Residential Land Withholding Tax – When and who pays it?

What is Residential Land Withholding Tax?

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 RLWT and pay it directly to the Inland Revenue Department.

What if I’m not an offshore person?

If the vendor is not an offshore person, the sale of the residential property happens within two years of obtaining the property, and the house does not qualify as a “main home”, this sale will also be subject to tax.

There does not have to be a dwelling on the section for the sale to be taxed, it can relate to any residential land.

Who are offshore people?

An offshore person is typically a person who is not a New Zealand citizen and does not have a New Zealand Residence visa. It can also be a a company, partnership or trust that was not formed in New Zealand.

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 New Zealand 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.

When is the tax collected?

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.

How much will I be taxed?

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.

Can I be exempt from RLWT?

It is possible to be exempt from 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.

What do I need to do?

When completing a residential sale that falls within the criteria of the Brightline test, you will need to fill out a RLWT declaration. Your lawyer will normally assist you with this. The RLWT declaration requires the input of 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. Examples of why you may not be subject to RLWT include: 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.

If you have any questions regarding RLWT, please contact us to talk to one of our property experts.