Tax on Land Sales for offshore buyers from 1 July

14 June 2016

Residential land withholding tax (RLWT) is to ensure that non-residents, who are buying and selling residential property in New Zealand (for profit) pay their fair share of tax. From 1 July 2016, RLWT is required to be deducted from certain sales of residential property. This is not dissimilar to other jurisdictions around the world including US, Canada, and soon to be Australia. The tax is required to be withheld from the sale proceeds, much like PAYE is withheld from employees’ wages.

Here are the need to know basics:

When does RLWT apply?

RLWT will apply to the sale of land when ALL of the following conditions are met:

  1. The seller is an ‘offshore RLWT person’
  2. The property is located in New Zealand, and is defined as ‘residential land’
  3. The property is purchased on or after 1 October 2015
  4. The property is being sold within two years of acquisition

Who will withhold the RLWT?

A ‘withholder’ is the person responsible for deducting RWLT on the sale, and returning it to Inland Revenue. In the majority of cases, the withholder will be the seller’s conveyancer, but will default to:

  1. The purchaser’s conveyancer (if the seller does not have one)
  2. The purchaser (if neither seller or purchaser have a conveyancer)
  3. The purchaser (if the seller and purchaser are associated persons)

What rate is RLWT deducted at?

RWLT to be withheld is the lower of:

  1. 10% of the total sale price; or
  2. The greater of:
  • RWLT rate multiplied by the sellers gain; and
  • Zero

The RWLT rate will be 28% for companies (including incorporated societies) and 33% for all other entities (individuals and non-individuals). The calculation will vary depending on who the withholder is. Inland Revenue plan to release a calculator during July 2016 in order to calculate the RLWT to be deducted.

For more detailed information regarding classifications and tax implications contact your BDO adviser.