Offshore Vendors Pay Up
Stephen Tsang outlines the ins and outs of the new Residential Land Withholding Tax (RLWT) .
1 January 2016
On November 16 last year, Royal assent was received on the new Bright Line Test legislation and on the same day the Government tabled the November Tax Bill which includes formally introducing the new Residential Land Withholding Tax (RLWT).
As usual, the devil will be in the detail. The following is the summarised version for a quick read.
What is RLWT?
It is a form of withholding tax rather than a final tax deducted from the sale proceeds on settlement day.
The vendor needs to include the gains in their year end income tax return as well as the RLWT deducted. Depending on the vendor’s income tax rate, further income tax may be payable or equally a tax refund is possible at year end.
When Will It Apply?
RLWT will apply when:
- It is a residential land sale (includes bare land as well as house and land) situated in New Zealand.
- The vendor acquired the property after October 1, 2015 and disposes the property within two years.
- And the vendor is an offshore person. The new law will take effect from July 1, 2016.
Who Is Liable To Pay RLWT?
All offshore persons (including companies and trusts) selling properties in New Zealand are liable to pay RLWT through their lawyers in most cases. The lawyers or conveyancers will pay the RLWT to Inland Revenue by the 20th of the following month.
Expatriates living abroad and possibly new migrants are also caught in the ‘offshore’ category as this includes New Zealand citizens who have not been in New Zealand for the last three years and permanent residents who have not been in New Zealand for the last 12 months.
What Are The Exemptions?
Main home exemption does not apply because ‘offshore’ persons do not live in New Zealand. Other exemptions such as transfers upon death and transfers made pursuant to a property relationship agreement (as in the Bright Line Test) will continue to apply.
How Is It Calculated?
RLWT is calculated based on the lesser of:
- 33% x (sale price less vendor’s acquisition cost). Or 10% x sale price. RLWT must be paid, other than the security discharge amount, before other disbursements.
So spread the word among your overseas friends and relatives, particularly those who may be purchasing or selling properties on their visit during the summer season.
Stephen Tsang is a partner of accountancy firm Withers Tsang & Co.