Residential Land Withholding Tax: When and who pays it?
Residential Land Withholding Tax (RLWT) was introduced in July 2016. This is where lawyers and conveyancing agents acting for an offshore person in a residential sale will withhold the RLWT and pay it directly to the Inland Revenue Department.
If the vendor is not an offshore person and the sale of the residential property happens within two years of obtaining the property where the house does not qualify as a “main home”, this sale will be subject to tax also. There does not have to be a dwelling on the section for the sale to be taxed, it can be any residential sale.
An offshore person is typically a company, partnership or trust that was not formed in New Zealand or can also be a person who is not a New Zealand citizen and does not have a New Zealand residence visa. An offshore person can, however, also be a New Zealand citizen who has not visited New Zealand within the last three years or a residence visa holder who has not visited New Zealand within the last 12 months. Certain companies, partnerships and trusts could also be offshore persons if directors, shareholders, partners, trustees, appointors, or beneficiaries of the entity are living outside of New Zealand.
RLWT is collected prior to the funds from a sale reaching the recipient. Where there is a failure to pay RLWT, the sale itself would not be held up, but monetary penalties would be imposed on the withholding agent.
The amount of RLWT that is to be paid is the lesser of either 33% of the vendor’s profit, or 10% of the gross sale price. It is important to note that the amount withheld is not a final tax and the vendor is eligible to file a tax return to claim back any overpaid tax on the transaction.
It is, however, possible to be exempt to RLWT. If you are a developer and have provided an acceptable security to the IRD and met all of your tax obligations, you may be eligible for exemption. As well as this, if the vendor is an offshore person that is disposing of their main home, they may also be exempt.
When completing a residential sale that falls within the criteria of the Brightline test, you will need to fill out a RLWT declaration. This requires information such as your details, whether or not you are associated with the buyer and whether or not you are an offshore person.
If you are an offshore person, you will need to fill out the applicable section, which includes information such as your share of the property being disposed of and why you may not be subject to RLWT; such as having an exemption certificate, where the transfer is due to the settlement of relationship property or the disposal of the property is by an estate upon the death of a person.