Housing supply tax fears eased

The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill, which is part of the government’s new investment property tax reforms, was introduced into Parliament late last year.

During the submission period, the Auckland District Law Society’s property law committee warned that the residential land withholding tax (RLWT) could have a negative impact on the development of new housing.

There are many offshore developers active in New Zealand.

The ADLS was concerned that requiring the payment of RLWT on every transaction would have a serious impact on their cash flow.

Auckland District Law Society vice president Joanna Pidgeon said the Bill did not allow for developers to offset costs when the RLWT is paid.

This meant it would act as a major clog on residential property development.

However, this concern now seems to have been addressed.

The IRD has just released its officials report, to the Finance and Expenditure Select Committee, on the submissions received on the Bill.

In the report, the potentially negative impact the RLWT might have on new housing development is acknowledged.

It also notes that new housing development is particularly important at the present time – given Auckland’s housing supply shortage.

Pidgeon said the report has followed the ADLS recommendation and now proposes an exemption scheme for bona-fide off shore developers. 

“For offshore developers who are unknown quantities then a bond system is being explored. But speculators and/or renovators will not qualify for these exemptions.”

IRD’s acceptance of a number of the ADLS recommendations on the RLWT ensure the legislation will achieve its policy objectives – without unfortunate side-effects, Pidgeon said.

“The RLWT should not negatively impact on property development by bona fide property developers.

“Further, its implementation will be clearer for lawyers, who are the people having to deal with the legislation on a day to day basis.”

During the submission period, the RLWT was also criticised for the significant compliance costs which would be involved.

The officials report acknowledged that the tax will increase costs.

However, it stated that the integrity the RLWT measures will bring to the wider tax system outweighs the increase in costs that will be experienced.

The Bill, as reported back to Parliament by the Select Committee, incorporates the recommendations contained in the officials report. It now awaits its second reading and can be read here.