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Inland Revenue

Tax Policy


The bill proposes a new withholding tax – residential land withholding tax (RLWT) on sales of residential property made by “offshore persons” within two years of acquisition.

The new measure is primarily intended to support the “bright-line test” announced by the Government in Budget 2015 as part of a package of proposals to improve compliance with the residential investment property tax rules. The bright-line test requires income tax to be paid on any gains from the sale of residential property bought and sold within two years, with some exceptions.

At the same time the Government announced its intention to investigate a withholding tax to improve compliance with the proposed bright-line test. Proposals for the RLWT were consulted on in an officials’ issues paper, Residential land withholding tax, released in August 2015. Feedback from that consultation has helped shape the RLWT measures proposed in this bill.

As the RLWT will be a collection mechanism for the proposed bright-line test, the proposed RLWT follows as closely as possible the concepts used in the bright-line test.

RLWT will apply when:

  • the property being sold is “residential land” located in New Zealand and defined for the purposes of the bright-line test as introduced in the Taxation (Bright-line Test for Residential Land) Bill;
  • the vendor (seller) acquired the property on or after 1 October 2015 and has owned the property for less than two years before disposing of it (the two-year holding period used in the bright-line test); and
  • the vendor (seller) is an “offshore person”.

An “offshore person” includes all non-New Zealand citizens and non-permanent residents. It also includes a New Zealand citizen who is living overseas, if they have been overseas for the last three years. A holder of a New Zealand residence class visa may be an offshore person if are outside New Zealand and have not been in New Zealand within the last 12 months. New Zealand trusts and companies may also be “offshore persons” if there are significant offshore interests in them.

No exception for the vendor’s main home will be available for the purposes of the RLWT. This is because RLWT will only apply to offshore persons, so it is unlikely that the property being sold is an offshore person’s main home. However, there will be an exemption from RLWT for transfers upon death, and for transfers made in relation to a property relationship agreement, as in the bright-line test.

The obligation to pay RLWT will primarily be the vendor’s conveyancing agent. A conveyancing agent provides conveyancing services as defined in the Lawyers and Conveyancers Act 2006. If the vendor does not have a conveyancing agent, the obligation to pay RLWT will be on the purchaser’s conveyancing agent. In the absence of either, the obligation to pay RLWT will be on the purchaser themselves. If the vendor and purchaser are associated persons, the purchaser will be the person who is primarily liable for the payment of RLWT.

The amount of RLWT required to be withheld will be the lower of:

  • 33% (or 28% if the vendor is a company) x (current purchase price – vendor’s acquisition cost); and
  • 10% x the current purchase price.

RLWT will be paid before other disbursements are made at the time of settlement. If the vendor’s conveyancing agent is required to pay RLWT, this will be paid after the amount required to discharge the vendor’s mortgage obligation with a New Zealand-registered bank or non-bank deposit taker licensed under the Non-bank Deposit Takers Act 2013. If this would result in insufficient funds being available to pay RLWT, the amount of RLWT payable will be restricted to the difference between the current purchase price and the amount required to discharge the New Zealand mortgage.

The person required to withhold must pay the required amount to the Commissioner of Inland Revenue.

The proposed RLWT is not a final withholding tax. The vendor will be able to claim a tax credit for the amount of RLWT withheld and paid to the Commissioner against their final income tax liability in relation to the sale of the residential property. In some cases, this may result in a tax refund.

The proposed RLWT will come into force on 1 July 2016.