New Zealand Properties Owned by Non-citizens Gets New Tax Starting April 2016

In 2016, sales of residential properties in New Zealand by people who are not based in the country will be given new withholding tax, but the sale has to take place within two years of purchase, Property Wire reports.

This year, the government has had several investment property tax reforms and the third part includes the Residential Land Withholding Tax (RLWT) as announced in its Budget 2015. RLWT will be effective on 01 July 2016 under a new Bill before Parliament.

According to Revenue Minister Todd McClay, RLWT will serve the new bright-line test as a collection mechanism, and will be applied to gains from the sale of residential property acquired on or after 01 October 2015 and goes up for sale in a span of two years.

"The proposed RLWT will ensure the integrity of the tax system and will bring the collection of bright-line tax into line with other withholding taxes, which generally apply when there is likely to be a tax liability and collection may be difficult," he explained.

For a property to be subjected to RLWT, it has to meet bright-line test provision's definition of a residential land and has to be located in New Zealand; the date of acquisition of land has to be on or before 01 October 2015 and the owner should not have owned the property for more than two years; and the seller has to be based outside the country or is an offshore person.

To be considered as on offshore person, one must not be a New Zealand citizen, must be a non-holder of residence class visas, or holders of residence class visas and New Zealand citizens who have not been in the country for a period of three years or more.

Trusts and companies in New Zealand can be considered as offshore persons if they display significant offshore interests in them.

"Unlike the bright-line test there is no exception for the seller's main home under the proposed new RLWT rules. As the withholding tax would only apply to a person living overseas, it is unlikely that the New Zealand property being sold would be the person's main home," said McClay.

However, in keeping with the bright-line test, the Bill proposes that RLWT be exempted for transfers upon death, or transfers transpiring to a property relation agreement.

Additionally, the Bill includes provisions on where the obligation pay the RLWT relies, pointing to the seller's conveyancing agent, or the purchaser's conveyancing agent, or in the absence of both, directly by the buyer.

"The RLWT proposal in the bill, together with the new bright-line test and changes to collect better tax information about buyers and sellers of residential property will help to ensure that everyone pays their fair share of tax on gains from property sales," added McClay.