Special report on residential land withholding tax

On 13 June 2016, Policy and Strategy, Inland Revenue, released a special report on residential land withholding tax.

The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act 2016, enacted on 13 May 2016, introduced a new withholding tax – residential land withholding tax (RLWT) – on sales of residential property made by “offshore RLWT persons” within two years of acquisition.

The special report provides early information on the new RLWT rules, and precedes full coverage of the new legislation in the July edition of the Tax Information Bulletin.

Residential land withholding tax is primarily intended to support the “bright-line test” which was enacted on 16 November 2015 in the Taxation (Bright-line Test for Residential Land) Act 2015. It requires income tax to be paid on any gains from the sale of residential property bought and sold within two years, with some exceptions – for example, if the property sold was the vendor’s main home. It applies to land acquired on or after 1 October 2015.

As RLWT is primarily a collection mechanism for the bright-line test, the RLWT follows as closely as possible the concepts used in the bright-line test. However, there are some instances where the framework departs from that of the bright-line test to ensure that the RLWT is able to be administered by agents.

RLWT applies when:
• the property being sold is “residential land” located in New Zealand and defined for the purposes of the bright-line test as introduced in the Taxation (Bright-line Test for Residential Land) Act 2015

• the vendor acquired the property on or after 1 October 2015 and has owned the property for less than two years before disposing of it (the two-year holding period used in the bright-line test), and

• the vendor is an “offshore RLWT person”.

RLWT does not apply when the vendor holds a certificate of exemption.

References:
Marilyn Hay, Consultant Editor
Source: www.taxpolicy.ird.govt.nz