Residential Land Withholding Tax – What is it and does it apply to you?
Residential Land Withholding Tax (“RLWT”) is a tax deducted from residential property sales if the following applies:
1. The property being sold is residential land in NZ.
2. The sale amount is payable or paid after 1 July 2016.
3. The seller:
(a) Bought the property on or after 1 October 2015 through to 28 March 2018 inclusive and owned it for less than two years before selling; or
(b) Bought the property on or after 29 March 2018 inclusive and owned it for less than five years before selling; and
(c) Is an offshore RLWT person
Any person or entity who falls within either 3(a) or (b) above will need to complete a RLWT declaration to identify whether 3(c) applies and RLWT needs to be deducted.
RLWT does not apply to inherited properties, relationship property settlements or those who hold a certificate of exemption.
Proposed Bright-line Amendments
Historically, the “Bright-line Test” required gains on the sale of residential property (excluding main homes) within two years of purchase to be treated as income and accordingly created an income tax liability on the gain.
However, the Bright-line Test was amended under the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (“Act”) on 29 March 2018. The Act states that the Bright-line period is extended from two to five years and any profits will be taxed regardless of intention when the property was acquired. Residential properties acquired before 29 March 2018 will remain subject to the two-year Bright-line Test.
This amendment was expected given Labour’s pre-election campaign on reducing property speculation. Revenue Minister, Stuart Nash, is of the view that this extension will make homes more affordable for owner-occupiers and deter property speculators and hopefully result in a fairer tax system.