The Bill comes out of last month’s Budget as a method of providing the Government with meaningful data on the factors at play in driving Auckland’s housing shortage. It will allow the Government to connect buyers and sellers with their declared taxable activities in relation to land.
How will it affect buyers and sellers of land?
As the Bill stands, anyone buying or selling freehold, leasehold, unit titles or company land titles will not be able to register that transfer unless both the buyer and the seller provide their IRD number and their overseas tax identification number if they are not tax resident in New Zealand. Offshore persons will also be required to provide a New Zealand bank account number before they are able to apply for an IRD number which will need to be factored into transaction times. This means they must first be subject to NZs anti-money laundering rules administered by the banks and will have their identity confirmed before they apply for an IRD number.
What is an “offshore person”?
This category will include all non-residents and certain NZ residents and citizens who have been offshore for 3 years or more. It will also include persons holding resident class visas who have not been in NZ for a year. Entities will be caught if they are 25% or more controlled by non-residents and such persons above. A NZ resident entity which owns land and is sold to offshore parties must provide NZ bank account details if they become an offshore person.
Does it affect every transaction?
No. There is an exemption if it is for a NZ resident buyer or seller’s ‘main home’ but not if the seller has relied on that exemption at least 2 times before within the 2 years prior to the date of transfer, or if the transfer is by an offshore person. There will also be Regulations that can exempt certain transfers regarded as low tax risk, where compliance costs are high or where it is impractical.
What about trusts and nominees?
A trustee must provide an IRD number and bank account relating to the particular trust not their private status. Nominees must provide details of the principal. It has been reported that many Auckland deals for non-residents feature local nominees who are new NZ residents or persons holding resident visas.
When is it happening?
The Government is aiming to have the Bill passed and brought into law by 1 October. Submissions will be made in the usual way at Select Committee stage and so some changes may be made. The Government has also signalled that it will seek public consultation later in the year regarding its proposed ‘bright-line’ test that will make the sale of property taxable if it is bought and sold within a 2 year period.
We will keep you informed as the legislative process progresses.
If you have any questions, please contact one of our experts: Emma Tonkin or Michelle Hill.