Offshore land purchase tax bill timing potentially disruptive

Contractual arrangements entered into before the parties knew of the proposed new tax statement requirements could be significantly disruptive under the current timing provisions of the Taxation (Land Information and Offshore Persons Information) Bill, the New Zealand Law Society says.

In a submission to the Finance and Expenditure select committee on the technical issues in the Bill, the Law Society notes that it is proposed to come into force on 1 October 2015.

“On the face of it, this means that the tax statement requirements ... will apply to transfers of land under contracts entered into prior to 1 October 2015 (including contracts entered into prior to the date the draft Bill was released for public comment), where settlement and registration/e-dealing occur on or after 1 October,” it says.

“This has the potential to cause significant disruption to pre-existing contractual arrangements (including default, forfeiture of deposits and so on), entered into by the parties at a time when they could not and did not know they would need to comply with the tax statement requirements.”

The Law Society says the tax statement requirements should only apply to transfers of land under contracts entered into on or after 1 October, and the Bill should be amended.

The submission also questions the new phrase “main home” which is used in the Bill. It says this seems to be a new term and it is not clear what it means.

“For example, does a home cease to be a main home if family members move out and only one person remains living there?”

The Law Society suggests replacing the definition “main home” with a term that already exists in legislation and which therefore has a body of developing case law surrounding it.

It also notes that one clause in the proposed Bill contemplates that properties owned by a trust will not be exempt transfers. This means every change of trustee relating to a property will not be an exempt transfer.

“Many trusts which own non-earning property will not currently have an IRD number and will need to apply for one if the trust intends to transfer property or change trustees.”

The Law Society says that while it does not know the number of trusts in this position, it expects that the Inland Revenue Department’s extra workload to accommodate this will be “significant”.

As the same will apply for estates and estate distribution could be delayed by the need to apply for an IRD number, the Law Society suggests that IRD allows fast tracking of application for IRD numbers in these situations.

Doubts over bright-line test efficacy

The New Zealand Law Society has doubts about whether the proposed two-year “bright-line” test for sales of residential property will catch the taxpayers it is intended to target.

In comments to the Inland Revenue Department on the Officials’ Issues Paper, The Bright-line test for sales of residential property, the Law Society says the target appears to be those taxpayers who buy and sell a property within a short period of time but maintain that it was not acquired with a purpose or intention of disposal.

“It is doubtful, however, that the proposed bright-line test will solve this issue,” the Law Society says.

“Property speculators of the kind targeted by the issues paper are likely to change their behaviour so that property is held for more than two years prior to disposal.”

The property owners most likely to be caught by the new test will be those taxpayers who need to dispose of property within two years of acquisition for reasons not contemplated at the time it was acquired, the Law Society says.

As examples it points to taxpayers whose personal situation changes since acquiring the property, those whose employment changes and requires them to relocate, and those whose financial circumstances change after acquiring the property.

The Law Society says taxpayers in one of these situations are presumably not the target of the proposed reforms “but are the ones most likely to be impacted”.

It says the proposed bright-line test won’t catch property speculators who are currently not meeting their income tax obligations as they will simply change their behaviour so that property will not be disposed of within the two-year period.

In its comments, the Law Society also says it is surprising that officials say the disposal test in s CB 6(1) of the Income Tax Act 2007 can be difficult to enforce due to its subjectivity. This has been used to justify introduction of the bright-line test.

However, the Law Society says the burden of proof in such matters falls on the relevant taxpayer and not the Commissioner.

“If the Commissioner considers there is sufficient evidence to make an allegation that a taxpayer has acquired property with a purpose or intention of disposal (sometimes referred to as discharging the ‘evidential burden’), the burden of disproving the Commissioner’s allegation falls on the taxpayer,” it says. 

Emergency response terms very broad

The New Zealand Law Society says it has serious reservations about the feasibility of an inquiry into Parliament’s legislative response to future national emergencies. The inquiry is being carried out by the Regulations Review Committee.

In a submission on the Interim Report from the inquiry, the Law Society says the inquiry’s terms of reference, and the issues they give rise to, are very broad.

Natural disasters and emergencies occur in many and widely different forms, the submission says, noting that the interim report refers to 19 different types of emergency plus an omnibus category of undefined or broadly defined emergencies.

The Law Society says it considers that it would be very difficult for generic legislation to cover the wide range of differing types of emergencies.

“However the proposed inquiry by the Committee is progressed, a basic concern will be the relationship between any generic statute governing national emergencies and the large number of specific emergency statutes and regulations.”

Noting that the interim report does not refer to a wide-ranging 1991 report by the Law Commission on Emergencies, the Law Society suggests that the Committee should carefully consider that report. It says the issues it considers and the recommendations remain largely valid.

“Indeed, it would be appropriate and beneficial for the inquiry to be referred to the Law Commission for consideration and an updating report.”

Support for unconsented emergency building measures

The New Zealand Law Society says it supports unconsented building work by territorial authorities in certain emergency and life-threatening situations, saying that ultimately the risk to life should outweigh the need to obtain building and/or resource consents.

The Law Society has released its comments to the Ministry of Business, Innovation and Employment on the ministry’s Building Act Emergency Management Proposals consultation paper.

While it agrees with allowing unconsented building work by territorial authorities to remove immediate life-safety risks, it says there is a real risk that building work under the proposals would not be legal and/or code compliant.

Liability for defective building work carried out under the proposals should be considered, it says, especially the liability of the council which has not given the building consent.

The proposal for work where there is immediate danger is silent on the question of consultation with landowners, the Law Society says. It notes that while landowner views would not be determinative, they should be considered before work which bypasses the consent process is undertaken.

“A mechanism should be provided for the situation where the views of the landowner have been sought but unable to be reasonably obtained.”

The Law Society also points to a need to clarify that the cost of the works is to be borne by the owner of the property causing the danger, and would not be allocated to a neighbouring owner if their property is damaged in the process of removing the danger.

It suggests consideration of whether the proposal should be extended to allow owners of buildings causing immediate danger to bypass the consent process for life-safety protection.

In relation to another proposal in the consultation paper, the Law Society also supports territorial authorities being able to remove dangers causing significant economic disruption without requiring resource or building consents. As well as ensuring that the authorities are required to notify property owners, it would be appropriate to require them to consider the views of the property owners before issuing a warrant.

“However, care would need to be taken in defining ‘significant economic disruption’ so that it represents circumstances that properly justify action being taken without the usual controls under the Resource Management and Building Acts,” it says.

NZLS supports expanded telecoms access dispute resolution

The New Zealand Law Society supports Ministry of Business, Innovation and Employment proposals for an expanded scope for dispute resolution around land access for telecommunications. The Law Society has released its comments on proposals outlined in MBIE’s Land Access for Telecommunications Discussion Document which was released for public consultation.

With the aim of striking the right balance between property owners’ rights and interests and the objectives of the Ultra-Fast Broadband (UFB) rollout, the Law Society addresses a number of the document’s proposals.

It notes that the objective of public consultation is to inform the government on how the right balance can be struck between protecting property rights on the one hand, while allowing more New Zealanders to realise the benefits of UFB on the other.

The Law Society says that as well as supporting the proposed expanded scope for dispute resolution, it also supports the criteria for design of the disputes resolution framework. These are fairness, transparency, efficiency, accessibility, and with appropriate mechanisms for resolving landowners’ complaints.

“The Law Society considers that compensation should not be the only remedy. Where compensation would not be an adequate remedy, the adjudicating body should have the ability to order the removal of the cabling,” it says. “In addition, the dispute resolution process could also consider whether alternative routes are available and the intended use of the land.”

An accessible dispute service is appropriate for disagreements between landlords and tenants, the Law Society says. However, it believes that service should be required to consider the contractual arrangements between the landlord and tenant.

“In this instance it is likely that the disputes will involve penetration of buildings which will also bring into play water-tightness issues and the reinstatement provisions.”