Impacts Option Meets objective? Net impact Fiscal Economic Administrative Compliance Fairness 1 Two year Meets objective (a) The 2 year This option would This option creates Compliance costs The bright-line test Ensures the key – bright-line is expected to create a an easier to enforce will decrease for will make difficulty of “lock-in” Largely meets raise an additional effect as people have rule which will people currently enforcement easier enforcement where objective (b) $5 million per an incentive to hold decrease taxed under existing and help ensure there is a high annum, which is property for longer administration costs rules as this option people pay their fair churn of properties Partially meets based on a number than 2 years. for Inland Revenue. reduces ambiguity. share of tax. is targeted while objective (c) of behavioural not capturing assumptions, which This result in an Compliance costs May be seen as significant are inherently economic distortion will increase for unfair as persons numbers of persons difficult to quantify, as people may not other people caught who sell within two who had no such as the number undergo otherwise by the bright-line as years are treated intention of resale. of sales that would efficient transactions they have new tax differently from be delayed in order due to the bright-line obligations. those who are able to exceed the test. to delay their sale holding period. beyond two years. The actual revenue collected under this option may be significantly more if the behavioural responses are different to those assumed. 2 Three or five Best meets No estimate of This option would This option would Compliance costs This option has Provides easiest to – year bright-line objective (a) revenue gain has have similar lock-in have the greatest would likely be similar fairness enforce measure of been made, but we effects to option 1. impact in reducing greater than for impacts as option 1. the options. Least meets expect it would be the administration option 1. This is However, it is objective (b) greater than the $5 costs involved in because additional likely to capture million estimated applying the sales will be caught significant Partially meets for option 1. test” for by the rules which numbers of persons “intention objective (c) Inland Revenue. are less likely to be who had no taxable under the intention of resale. current rules.
Option Meets objective? Impacts Net impact Fiscal Economic Administrative Compliance Fairness 1 – Two year bright-line Meets objective (a) Largely meets objective (b) Partially meets objective (c) The 2 year is expected to raise an additional $5 million per annum, which is based on a number of behavioural assumptions, which are inherently difficult to quantify, such as the number of sales that would be delayed in order to exceed the holding period. The actual revenue collected under this option may be significantly more if the behavioural responses are different to those assumed. This option would create a “lock-in” effect as people have an incentive to hold property for longer than 2 years. This result in an economic distortion as people may not undergo otherwise efficient transactions due to the bright-line test. This option creates an easier to enforce rule which will decrease administration costs for Inland Revenue. Compliance costs will decrease for people currently taxed under existing rules as this option reduces ambiguity. Compliance costs will increase for other people caught by the bright-line as they have new tax obligations. The bright-line test will make enforcement easier and help ensure people pay their fair share of tax. May be seen as unfair as persons who sell within two years are treated differently from those who are able to delay their sale beyond two years. Ensures the key difficulty of enforcement where there is a high churn of properties is targeted while not capturing significant numbers of persons who had no intention of resale. 2 – Three or five year bright-line Best meets objective (a) Least meets objective (b) Partially meets objective (c) No estimate of revenue gain has been made, but we expect it would be greater than the $5 million estimated for option 1. This option would have similar lock-in effects to option 1. This option would have the greatest impact in reducing the administration costs involved in applying the “intention test” for Inland Revenue. Compliance costs would likely be greater than for option 1. This is because additional sales will be caught by the rules which are less likely to be taxable under the current rules. This option has similar fairness impacts as option 1. Provides easiest to enforce measure of the options. However, it is likely to capture significant numbers of persons who had no intention of resale.
2015-ris-bltrl-bill.docx