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Yet another tax from July 1st

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  • Yet another tax from July 1st

    MAy catch a few of us who spend a lot of time out of NZ

    From 1 July 2016 lawyers will need to deduct Residential Land Withholding Tax from the proceeds of some residential property sales and pay it to the IRD. This is the new tax that is intended to help compliance with the residential investment property tax rules.
    When is tax withheld? The withholding tax will only apply when the property being sold is located in New Zealand and:
    • is “residential land”
    • the vendor purchased or acquired the property on or after 1 October 2015
    • the vendor owned the property for less than 2 years before selling
    • the vendor is an “offshore RLWT person”

    There are exemptions where inherited properties are being sold and for transfers of relationship property. How much is the tax? An online calculator is available on the IRD website to help work out the amount of the tax to be deducted and paid to the IRD. This will be the lowest of:
    • 33% (except for companies which is 28%) of the gain on sale
    • 10% x the sale price
    • Sale price less rates and amount needed to discharge the mortgage (where the mortgage is with a NZ registered bank or licenced non-bank deposit taker)

    Agency commissions cannot be deducted out of deposits if there are insufficient funds. Neither can body corporate levies, usual LINZ fees or conveyancing costs. What is an “offshore RLWT person”? An “offshore RLWT person” is not the same as an offshore person in the tax statements introduced last year. An “offshore RLWT person” will include:
    • A NZ citizen who has been overseas for the last 3 years or more continuously.
    • Someone with a resident class visa who has been overseas for 12 months or more continuously. (Student visas or work visas are not resident class visas.)
    • Someone who is not a NZ citizen or NZ resident, whether they are in or out of NZ.
    • A company if more than 25% of its directors or more than 25% of the decision making rights are held or controlled by the types of individual persons described above.
    • A trust where the trustees or certain beneficiaries are the types of individual persons described above.
    • A limited partnership if 25% of the general partners or 25% of the partnership shares are held or controlled by the types of individual persons described above.
    • For partnerships each partner will need to determine if they are an offshore RLWT person and they then might have tax deducted from their share of the property sale income.

  • #2
    It's not strictly a new tax, it's just a new way of deducting income tax. How else would they enforce the Bright Line rules?

    Ivan brought this up late last year year. Let me see if I can find a link to the discussion.

    EDIT: was early this year - Unpaid IRD Tax Collectors Ahoy
    AAT Accounting Services - Property Specialist - [email protected]
    Fixed price fees and quick knowledgeable service for property investors & traders!

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    • #3
      Hogwash

      Even the taxpayers union is erroneously calling this a new tax. All the time-of-ownership test did was to remove the uncertainty inherent in establishing intent at the time of purchase. Thereby the test establishes that certain profits from property sales are treated as income (not capital gains) and are taxed according to the entity's income tax rate.

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      • #4
        That's not entirely true. It also specifies who is and isn't a New Zealander for the purposes of taxing them. This appears to be unrelated to whether you are a tax resident or not already. So for some/many, it is a new tax.

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        • #5
          Originally posted by Bobsyouruncle View Post
          That's not entirely true. It also specifies who is and isn't a New Zealander for the purposes of taxing them. This appears to be unrelated to whether you are a tax resident or not already. So for some/many, it is a new tax.
          I'd argue it's not a tax. It's more about deducting money on suspicion, ie "witholding" it, and putting it aside in the government's bank account until the tax status of the transaction is clear.

          You then have to file your returns and show the transactions, properly evaulated, weren't taxable. You hope. If the sun shines upon you a refund may be forthcoming.

          Anyway, less than pleased with the whole thing but the spectre of overseas vendors vanishing into the sunset with their taxable speculator gains has a political impetus that is unstoppable. They must be prevented, it seems, no matter the inconvenience to people that aren't politicians or speculators.

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          • #6
            Yes Ivan definitely a misguided attempt to solve a nearly non existing problem.

            Comment


            • #7
              I wouldn't say definitely. Fact is no one knows how big the problem is. You're probably right though, doubt it's very common.
              AAT Accounting Services - Property Specialist - [email protected]
              Fixed price fees and quick knowledgeable service for property investors & traders!

              Comment


              • #8
                Few things in life move faster than a Government with its eye on some escaping tax revenue.
                (Except possibly politicians after their pay increases}.

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