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What's This New Property Tax And Will I Need To Pay It?

 

You might have heard in the news that there’s a new land tax here in NZ called Residential Land Withholding Tax (or RLWT).  We know tax is never a very interesting topic (OK let’s be honest, it’s totally boring) but if you’re buying and selling property it is super important you understand what RLWT is and if you’ll need to pay it. 

What is Residential Land Withholding Tax?

RLWT is a new tax that has just come into play.  It is aimed at slowing down the property market here in NZ by making peeps who live outside of NZ (officially called an “offshore person”) and are buying and selling residential property in NZ within a short time frame pay tax.

Do I have to pay it?

This can be a tricky one!  Here are a few simple questions you can ask yourself to see if you need to pay RLWT on the sale of your property: 

  1. Did I buy the property after 1 October 2015?
  2. Am I signing an Agreement for Sale and Purchase in respect of the sale of the property within 2 years of the date that I bought the property?
  3. Is this my main home?

If you answered “no” to questions 1 and 2, and “yes” to question 3, then chances are you don’t need to worry about RLWT.  If you didn’t, we recommend talking to your lawyer to suss out whether you will need to pay RLWT.

But doesn’t this only apply to overseas people?

The meaning of an “offshore person” for the purposes of RLWT includes more people than you’d think.  If you’re a NZ citizen who has been living overseas for the last 3 years without coming home for a holiday, and you’re now wanting to sell your NZ residential property, then there’s a good possibility that you will be classed as an “offshore person” and you will need to pay RLWT.  If you have a trust that owns the property and one of the beneficiaries lives overseas, then you may also have to pay RLWT.  So while this tax is aimed at overseas people, there is a broad definition of who is an “offshore person”.

How much will I have to pay?

There are 3 different calculations that can apply to RLWT.  You will need to pay the lower of these 3 calcs: 

  1. 10% of the sale price.
  2. The greater of the sale price less the purchase price x the RLWT rate (28% for companies and incorporated societies and 33% for all individuals and trusts), or zero.
  3. Sale price less any mortgage owing to a New Zealand registered bank and any outstanding local authority rates, or zero.

When do I need to pay it?

Any RLWT needs to be calculated and paid to IRD at the time of the property sale, so if you think that it might apply to you, remember to include it in your calculations.

So…what next?

There have been a lot of changes to the property market over the last year, and this is a pretty big change for everybody, so make sure you contact your lawyer to have a chat about whether you will have to pay RLWT when you sell your house so that you’re not left with a really expensive surprise!

Disclaimer: The information on this page is general information only and must not be relied on as legal advice. Legal Beagle is not a law firm or a substitute for a law firm. We are unable to provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defences, options, selection of legal documents or strategies. 

 

 

 

Join the Discussion

  • Mohan patel 08/09/2016 4:56pm (3 years ago)

    Very good topic!!

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