News / Blog
No Holding Back: Residential Land Withholding Tax (RLWT) - Fri, 9 October 2015
In order to ensure that the new capital gain tax scheme is impartially applied, the Government has proposed a residential land withholding tax (RLWT) when the seller is an “offshore person”.
The RLWT means that a portion of the sales proceeds are withheld at the time of sale and paid to Inland Revenue as a pre-payment or bond against any tax that may be due. It is important to recognise that the RLWT is still only a proposal, however submissions on the proposal closed on 2 October 2015, so the final decision on the framework is not far away.
When would the RLWT apply?
In order for the RLWT to be triggered the following conditions must be met:
- The seller is an “offshore person”.
- The definition covers both natural persons and entities.
- Excludes New Zealand citizens who are or have been physically present in NZ within the previous 3 years, and Individuals with residence class visas who are or have been physically present in NZ within the last year.
- Includes entities incorporated outside New Zealand and entities incorporated in New Zealand but owned 25% or more by offshore persons.
2. The property transaction involves “residential land”.
- It does not include land used predominantly as a person’s main home, transferred as part of a relationship property dispute or a deceased estate, business premises, or farmland.
3. The seller acquires the residential land being sold on or after 1 October 2015 and the seller owns the residential land for less than 2 years
What rate is applied to the RLWT?
The proposed rate is the lower of the ‘standard rate’ and the ‘default rate’, where:
- The standard rate is 33% of the seller’s gain and the seller’s gain is equal to the total purchase price – seller’s acquisition price.
- The default rate is 10% of the total purchase price and the total purchase price is equal to the agreed sales price between the buyer and seller.
Failure to withhold and pay RLWT
An important component of the proposed RLWT scheme is that the sale, in particular the title transfer process, would not be held up as a result of a failure to withhold and pay RLWT. Instead, the proposed RLWT includes monetary penalties that are imposed on the withholding agent where there is a failure to withhold and pay the Inland Revenue.
The RLWT is a component of a clear movement by Government to tighten tax controls during the property transaction process. This creates an increased onus on agents and conveyancers, but it is prudent for buyers and sellers to know what information is required from them to ensure an efficient process. Please contact GTODD LAW if you have any questions during this transitional property tax period.
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