The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act 2016 received Royal Assent on Friday 13 May 2016.
From 1 July 2016 this introduces a requirement to have residential land withholding tax (RLWT) withheld from a sale/disposal of residential land where:
- the property being sold/disposed of is located in New Zealand and meets the definition of "residential land"; and
- the vendor acquired the property on or after 1 October 2015 and owned it for less than two years before selling (i.e. it? taxable under the bright-line test, ignoring the „ain home exclusion?and all other land sale tests); and
- the vendor is an offshore RLWT person. (Note: this is a newly defined definition and differs from the definition of offshore persons for IRD number applications)
The sale/disposal will be excluded from having RLWT deducted when:
- the property is being transferred upon the death of a person to the executor or administrator of the estate, or
- it? an inherited property transferred to, or sold/disposed of, by a beneficiary.
If your client holds a valid certificate of exemption (COE) from RLWT then no RLWT will be deducted. A COE from RLWT can be applied for if the sale involves the disposal of your client? main home, or by those in the business of developing land or dividing land into lots or erecting buildings.
RLWT tax credit
If your client? income tax return includes a taxable property sale that has had RLWT deducted they are entitled to claim a tax credit for this amount. If their only on-going tax obligations relate to their annual income tax return then they can file this before the end of the year.
If your client has on-going tax obligations with New Zealand they can apply for an early repayment of excess RLWT before the income year ends if, using the correct RLWT calculation, they can show that the RLWT deducted exceeds what their tax liability will be on all property sales for the year-to-date. Your client will still be required to file an annual income tax return for the year.
See here for more information, such as who is required to withhold the RLWT.
Performance and Optimisation
Inland Revenue - Tax Agent Comms Issue No 9