The Finance and Expenditure Committee has examined the Taxation (Land Information and Offshore Persons Information) Bill and recommends that it be passed with the amendments shown.

This bill seeks to amend the Land Transfer Act 1952 and the Tax Administration Act 1994 with the aims of obtaining tax information from people buying and selling land, and improving the enforcement of non-residents’ tax obligations.

The bill would require buyers and sellers of property to provide an IRD number (or an equivalent tax number in the case of residents of other countries). Individuals buying or selling their main home—other than people deemed to be offshore persons—would be exempt from the requirement unless they were selling a third home within a 2-year period. Offshore persons would be required to have a New Zealand bank account in order to obtain an IRD number, to ensure that they came within New Zealand’s rules against money-laundering and the financing of terrorism.

The following parts of this commentary cover the main amendments we recommend to the bill. We do not discuss minor or technical amendments.

We recommend inserting new clauses 3A and 6A, and Schedule 1AA, to make it clear that the bill would not be retrospective in its effect, and none of the provisions would apply to transactions settled before 1 October 2015.

The bill would exempt non-offshore individuals from the requirement to provide an IRD number if they were selling their main home, or buying what they intended to be their main home.

Several submitters commented on the proposed exemption. Some suggested that the same information should be required for all property transactions, without exception, while several indicated that the proposal in the bill as introduced was unclear and overly complex.

We acknowledge that making an exception for a person’s main home adds complexity to the rules, and would limit the information available about property transactions, as many involve the acquisition or sale of the family home. However, the majority of us accept that not making such an exception would greatly increase the volume of information to be managed by Land Information New Zealand and the Inland Revenue Department, and could lead people to worry needlessly that the transaction would be taxable, even though in most cases it would not be.

We support the proposed exemption, but propose some amendments, discussed below, to make the provisions simpler and clearer.

While we consider the definition of “offshore person” an appropriate way to identify who should provide information for tax purposes, we consider that the information to be supplied under the bill as introduced could be of limited use in understanding the housing market and making housing policy, and could potentially be misleading. For example, it could overstate the number of transactions that relate to people residing overseas. Also, it would not indicate whether a purchase or sale was of a home. This information is not gathered at present under New Zealand’s land transfer system, which does not make distinctions on the basis of land use.

We therefore propose that some additional questions be asked in the tax statements which would allow aggregate data to be reported on the number of homes purchased and sold, and on the number of purchases and sales by people with a connection to New Zealand.

In clause 4, new section 156C(1), we recommend inserting new paragraph (ca) to require tax statements to state whether a transfer relates to land that has a home on it. To clarify what is meant by a home we recommend a new subsection (6) stating that for the purpose of subsection (1)(ca) a home is a dwelling used as a residence.

We also recommend inserting new paragraphs (cb) and (cc) to require tax statements to state whether the buyer or seller, or a member of their immediate family, was a New Zealand citizen or a holder of a resident, work, or student visa, and if so, whether they intended to live in the property.

We believe these proposed amendments would make the information collected more useful for understanding the housing market and in developing housing policy. As we note below, the privacy of individuals would be protected as the information collected could be released only in the form of aggregated data.

In the bill as introduced, new section 156F(3) would allow the information collected by Land Information New Zealand to be published, and shared with anyone on request, provided it was given in aggregate form so that no specific person or transaction could be identified. We recommend amending clause 4, new section 156F, so that such aggregate data would include information collected under new sections 156C(1)(ca), (cb), (cc), and (d).

We note that the Domestic Violence Act 1995 prevents the public release of certain residential property information in order to protect the privacy of individuals in situations where a domestic protection order has been granted. We are satisfied that the protections afforded by that Act would remain if information gathered under this legislation were shared with the Inland Revenue Department. We therefore recommend inserting new section 156F(3) to allow information about property transfers held by Land Information New Zealand to be shared with the Commissioner of Inland Revenue even if the information was not publicly available because of protections afforded by the Domestic Violence Act 1995.

In the bill as introduced, clause 6 would allow regulations to specify that a transfer could be exempt from the information requirements if they would be impractical or involve high compliance costs, or if there was a low risk of tax avoidance. We recommend amending this clause so that a transfer could be either fully exempt from the information requirements, or non-notifiable in respect of one or both of the parties involved. This would allow for situations in which provision of a limited tax statement (without an IRD number or other tax identification number) would be sufficient to manage any concerns relating to impracticality or high compliance costs.

We also recommend amending section 236(4) to make it clear that regulations would be made on the recommendation of the Minister for Land Information.

Clauses 9 and 10 would amend the Tax Administration Act to provide that an offshore person must provide the Commissioner of Inland Revenue with the number of a current bank account they hold with a New Zealand-registered bank or non-bank deposit-taker before they could be allocated an IRD number. This is intended to ensure that an offshore person who wished to obtain an IRD number had first been subjected to New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism rules (for example, to confirm their identity).

To ensure that these provisions work as intended, we recommend amending the definition of “bank account number” in clause 9, new section 3, to make it clear that only an account on which customer due diligence had been completed could be used to obtain an IRD number.

We recommend inserting in clause 9 a definition of “tax file number” (commonly known as an IRD number).

We also recommend amending clause 10, new section 24BA, so that an offshore person would not need to provide a bank account number if IRD already had a current bank account number on file for them. Another amendment we recommend to this section would make it clear that the bank account requirement would apply only when an offshore person requested an IRD number, and not in cases where the Commissioner of Inland Revenue assigned one to a person for administrative reasons.

We considered carefully the definition of “offshore person” in clause 9, new section 3(3) of the Tax Administration Act. We note that the definition draws on a person’s immigration status, rather than their tax residence. However, for the purposes of this bill, a New Zealand citizen would be considered an “offshore person” if they had been continuously out of New Zealand for three years, or, in the case of a residence class visa holder, for 12 months. We consider that this test would generally be clear and easy to apply, while tax residence could be more difficult to determine. We therefore support the proposed definition, and propose only minor drafting amendments.

Labour will support this bill, as we strongly back the policy objective to collect information on offshore residential home buyers. But we are concerned that this legislation in its current form will ultimately prove ineffective and inadequate as it has many loopholes that will result in the necessary data not being accurately collected. In addition the current bill imposes unnecessary compliance costs that will not improve the quality of the register. We agree with a number of submitters that have raised their concerns regarding the bill’s numerous shortcomings and unnecessary obligations.

The Labour and Green view regarding this bill is that all parties involved in a residential property transaction should submit a New Zealand IRD tax number and any party that holds an active overseas tax number should also provide that information as part of the transaction. The proposed exemption for a “main home” will increase compliance costs and create loopholes for avoidance of the data collection measures. It is highly unlikely that a party purchasing a “main home” will not hold a New Zealand tax number, while requiring other parties to the transaction to ascertain what is and is not a “main home” needlessly complicates the collection of information and increases compliance costs.

Labour and the Greens agree with submitters that the definition of a “main home” is vague and open to interpretation. A person’s “main home” should be their principal place of residence, regardless of whether they feel the “greatest connection” to the property. Yet, if a person’s “main home” is held in a trust, despite being their principal place of residence, the exemption does not apply. The inconsistencies regarding the “main home” exemption could be easily resolved if the provision was removed and parties to a residential property transfer were required to provide IRD numbers as part of the transaction.

Many trusts do not currently have IRD numbers as they have no taxable activity. This could increase compliance costs for trustees as they will then be required to file an annual return or notify IRD that they incurred no taxable activity for the year. This could be mitigated if a “non-active trust declaration” was implemented in a similar manner to that for non-active companies and trustees were made aware of their obligations by the department upon obtaining an IRD number for a trust.

We agree with submitters that the requirement for a New Zealand bank account for an offshore party to obtain a New Zealand IRD number is unnecessary and will provide no net benefit in comparison with the increased compliance costs involved. It is likely that offshore parties will obtain New Zealand bank accounts for any practical reason and make no use of the account other than to obtain a New Zealand IRD number. We agree with the IRD’s original advice provided in the Regulatory Impact Statement for this bill that it is unlikely that anti-money laundering checks carried out by a New Zealand financial institution would provide greater information than what the IRD will obtain as part of the application process for an IRD number, especially as Phase 2 of the Anti-Money Laundering process is implemented.

This bill creates new measures that will improve upon the current lack of information regarding overseas house purchases. But it is needlessly weak and is a half-measure with inadequately considered provisions compounded by the hastened period for submissions and committee consideration. It is disappointingly likely that Parliament and the committee will need to revisit the legislation again in the future to amend the inadequacies in the bill. Implementing a full and proper overseas home buyers register the first time around will prevent the wasting of Parliamentary time and taxpayers’ money. Labour will support this bill with reservations, as a first step to providing an accurate depiction of the true scale of offshore purchasing of New Zealand houses.