Property Tax Changes

30 July 2015

We have previously outlined the proposed property tax changes in earlier editions of
Tax Today. 

The introduction of the two year bright line test for residential property and the requirement for offshore investors to obtain an IRD number and open a bank account in NZ come into effect for all residential property acquired after 1 October 2015.  

A further proposal has been released outlining a potential residential land withholding tax (RLWT) on the sale of residential land in New Zealand.  The RLWT would require an amount to be withheld by a conveyancer or solicitor and paid to Inland Revenue.

The amount to be withheld would be the lower of:

  • 33% of the vendor’s gain on that property (i.e. 33% x (agreed total sales price - vendor’s acquisition price)); and
  • 10% of the total purchase price of that property.

The effective date is expected to be for settlements occurring on or after 1 July 2016.

The RLWT would apply where the vendor of the residential property is both an “offshore person” and taxable under the two year bright-line test.

Note while the proposed bright-line test applies to residential land regardless of the geographic location the RLWT is to be restricted to residential land in New Zealand.

The withholding agent should be entitled to rely on the statement provided by the vendor, unless they know it to be false.  In such a case, the withholding agent would be required to withhold and pay RLWT to the Commissioner.  A useful precedent for this approach is in section 78F of the Goods and Services Tax Act 1985 which permits a supplier to rely on a statement made by the purchaser that the conditions for zero rating the supply have been met.

The RLWT should be withheld before any other amounts are disbursed in relation to the sale of the property.