Property taxation legislation
New requirements from 1 October 2015
Also known as the ‘Bright-line regime’, the new property taxation regime comprises:
- Land Transfer Amendment Act 2015 & Tax Administration Act 2015 which enables LINZ to collect and pass to IRD the information required to implement the new Bright-line Test.
- Taxation (Bright-line Test for Residential Land) Bill. The Bright-line Test requires income tax to be paid on any gains from the sale of most residential property that is bought and sold within two years.
- Residential Land Withholding Tax (RLWT) provides an administrative mechanism for collecting tax under the Bright-line Test, from offshore persons.
Bright-line Taxation Q&As
- Read the Q&A document (PDF, 402KB) from the Property Taxation Legislation NZLS CLE webinar held in September 2015
- Members only: A keyword-linked version of the Q&A document from the webinar (member’s password required)
Residential Land Withholding Tax (RLWT) Q&As
- Read the Q&A document (PDF, 510KB) from the Residential Land Withholding Tax Legislation NZLS CLE webinar held in July 2016
- Members only: A keyword-linked version of the Q&A document (member's password required)
Since 1 October 2015, transferors and transferees of property have been required to complete a Land Transfer Tax Statement in order to complete settlement. These provisions did not apply to Agreements for Sale and Purchase that were entered into prior to 1 October 2015 as long as the transfer was registered prior to 1 April 2016. After 1 April 2016 these provisions applied to all transactions.
The only exception to completing a Land Transfer Tax Statement is if the transfer relates to Māori Land as defined by Te Ture Whenua Māori Act 1993, or if the transfer is part of the Treaty of Waitangi settlement process.
Transferors and transferees need to provide their IRD number to LINZ unless an exemption applies (exemptions are listed below). Those who are a tax resident in another jurisdiction need to provide their IRD number equivalent for that country (e.g Australian Tax File Number) as well as their New Zealand IRD number.
- See our property taxation legislation flowchart for a visual overview of the new changes.
Which transactions are exempt from providing their IRD number?
There is an exemption for the ‘main home’, if the following criteria are met:
- the transfer involves the main home; and
- the main home exemption has not been used more than twice in the last two years; and
- the party to the transaction is a natural person; and
- the party to the transaction is a not an offshore person.
The following transfers are also exempt from providing tax information:
- a transfer as part of a mortgagee sale, rating sale under the Local Government (Rating) Act 2002, a court ordered sale or a statute ordered sale;
- you are acting as transferor or transferee for tax exempt public authorities or local authorities as defined in the Income Tax Act 2007; or
- you are acting as executor or administrator in the administration and distribution of a deceased person’s estate.
What do property lawyers and their clients need to do?
The Property Law Section strongly advises practitioners to notify clients affected by this regime and encourage them to take the necessary steps to obtain an IRD number if they do not already have one.
If your client is an ‘offshore person’ they will require a New Zealand Bank account number in order to obtain an IRD number.
All trusts need their own IRD numbers, whether transferor or transferee. This includes non-income generating ‘passive trusts’ that own the main home, regardless of who is in occupation. IRD have advised that their processing time for IRD number applications is 8-10 working days. Please note that this does not include postage times.
Resident IRD applications are to be posted to IRD. However, non-resident (offshore persons’) IRD number applications can be emailed to IRD at: email@example.com
Non-resident (offshore persons’) applications may take longer because of the need to open a New Zealand bank account and meet anti-money laundering and Foreign Account Tax Compliance Act Requirements.
Main home – means the one dwelling that is mainly used as a residence; and with which the person has the greatest connection (if they have more than one home).
Greatest connection – consider how much time the person spends at the dwelling, whether their personal property is in the dwelling, where their social ties are strongest, and whether the person has employment, business interests and economic ties to the area where the dwelling is located.
Offshore personFor an individual:
- A New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last three years.
- A person who holds a resident class visa granted under the Immigration Act 2009, and who is outside New Zealand and has not been in New Zealand within the last 12 months.
- A person who is not a New Zealand citizen and who does not hold a resident residence class visa granted under the Immigration Act 2009.
For a body corporate or an unincorporated body of persons, including a trust or a unit trust, a person who would be an overseas person under section 7(2)(b) to (e) of the Overseas Investment Act 2005, treating references to an overseas person or persons in that section as including a person or persons described in the previous paragraph.
- Land Information New Zealand
- Officials’ Issues Paper: Residential Land Withholding Tax
- Land Transfer Amendment Act 2015
- Taxation (Bright-line Test for Residential Land) Bill
Last updated on the 19th February 2018