Tax on Residential Property Sales – Resident Land Witholding Tax
As your conveyancing solicitor, the Inland Revenue Department now requires us to withhold tax payable from the sale proceeds and pay this sum to the Inland Revenue Department in some circumstances. This is known as Resident Land Withholding Tax (RLWT).
RLWT applies when:
- The property being sold is “residential land” located in New Zealand;
- The vendor acquired the land after 1 October 2015 and has owned the property for less than two years; and
- The vendor is an Offshore RLWT Person.
An Offshore RLWT person includes:
- All non-New Zealand citizens and individuals who do not hold residence class visa granted under the Immigration Act 2009;
- All citizens who are living overseas if they have not been physically present in New Zealand within the last three years;
- A holder of a New Zealand residence class visa if they have not been in New Zealand within the last 12 months;
- A company where more than 25 percent of the directors or shareholders are offshore persons;
- A trust if more than 25 percent of trustees or persons who have the power to appoint or remove trustees are themselves offshore persons;
- A trust where:
- All beneficiaries are offshore persons; or
- Where a natural person offshore beneficiary has received distributions from the trust totaling more than $5,000.00 in the last four years; or
- Where a non-natural person has received a distribution from the trust within the past four years; or
- Where there is an offshore person and the trust has disposed of residential land within the previous four years.
If you intend to sell your property that you acquired after 1 October 2015 and:
- You are an offshore RLWT person and you have owned your property for less than two years; or
- You have owned your property in a company or a trust for less than two years and the company/trust is an offshore RLWT person (as defined above); or
- Your transferred your property to your company or your trust within the past two years and the company/trust is an offshore RLWT person (as defined above)
You will have an RLWT obligation and The Property Law Centre will likely be required to withhold RLWT from the sale proceeds.
Please check with The Property Law Centre before entering into an agreement to sell your property.
The amount of RLWT to be withheld is the lowest of the following three amounts:
- 33% (or 28% if the vendor is a company) x (current purchase price – vendor’s acquisition cost)
- 10% x the current purchase price; and
- Current purchase price – outstanding local authority rates – security discharge amount.
The Inland Revenue Department requires all parties to complete a Resident Land Withholding Tax Declaration (IR1101). The obligation to pay RLWT arises on settlement and the onus to withhold RLWT, if it arises, will generally be the responsibility of The Property Law Centre.
Penalties and Interest will apply to the vendor and may apply to The Property Law Centre if RLWT is not withheld and paid to the Inland Revenue Department on or shortly after settlement.