Residential Land Withholding Tax to Come in to Apply from 1 July 2016

Tuesday 14 June 2016

Residential land withholding tax (RLWT) is primarily intended to support the new “bright-line test” tax regime announced by the government last year to deal with the rising Auckland property prices.

From 1 October 2015, all sellers and buyers of properties must provide tax information to the New Zealand Government except for certain exempt transactions. The tax information collected is intended to identify what factors are underlying the property price increases.

As part of the information required, sellers and buyers have tax residency outside of New Zealand must provide as part country of tax residency and their overseas tax number. They must also provide a New Zealand tax number which will give the New Zealand tax authorities the contact and identification details of the buyer.

The residential land withholding tax (RLWT) which is due to come in on 1 July 2016 is the other part of the new tax regime. In summary, RLWT will apply when:

1. The property being sold is residential land as defined under the “bright-line test” tax laws; and
2. The seller had bought the property on or after 1 October 2015 and has owned the property for less than 2 years; and
3. The seller is an “offshore RLWT person”.

An “offshore RLWT person” includes all non-New Zealand citizens and individuals who do not hold residence class visas granted under the Immigration Act 2009. It also includes a New Zealand citizen who is living overseas if they have not been in New Zealand in the last 3 years. The holder of a New Zealand residence class visa may be an offshore RLWT person if they have not been in New Zealand for the last 12 months.

The obligation to pay RLWT lies with the seller’s lawyer, who will deduct the RLWT and then pay to the Government.

The amount of RLWT required to be withheld will be the lowest of the following three amounts:

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

If you are an offshore person and are selling any property within 2 years of purchase, you should consider your tax liability. The RLWT is an interim tax only and is intended to collect more than the actual tax liability. This means that offshore persons must file tax returns in order to obtain any tax refund.

At Teresa Chan Law, we advise many New Zealand and overseas clients in relation to property purchases. 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.