From 1 July 2016, as an extension of the new bright line rules that tax the sale of land sold within two years of the purchase date, some residential property sales will be subject to Residential Land Withholding Tax (RLWT) (and the completion of the relevant Inland Revenue (IR) tax form).
When?
RLWT will apply where:
- the property sold is defined as residential land situated in New Zealand, and
- the vendor has:
- purchased the property on or after 1 October 2015;
- owned the property for less than two years before selling, and
- is an offshore RLWT person/entity.
For the purposes of RLWT, residential land is defined as being land in New Zealand with a dwelling, or plans to build a dwelling, or land that can be used for erecting a dwelling in the relevant operative district plan. This does not include farmland or land used predominately as commercial or business premises.
Who?
An offshore RLWT person includes not only individuals but also companies/partnerships and trusts.
An individual is an offshore RLWT person if he or she:
- is not a New Zealand citizen;
- does not hold a New Zealand residence class visa;
- is a New Zealand citizen who has been out of New Zealand for at least three years immediately prior to the date of the sale of the property; or
- holds a New Zealand residence class visa and has been out of New Zealand for at least one year prior to the date of the sale of the property.
A company/partnership is an offshore RLWT person if:
- it is incorporated or registered outside New Zealand, or established under foreign law;
- it is controlled by more than 25% offshore RLWT persons, or
- more than 25% of its directors/partners are offshore RLWT persons.
When determining whether a trust is an offshore RLWT person the offshore status of each of the settlors, trustees and beneficiaries will need to be considered. In addition to the above, the RLWT rules will apply to a trust where:
- a beneficiary who is a natural person and an offshore RLWT person has received a distribution from the trust within the last four years of more than $5,000, or
- there is an offshore beneficiary and the trust has disposed of any other residential land within the last four years.
There are limited circumstances where certificates of exemption from RLWT will be available, for example:
- a residential property developer that has a good compliance history with Inland Revenue or provides a security interest to Inland Revenue, or
- where the property is the vendor’s main home.
It should be noted that any person or entity selling New Zealand residential property within two years of purchase (the purchase date being on or after 1 October 2015), will need to complete a residential land withholding tax declaration form (IR1101), whether they are an offshore RLWT person or not.
How?
The obligation to pay RLWT primarily lies with the vendor’s conveyancer or lawyer, as agent for the vendor, and it is deducted after the payment of any New Zealand mortgages and local authority rates are made at the time of settlement.
The vendor’s conveyancer or lawyer is required to withhold the lowest of the following three amounts:
- for individuals 33%, or for companies 28%, of the difference between the current purchase price and the vendor’s initial purchase price;
- 10% of the current purchase price; and
- the current purchase price less outstanding local authority rates less security discharge amount,
and pay it to the IR.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Erin Maher
emaher@farry.co.nz
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.