News / Blog
Property Tax on Sales by Overseas Persons - Thu, 23 June 2016
The following is the what, who, when, where and why that relates to further changes to New Zealand tax legislation in the form of a Residential Land Withholding Tax (RLWT).
The RLWT is a tax deduction from residential land purchase amounts in relation to the disposal of residential land in New Zealand by an ‘offshore person’ when that property is sold within two years.
Points of note:
- The ‘Main Home’ exemption that applies to residential land purchases in terms of the Tax Statement does not apply to RLWT, and the funds will be held regardless. The RLWT is an interim tax meaning a vendor can obtain a refund where the RWLT withheld exceeds final tax liability. This is where the ‘Main Home’ exemption can be used to receive a refund.
- The two-year period for the bright-line test runs from the date of acquisition to the date of disposal. The date of acquisition is the date that title is registered for the purchase of the property and the date of disposal is the date that a person enters into an agreement for sale and purchase for the sale.
- The RLWT applies the amount withheld will be the lesser of 33% (or 28% for a Company) of the vendor’s gain, 10% of the gross sale price, or sale price less security discharge amount and outstanding rates.
The RLWT applies to vendors classed by the legislation as ‘offshore persons’. Importantly the definition for offshore person in terms of the RLWT extends beyond a natural person to include trusts, companies, and limited partnership. Of further importance is that the definition of offshore person for the RLWT is different from offshore person for the purposes of the Tax Statement for trusts, companies and limited partnerships.
Offshore Person is:
- a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last three years; or
- a person who holds a residence class visa granted under the Immigration Act 2009, and who is outside New Zealand and has not been in New Zealand within the last 12 months; or
- a person who is not a New Zealand citizen and who does not hold a residence class visa granted under the Immigration Act 2009.
Offshore Trust occurs:
- when more than 25% of its trustees or appointors are offshore persons; or
- when all beneficiaries are offshore persons; or
- when only one beneficiary is an offshore person and that person has received distributions totalling more than $5,000 in any of the four years before the Trust sold the residential property; or
- when the property sale is the second sale of residential property by the Trust within four years and the trust has a discretionary beneficiary that is an offshore person.
Offshore Company or Limited Partnership occurs:
- when offshore persons comprise more than 25% of those controlling the company or partnership; or
- when more than 25% of the directors are offshore persons.
The RLWT comes into force on 1 July 2016, and will apply to all transactions where title is registered after this date.
The RWLT applies to all transactions involving the transfer of New Zealand residential land.
The establishment of the RLWT constitutes a Government measure for reducing alleged income inequality, deterring overseas property investment, and restricting speculation in the housing market. The RWLT supplements the increased informational requirements brought in by the Government in the form of the Tax Statement, and the ‘bright line’ test established for the Capital Gains Tax for residential property transactions. All of these highlight the importance for tax advice during the conveyancing process.
The consequences of an offshore person unexpectedly finding themselves subject to RLWT could be catastrophic if the person was expecting to have funds available to settle on another property transaction or meet some other obligation. Make sure you inform yourself of these changes and consult GTODD LAW for all your residential property needs.
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