The RLWT is part of a recent spate of disclosure and tax reforms in the New Zealand property sphere that have been introduced in the last year. The reforms include the introduction of a “bright-line” test, which requires income tax to be paid on gains from the sale of residential land bought and sold within two years.
The RLWT is essentially a collection mechanism for the bright-line test, applying specifically to ‘offshore RLWT persons’. It will be relatively straightforward to work out whether an individual is an offshore RLWT person. Companies, trusts and partnerships will want to consider their structure carefully to see whether they fit in that category. The rules for trusts are particularly complicated.
Please refer to our fact sheet for the definitions of an ‘offshore RLWT person’, what is payable, and tips for completing a declaration.
The RLWT is a withholding tax, and if the tax credit for RLWT is not needed to pay income tax liability, then the tax credit/RLWT is refundable. In most cases, the vendor’s conveyancer will withhold the RLWT from the purchase price for the property, to pay to IRD before releasing the balance of the funds. If the vendor doesn’t have a conveyancer, then the purchaser’s conveyancer is the paying agent.
In some cases, offshore vendors may be able to apply for a certificate of exemption where they would otherwise have to pay RLWT (e.g. if they are a property developer). Offshore vendors can also apply for a certificate where the property is their ‘main home’, although for most offshore vendors this is unlikely to be the case.
Related reforms also include a new requirement to complete a tax statement for property transfers (including of non-residential property), a requirement for trusts to have an IRD number to complete the tax statement when transferring property (including registering a change of trustee on the property title), and a requirement for ‘offshore persons’ to have a bank account before they can apply for an IRD number.
Given the various new tax and disclosure obligations, you may wonder what else is in the pipeline.
In addition to clamping down on foreign investors with little or no presence in New Zealand, the reforms indicate that IRD is collecting more information on property transactions in general, and is using lawyers and conveyancers to do so. While the current bright-line test and the RLWT are aimed squarely at residential sales, it is natural to wonder whether similar provisions will be introduced in future for commercial transactions.
This article was written by Diana Tam, a Solicitor in Kensington Swan's Property team.