 4(1), new section CB 6A, and clause 15, section YA 1.

We recommend amending the definition of “farmland” in clause 15(7) to make it clear that the exemption from the bright-line rule is intended to apply to land used for a farming or agricultural business, but not to a lifestyle block or hobby farm. Under our proposed definition, a small parcel of land would be exempt if it were used in combination with other land for a farming business. The definition in the bill as introduced, using the concept of an economic unit, would have ruled out such a situation.

In the bill as introduced, “residential land” would be defined as including bare land that, “because of its area and nature is capable of having a dwelling erected on it”. We accept that most bare land would appear to meet this test, making the definition vague and difficult to apply. We recommend amending clause 15(11) so that “residential land” that is bare land would be defined by reference to the relevant land zoning rules.

For consistency and clarity we also recommend changes to some other technical terms. For example, clause 4, new section CB 6A(1)(b) would refer to registering an instrument to transfer land, instead of simply registering the land.

We propose that a different start date be used to calculate the two-year period for the bright-line test in situations where a person acquires a property “off the plan” and only later receives registered title to the property. In this case, we recommend that the two-year period start on the date when the contract to purchase the property is signed. We recommend amending clause 4, inserting new section CB 6A(2C) to make this change.

Our reason for having a separate start date in such cases is that applying the standard bright-line rule could be confusing and unduly harsh for purchasers, given the length of time normally needed for development of a subdivision or construction of a multi-dwelling complex such as an apartment block.

We note that where a purchaser sold before title was issued, they would be liable for tax on any income earned from the sale, if within 2 years.

In clause 4, we recommend inserting new section CB 6A(2B) to address the position of perpetually-renewable leases, commonly known as Glasgow leases. We note that because such leases have no defined term, they are more like a freehold estate. We propose a concession to the bright-line rules so that a leaseholder who bought the freehold title to their property would be treated as having owned the property from the beginning of their lease, rather than from the date of acquiring the freehold estate.

Clause 6 provides that a trustee of a trust could generally use the main home exclusion from the bright-line rule if the property was the main home of a trust beneficiary. They could not do so in some situations, for example if the principal settlor of the trust (that is, the person who had put the most money into the trust) owned a different main home.

We recommend some amendments in clause 6 (new section CB 16A(1)(b) and (3)) and clause 15(11B) to clarify aspects of this “principal settlor” rule.

We considered whether exceptions from the bright-line test should be allowed in cases of hardship or other circumstances where a property owner was forced to sell within 2 years for reasons outside their control. However, we do not consider that such exceptions would fit with the policy intent of the bill. They would entail subjective assessments and would add complexity to a rule that is meant to be objective, clear, and easy to enforce. Nevertheless, we have asked the Inland Revenue Department to monitor the effect of the legislation. We note that hardship provisions in existing tax administration law could be called on in some situations.

The Labour Party believes that this bill has been exposed in the select committee process as a purely political response to the National Party’s failure to control speculation in the housing market. It is a token gesture when meaningful action is required. The fact that officials have said that implementation of the bright-line test will only raise an additional $5 million per annum emphasises this point.

A number of submitters to the committee raised the concerns that the legislation will fail to capture the real speculators who will simply wait out the two-year period, and then continue to exploit the loopholes in the current intention test. We were told that those most likely to be captured by the new regime will be people who, because of unforeseen circumstances, will be forced to sell inside 2 years. We note that the Treasury advised the Government that if they were to undertake an initiative such as this there should be a five-year bright-line test. Such a length of time is common in other countries.

We are also concerned that this legislation fails the basic test for tax law to be clear and simple to implement. Several submitters raised concerns about this legislation being inconsistent with other property tax law in definition and coverage. This concern was exemplified by a senior partner at one of the major accounting firms who submitted to the committee that he was “professionally confused” by the legislation.

The legislation is beset with definitional difficulties, including a repeat of the very loose definition of the main home from the recent Taxation (Land Information and Offshore Persons Information) Bill, inconsistency with other legislation in terms of the dates of acquisition and disposal of land, and potential difficulty caused by the definition of residential land.

The Labour Party believes that the truncated select committee process, even though the legislation is already being implemented retrospectively, means that there will be mistakes in this bill. We are not confident that all of the implementation issues have been thought through, and it is inevitable that Parliament will need to amend this legislation in the future.

The goal of this legislation to take action to limit speculation in the property market is an important one; sadly this bill falls well short of what is needed.

The Green Party supports the intention of this bill, to reduce pressure on the Auckland housing market by introducing a new tool to better enforce existing tax rules regarding property sales. However, we find this legislation to be insufficient in several respects. Many submitters on this bill raised the point that tax legislation should be simple, coherent, and comprehensive to be effective, and this bill is overly complex and leads to some inconsistencies. The curtailed period during which the select committee was able to consider the bill contributed to a less than ideal outcome, as officials, submitters, and members of the committee had significantly less time to consider the full implications of the legislation and options for improvement.

Firstly, the bill only applies to residential land, despite the fact the existing tax rules around property speculation apply to all land. Most submitters agreed that the rules would be simpler and easier to enforce if they applied to all land equally. The definition of “residential” versus other types of land in the bill may be difficult to apply and could result in a loophole by which some land being purchased and sold by speculators that may eventually be used for residential purposes is not captured by the rule. Additionally, the rule as drafted may have the unintended consequence of encouraging more speculation in non-residential land and the existing tax rules will still be difficult, if not impossible, to enforce.

Secondly, the two-year period is simply too short. It will still be relatively easy for speculators to avoid the rule by holding property just over 2 years. Most other OECD countries have a holding period of at least 5 years, some much longer. The Green Party would support a longer holding period of at least 5 years.

This bill takes some very tiny steps in the direction of closing the tax loophole on property, but as drafted it is unlikely to make a significant difference. The Green Party would prefer a comprehensive capital gains tax (excluding the family home) which would mean that income from purchasing and selling property is taxed like all other income. This would be fairer and also more effective at reducing the rate of house price inflation.

New Zealand First insists that this Government is deliberately avoiding the real issues involved in the Auckland housing market property bubble. There is a supply side issue, but more importantly it is a demand side issue that is not being addressed. Reserve Bank lending data conclusively highlights the large extent of New Zealand’s growing property speculation problem. Their numbers tell us that 45 percent of all mortgage lending is going to property speculators or investors and only 12 percent is going to first-home buyers. Further, this is not a snapshot of the whole New Zealand market as cash buyers and offshore mortgage facilities are not included in these numbers.

There is already legislation in our statute books that would effectively deal with the speculation of property if only it was updated and enforced.

New Zealand First asserts in chorus with New Zealand tax specialists that speculators will simply change their behaviour. They will not be caught by the two-year bright-line period.

This then means that those who will be “caught” by the bright-line test will be those people who have been caught out by circumstance. Under the existing legislation they would be described as having no intention of profiteering from sale of residential property.

The draft bill only applies to residential land and even then the definition used in this bill is not consistent with the definition used in other property taxation bills.

This has been yet another truncated process that has undermined the ability of, not only concerned New Zealand citizens and tax specialists, but the IRD themselves to provide meaningful solutions to what was originally a poorly drafted piece of legislation. New Zealand First strongly urges this Government to go back to the drafting table. There is a need for a full review of the three stages of reforms.

New Zealand First opposed this bill from the start. The stated intentions are good, exemplary even. However, the piece of legislation before us adds confusion, complexity, has too many loopholes, and is literally a backwards step in the enforcement of profiteering from speculation.