Residential Land Withholding Tax: What is the fuss about?
The Residential Land Withholding Tax (RLWT) is part of the New Zealand law reform on taxation imposed on residential property sales in New Zealand by “offshore persons”. It came into effect on 1 July 2016.
An “offshore person” includes:
- non-citizen or non-residence visa holder of New Zealand;
- New Zealand citizen living outside the country for the past 3 years or more;
- New Zealand residence visa holder who has lived outside of New Zealand for the past 12 months or longer;
- a company:
- that is incorporated outside New Zealand; or
- where 25% or more of its controlling interest is held by an offshore person;
- a trust where 25% of its trustees or the settlor are offshore persons, or a beneficiary is an offshore person; or
- a partnership where 25% or more of the partners are offshore persons or 25% or more of its controlling interest is held by an offshore person.
RLWT is a tax on the vendor. It applies in situation where:
- the vendor purchased the residential property in New Zealand on or after 1 October 2015;
- the vendor is selling the residential property within 2 years of purchase; and
- the vendor is an “offshore person”.
Where RLWT applies, the vendor’s conveyancer has the obligation to calculate, withhold and pay the RLWT to the Inland Revenue Department from the sale proceeds. If the vendor is not represented by a conveyancer, the purchaser’s conveyancer will take over such obligations and is entitled to charge the vendor for doing so. If the vendor and purchaser are associated parties for tax purposes, the RLWT payment obligation falls on the purchaser.
In calculating RLWT, it is the lesser of:
- 33% (or 28% for a company) of the difference between the sale price and the vendor’s acquisition cost;
- 10% of the sale price; or
- the sale price less any loan repayment for the discharge of mortgage (where the mortgagee is a New Zealand registered bank).
There is an online calculator provided by the Inland Revenue Department to facilitate the RLWT’s calculation. The link to the online calculator is http://www.ird.govt.nz/rlwt/rlwt-calculator.html.
So if you are a vendor selling your residential property in New Zealand, you must now provide the following additional information to your conveyancer:
- your full name, address and tax file number (both New Zealand and foreign if applicable);
- information to ascertain if you are an offshore person;
- historical information on your earlier purchase of the property to determine the period of ownership of the property and if RLWT may apply;
- whether you are associated with the purchaser for tax purposes; and
- to identify if you qualify for a certificate of exemption (if the property is the vendor’s main home or the vendor is a developer).
If RLWT applies, your conveyancer will have to
- obtain from you a signed RLWT Declaration (Form IR1101);
- calculate the RLWT to be withheld from the sale proceeds and payable to IRD and notify you of the same;
- Provide a return to the IRD for the RLWT deducted; and
- Pay the RLWT to the IRD as your agent.
If you would like more information or have any queries about RLWT, please contact our property team on 00649 300 3777.