Government begins consultation on plans for a withholding tax on offshore-based sellers of NZ houses

The Government’s commenced public consultation begins today on the proposed residential land withholding tax aimed at offshore investors selling New Zealand houses within two years of buying them.

The tax, aimed at being introduced on July 1 next year, was part of the package of proposals unveiled by the Government in May’s Budget and fits in with the the so-called  ‘bright-line’ test targeting investors selling properties within two years, which was introduced into Parliament last week.

Revenue Minister Todd McClay said the new proposed withholding tax was “an important part of the Government’s residential property tax compliance work and will ensure tax is paid under the Bright-line test legislation”.

Today the Government’s released a consultation paper, a summary, and a question and answer paper. Submissions close on October 2, 2015.  

The proposal as contained in the consultation paper is to introduce a requirement for an amount to be withheld on the sale of residential land in New Zealand by a conveyancer or solicitor to the property transaction and paid to the Commissioner of Inland Revenue. The amount to be withheld would be the lower of:  33% of the vendor’s gain on that property (i.e. 33% x (agreed total sales price – vendor’s acquisition price)); and 10% of the total purchase price of that property.

This proposed “residential land withholding tax” or “RLWT” would come into effect from July 1 2016. That is, conveyancers and solicitors would be required to act as withholding agents and withhold RLWT on affected transactions where settlement occurs on or after 1 July 2016, the IRD says.

“As the proposed RLWT is intended to be a mechanism for supporting the collection of tax imposed under the bright-line test, we suggest that the withholding tax apply where the vendor of the residential property is both an ‘offshore person’ and taxable under the bright-line test, because they have held the property for less than two years prior to the sale,” the IRD says. 

McClay said that under the proposed bright-line test, gains from residential property sold within two years of purchase would be taxed, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement,” McClay said.

“The objective is to target those people who are seeking to make a quick gain from property, whether they are based in New Zealand or overseas.

“However, it can be more difficult to collect tax from people speculating on property in New Zealand if that seller lives overseas. For this reason we are proposing 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.

“We want all people buying and selling property for profit to know that we expect due taxes to be paid.

“Together with the other measures announced in Budget 2015, the proposed withholding tax should go a long way towards bolstering our property tax rules and improving tax compliance amongst property speculators,” McClay said.