Expats face new tax on property bought and sold within two years in New Zealand
Expats who buy a property in New Zealand and sell it within two years could face a new property tax that citizens of the country will not have to pay.
The Residential Land Withholding Tax (RLWT) is part of a Bill currently going through Parliament that is set to be introduced from July 2016.
The tax will be payable under the Bright-line test for the sale of residential property. The test will require income tax to be paid on any gains from the sale of residential property that is bought and sold within two years, with the exception of the main family home. But this exception does not seem to apply to RLWT.
There will be exceptions, for example for those who acquire a property unintentionally such as through an inheritance, but in general the new tax will be paid by expats and New Zealand citizens who have lived abroad for three year or more.
Revenue Minister Todd McClay said that the RLWT will act as a collection mechanism for the new Bright-line test, which applies to gains from the sale of residential property purchased on or after 01 October 2015 and sold within 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,” said McClay.
RLWT will apply when the property being sold is located in New Zealand and defined as residential land under the Bright-line test provisions; when the seller acquired the property on or after 01 October 2015 and has owned the property for less than two years before selling it; and the seller is an offshore person.
An offshore person is defined as people who are not New Zealand citizens, people who do not hold residence class visas and New Zealand citizens and residence class visa holders who have been away from New Zealand for a significant period of time, three years in the case of New Zealand citizens.
New Zealand trusts and companies may also be considered offshore persons if they have significant offshore interests in them.
But there is controversy over whether expats who sell their main home within two years should be subject to RWLT. Currently it is suggested that they would.
“Unlike the Bright-line test there is no exception for the seller’s main home under the proposed new RLWT rules,” said McClay, adding that for owners living abroad the property is unlikely to be their main home.
The Bill does, however, propose an exemption from RLWT for transfers upon death, and for transfers made in relation to a property relationship agreement, in keeping with the Bright-line test.
The Bill also proposes that the obligation to pay the RLWT will primarily be the responsibility of seller’s conveyancing agent or in their absence, the purchaser’s conveyancing agent and in the absence of both, directly by the purchaser.
“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.
