Resident Land Withholding Tax – Update

Friday 15 July 2016

In our last article, we outlined the Resident Land Withholding Tax (RLWT) regime which came in on 1 July 2016.

In summary, all non-New Zealand citizens or residents who bought property after 1 October 2015 and sold the property within 2 years will be subject to RLWT.

As mentioned last time, the amount of RLWT required to be withheld will be the lowest of the following three amounts:

1. 33% (or 28% if the seller is a company) x (current purchase price less seller’s acquisition cost); and
2. 10% x the current purchase price; and
3. Current purchase price less outstanding local authority rates less amount required to repay the mortgage.

If you are a non-resident selling properties, it is important for you to plan ahead to ensure that your lawyer will have enough funds to pay the RLWT. For example, if (c ) is the amount of RLWT applicable, there may be insufficient funds left over from the net sale proceeds to pay the RLWT. You may need to pay in money to ensure that your lawyer has sufficient funds to pay the RLWT. If you don’t, you may incur use of money interest or shortfall penalties payable to the IRD.

Another issue to watch is for New Zealand Trusts and companies which have significant offshore interest in them. In that case, those New Zealand Trusts and companies will be considered as an “offshore RLWT person” and be subject to the RLWT regime.

For a New Zealand company, if more than 25% of the directors or shareholders with voting rights are themselves offshore persons, then the New Zealand company will be deemed to be an offshore RLWT person.

Similarly, a Trust is an offshore RLWT person if more than 25% of the Trustees or persons with the power to appoint or remove Trustees or amend the Trust Deed are themselves offshore persons. The 25% rule, however, does not apply to beneficiaries. A Trust is an offshore RLWT person if any one of the following applies:

1. All of the beneficiaries are offshore;
2. A non-natural person offshore beneficiary has received a distribution from the Trust within the last 4 years;
3. A natural person offshore beneficiary has received distributions from the Trust totalling $5,000 in any of the last 4 years; or
4. If there is an offshore beneficiary and the Trust has sold residential land within the last 4 years before the current sale.

As you can see, the rules regarding RLWT are reasonably complex. Good legal advice is very important to ensure compliance.

At Teresa Chan Law, we advise many New Zealand and overseas clients in relation to property sales and purchases. We also advise on immigration, business sales and purchases, wills, ensuring powers of attorney, trusts and relationship property.

 If you require any advice, please contact Teresa Chan at Teresa Chan Law Limited, Level 3, Westpac Building, 106 George Street, Dunedin 9016, ph. 477 1069, or email teresa@tchanlaw.co.nz  If you are a Mandarin speaker, please ring Xiaoyan Mu at (022) 694 9917.

Note: The information in this article is general only. You should seek advice for specific situations.