Tuesday, November 17, 2015
New Zealand introduced a tax bill on November 16, 2015, for a new withholding tax on sales of residential property by people who live overseas and go on to sell the property within two years of purchase.
The proposed measure is the third part of the Government's investment property tax reforms announced as part of Budget 2015.
Revenue Minister Todd McClay said the proposed residential land withholding tax (RLWT), which is included in the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill will act as a collection mechanism for the proposed new bright-line test, which applies to gains from the sale of residential property purchased on or after October 1, 2015, and sold within two years.
"The proposed RLWT will ensure the integrity of the tax system and will bring the collection of bright-line tax into line with other withholding taxes, which generally apply when there is likely to be a tax liability and collection may be difficult," the Minister said.
The RLWT will apply when the property being sold is located in New Zealand and defined as "residential land" under the bright-line test provisions; the seller acquired the property on or after October 1, 2015, and has owned the property for less than two years before selling it; and the seller is an "offshore person."
Under the proposed measures in the bill, an "offshore person" would include people who are not New Zealand citizens; people who do not hold residence class visas; and New Zealand citizens and residence class visa holders who have been away from New Zealand for a significant period of time (three years in the case of New Zealand citizens).
New Zealand trusts and companies may also be considered "offshore persons" if they have significant offshore interests in them.
"Unlike the bright-line test there is no exception for the seller's main home under the proposed new RLWT rules," McClay said. "As the withholding tax would only apply to a person living overseas, it is unlikely that the New Zealand property being sold would be the person's main home."
"The bill does, however, propose an exemption from RLWT for transfers upon death, and for transfers made in relation to a property relationship agreement, in keeping with the bright-line test," he said.
The bill proposes that the obligation to pay the RLWT will primarily be the responsibility of the seller's conveyancing agent or, in their absence, the purchaser's conveyancing agent or, in the absence of both, directly by the purchaser.
The proposed changes were announced by the Government in Budget 2015 as part of a package of proposals to improve compliance with the current land sale rules, and were consulted on earlier this year.
"The RLWT proposal in the bill, together with the new bright-line test and changes to collect better tax information about buyers and sellers of residential property, will help to ensure that everyone pays their fair share of tax on gains from property sales," he said.
The RLWT will come into force on July 1, 2016, following enactment of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill.