Residential Land Withholding Tax

Starting 1 July 2016 residential land withholding tax (RLWT) will need to be deducted from some residential property sales.

soldRLWT applies to all sales of residential land where:

a) the land was purchased after 1 October 2015;  and

b) the land is sold within 2 years; and

c) the sale occurs after 1 July 2016; and

d) the vendor is an “offshore person”.

The definition of an “offshore person” is far wider than what most people may consider to be an offshore person.  It includes:

a) A NZ citizen who has been out of NZ for 3 or more years.

b) Persons holding residence class Visas who have been out of NZ for 12 months or more.

c) A trust if:

i) more than 25% of the trustees or persons with power of appointment are “offshore persons”, or

ii) all natural person beneficiaries are “offshore persons”, or

iii) an “offshore” beneficiary has received a distribution from the trust at any time in the 4 years prior to sale of the land, or

iv) the trust has sold other residential land within the previous 4 years and at least one beneficiary is an “offshore person”.

d) A company or other entity if:

i) it is incorporated or registered outside NZ, or

ii) it is a partner in a limited partnership and more than 25% of the general partners are “offshore persons”, or

iii) more than 25% of the shares or decision making rights are held directly or indirectly by “offshore persons”.

Amount of RLWT payable?

It is the lessor of

a) 33% (28% if owned by a company) of the vendor’s profit.

b) 10% of the gross sale price.

The vendors lawyer or conveyancing agent must withhold and pay the RLWT to IRD.

The amount withhold is not a final tax and the vendor can file a tax return to claim back any tax overpaid.

 

Author: Peter Forrest