New Zealand Law Society - Offshore land purchase tax bill timing potentially disruptive

Offshore land purchase tax bill timing potentially disruptive

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Contractual arrangements entered into before the parties knew of the proposed new tax statement requirements could be significantly disruptive under the current timing provisions of the Taxation (Land Information and Offshore Persons Information) Bill, the New Zealand Law Society says.

In a submission to the Finance and Expenditure select committee on the technical issues in the Bill, the Law Society notes that it is proposed to come into force on 1 October 2015.

"On the face of it, this means that the tax statement requirements ... will apply to transfers of land under contracts entered into prior to 1 October 2015 (including contracts entered into prior to the date the draft Bill was released for public comment), where settlement and registration/e-dealing occur on or after 1 October," it says.

"This has the potential to cause significant disruption to pre-existing contractual arrangements (including default, forfeiture of deposits and so on), entered into by the parties at a time when they could not and did not know they would need to comply with the tax statement requirements."

The Law Society says the tax statement requirements should only apply to transfers of land under contracts entered into on or after 1 October, and the Bill should be amended.

The submission also questions the new phrase "main home" which is used in the Bill. It says this seems to be a new term and it is not clear what it means.

"For example, does a home cease to be a main home if family members move out and only one person remains living there?"

The Law Society suggests replacing the definition "main home" with a term that already exists in legislation and which therefore has a body of developing case law surrounding it.

It also notes that one clause in the proposed Bill contemplates that properties owned by a trust will not be exempt transfers. This means every change of trustee relating to a property will not be an exempt transfer.

"Many trusts which own non-earning property will not currently have an IRD number and will need to apply for one if the trust intends to transfer property or change trustees."

The Law Society says that while it does not know the number of trusts in this position, it expects that the Inland Revenue Department's extra workload to accommodate this will be "significant".

As the same will apply for estates and estate distribution could be delayed by the need to apply for an IRD number, the Law Society suggests that IRD allows fast tracking of application for IRD numbers in these situations.