Final property tax proposed

The Government introduced a Bill containing a proposed residential land withholding tax (RLWT) into Parliament this week.

It will affect people who live overseas and go on to sell the property within two years of purchase.

The RLWT is part of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill and will act as a collection mechanism for the new bright-line test.

Revenue Minister Todd McClay said the proposed RLWT will ensure the integrity of the tax system.

“It 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 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 1 October 2015 and has owned the property for less than two years before selling it;
• The seller is an “offshore person”.

An “offshore person” is defined as someone who is not a New Zealand citizen, does not hold a residence class visas, or is a New Zealand citizen or residence class visa holder who has lived overseas for some time.

In the case of New Zealand citizens, the relevant time period away is three years.

Further, New Zealand trusts and companies could also be considered “offshore persons” if they have significant offshore interests in them.

McClay said that, unlike the new bright-line test, there is no exception for the seller’s main home under the RLWT.

“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.”

However, the RLWT does have exceptions for transfers upon death, and for transfers made in relation to a property relationship agreement.

The RLWT, along with the new bright-line test and other residential property tax changes will help ensure that everyone pays their fair share of tax on gains from property sales, McClay said.

The Bill completes the suite of investment property tax reforms announced by the Government in this year’s Budget.

Consultation on the Government’s tax reforms has already taken place and the Bill is set to come into force on July 1, 2016.