The loopholes in the Government’s rushed attempt to measure foreign ownership of housing showed up again yesterday.

Discussing what is increasingly looking like ill thought out legislation, the Finance and Expenditure Select Committee heard about more problems with the Bill.

Unless the problems can be resolved and the Bill rewritten and passed through Parliament over the next two months it will fail to meet its October implementation date.

That time frame is made more urgent by the fact that there are now only 21 sitting days till October 1.

One big loophole that has been identified is the requirement that all “offshore persons” investing in real estate other than a place that is to be their “main home” must have an IRD number.

And the Bill proposes that before the Inland Revenue Department can issue that number the “offshore person” will have to have a bank account.

But — in a glaring bureaucratic Catch 22 situation — the committee was told by lawyers from Chapman Tripp that some banks will not open an account for a customer until they provide their IRD number so withholding tax can be deducted.

EY’s Executive Director, Government Administration, David Snell told the Committee that EY thought the Government could take a bolder approach.

“Why have the offshore definition at all?” he asked.

“Instead have all parties to purchases and sales of property providing their IRD numbers.


“We think it will be much easier for people to provide a known number rather than make potentially complex judgements in a specialised area round tax residence.”

The Bill defines an offshore person as a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last 3 years.

Or person who holds a resident class visa but who has not been in New Zealand within the last 12 months:

Or a person who is not a New Zealand citizen and who does not hold a resident class visa.

Mr Snell also questioned the exemption from the requirement to provide a number for the “main home”.

(A main home is defined as “the one home that is mainly used as a residence by the person and any member of the person’s family living with the person; and with which the person has the greatest connection.”)

“Why have the exemption,” he asked.

“A main home can be quite a tricky concept.

“We think it would be easier to provide the information and be done with it.”

Another EY Executive Director, Graeme Knapp, told the Committee that there were potentially other problems with the requirement that any offshore person, regardless of whether they were purchasing property, have to have a bank account before they could get an IRD number.

He said oil rig workers, for example, needed IRD numbers but they barely touched New Zealand soil while they were working so why would they need a bank account.

Asked by Labour MP, Clayton Cosgrove if the quality and value of the information provided by the IRD number collection would be degraded if main homes were exempted, Mr Snell said: “I think it would be fair comment that the information value would be reduced the more exemptions you have.”

“We think it may be harder to assess what your main home is if you are in and out of the country and you have a number of potential residences.”

Mr Snell also pointed out that there was a sort of reverse loop in the Bill because there were exceptions to the exemptions so that, for example, if you bought and sold your main home twice in two years you had to provide IRD numbers for that.

Mr Snell also wondered why the IRD number requirement was in a bill separate to the “brightline” test which will impose a capital gains tax on investment property sold within two years.

“If you have different definitions in that bill then I can imagine this Bill will be back in front of this committee.”

And as a parting shot, Mr Snell returned to the definition of offshore persons and suggested more work was needed on co-ownership situations, family trusts and a particularly tricky one — Australians who have no visa requirements.

What’s the bet this Bill will need urgency to get it through Parliament in time to be able to be implemented?