Skip to main content
Inland Revenue

Tax Policy

Chapter 5 - Fulfilling RLWT obligations

5.1 A withholding agent’s obligations under the RLWT consist of three key elements:

  • the obligation to determine whether or not RLWT should be withheld and the amount that should be withheld;
  • the obligation to withhold an amount from the payment or other consideration provided by the purchaser of residential land to the vendor and to deposit that amount in a trust account; and
  • the obligation to pay this withheld amount to the Commissioner.

In what circumstances should RLWT be withheld?

5.2 As mentioned above, the main objective of the RLWT is to collect tax liabilities arising under the proposed bright-line test and in particular, from foreign investors. It follows from this that the RLWT should mirror the concepts and definitions used in the proposed bright-line test where possible and practical.

5.3 This means the withholding agent would be required to withhold and pay RLWT to the Commissioner on the sale of residential land, unless the vendor qualifies for either of the following exceptions:

  • they are not an offshore person;
  • the bright-line test does not apply to the sale of the property as a result of the two-year holding period being exceeded.

Not an offshore person

5.4 We suggest that the first exception should be where the vendor is not an “offshore person”. This first exception would rely on the proposed definition of offshore person in the Taxation (Land Information and Offshore Persons Information) Bill.

5.5 The definition of “offshore person” in that bill covers both individuals and non-individuals (for example, trusts and companies).

5.6 For individuals, a New Zealand citizen or person who holds a residence-class visa granted under the Immigration Act 2009 will generally not be classed as an offshore person unless:

  • in the case of citizens, they have not been in New Zealand within the last three years; and
  • in the case of residents, they have not been within New Zealand for the last year.


5.7 A non-individual will be an “offshore person”, if they would be an overseas person under sections 7(2)(b)–(e) of the Overseas Investment Act 2005 (modified to include the test for individuals described above). This test looks through structures that are New Zealand-tax resident and looks at their underlying ownership or control. The test is necessary to prevent offshore individuals circumventing the rule by interposing a New Zealand-resident structure.

5.8 Generally speaking this means a non-individual will be treated as being “offshore” if:

  • it is a body corporate (such as a company) and:
    • ­it is incorporated outside New Zealand; or
    • ­25 percent or more of its shares are owned by a body corporate incorporated outside New Zealand; or
    • ­an offshore person(s) has 25 percent or more of:
      . any class of securities;
      . the power to control the composition of its governing body; or
      . the right to exercise or control the voting power;
  • it is a partnership or other unincorporated body of persons (other than a trust) and:
    • ­ 25 percent or more of its partners or members are offshore persons;
    • ­an offshore person(s) has a beneficial interest in or entitlement to 25 percent or more of the profits or assets (including on winding up); or
    • ­an offshore person(s) has the right to exercise or control the exercise of 25 percent or more of the voting power at a meeting;
  • it is a trust and an offshore person(s):
    • ­ constitute 25 percent or more of its governing body; or
    • ­has a beneficial interest in or entitlement to 25 percent or more of the trust property; or
    • ­are 25 percent or more of those that have the right to amend or control the amendment of the trust deed; or
    • ­are 25 percent or more of those having the right to control the composition of the trust’s governing body; or
  • it is a unit trust and an offshore person(s):
    • ­are the manager or trustee, or both; or
    • ­has a beneficial interest in, or entitlement to, 25 percent or more of the trust property.

5.9 While the proposed bright-line test would generally apply to all purchasers and sellers of residential land (regardless of their tax residence or physical presence), the rationale for using the offshore person test is that the issue that the proposed RLWT is addressing relates to the effective collection of tax from foreign investors who will often have no physical presence in New Zealand. We do not think the alternative of basing the exception on tax residence would be practical, because it is a tax concept that cannot easily be applied or verified by a conveyancer or solicitor.

5.10 The vendor would be required to provide certified evidence to the withholding agent in order to confirm that they are not an offshore person. This could include a New Zealand birth certificate, or a passport, or other relevant documentation (including a statement that they have been physically present in New Zealand for the requisite period). In the case of a non-individual, the vendor would need to provide relevant information or documentation regarding the ownership (or membership) of the governing body.

5.11 Copies of such documents that are certified true copies should be able to be relied upon by the withholding agent.

Two-year period in bright-line test exceeded

5.12 As the proposed RLWT relates to the collection of tax arising under the proposed bright-line test, we suggest that an exception be provided where the vendor exceeds the two-year holding requirement for taxation under the bright-line test.

5.13 This means that a vendor would be able to access this second exception where:

  • the vendor acquires the residential land being sold before 1 October 2015; or
  • the vendor acquires the residential land being sold after 1 October 2015, but has owned the residential land for two or more years when it is sold to the purchaser.

5.14 The dates of acquisition and disposal for the purposes of RLWT should be consistent with the final design of the bright-line test. The Taxation (Bright-line Test for Residential Land) Bill proposes that the date of acquisition would generally be the vendor’s date of registration of the land title and the date of disposal would be the date on which the vendor and purchaser enter into an agreement for the sale of the property.

5.15 The withholding agent would be entitled to rely on information from Quotable Value Limited or Landonline as to the relevant dates.

5.16 Note that the proposed bright-line test would apply where an agreement for sale and purchase is entered into on or after 1 October 2015. In the case where an agreement for sale and purchase is entered into before 1 October 2015, but the date of registration does not occur until after 1 October 2015, the vendor would need to provide a certified true copy of the agreement for sale and purchase (which is dated before 1 October 2015) to prove that the bright-line test does not apply.

5.17 One potential concern relates to the interaction between the intention and bright-line tests. The proposed bright-line test is intended to supplement the intention test and there may be instances where a person satisfies both tests. In such a case, RLWT should still apply – an offshore person should not be able to avoid the RLWT simply because another test also applies. This is because difficulties arise in collecting tax from foreign investors, regardless of which provision applies to impose the tax liability.

5.18 We propose that the RLWT should apply to “residential land” as defined for the purposes of the bright-line test. The proposed definition of “residential land” in the Taxation (Bright-line Test for Residential Land) Bill includes:

  • land that has a dwelling on it;
  • land for which the seller is party to an arrangement that relates to erecting a dwelling on it;
  • bare land that because of its area and nature is capable of having a dwelling erected on it;
  • but excludes land that is used predominantly as business premises or farmland.

When does the withholding obligation arise?

5.19 While the RLWT applies to the total purchase price of the residential property, we suggest that the obligation to withhold RLWT arises on the day the contract is settled.

5.20 The obligation to withhold an amount would be fulfilled by deducting the RLWT from the amount to be paid to the vendor or the vendor’s conveyancing agent. As a practical matter, the settlement statement documenting all the relevant calculations for the property transaction is prepared by the vendor and should include the amount of RLWT that the vendor’s solicitor expects to be withheld.

5.21 In some situations, a deposit may be paid prior to settlement. We do not think that an obligation to withhold RLWT should arise at the time the deposit is paid as transactions can fall through even after a deposit is paid.


Peter agrees to purchase a residential property from Jess for $1 million who is an offshore person. Jess purchased the property one year earlier for $800k. Under the standard rate, the amount of RLWT to withhold in relation to the sale is $66k (33% x ($1m - $800k)). Under the default rate, the amount of RLWT to withhold is $100k. $66k is the amount of RLWT that should be withheld. Prior to settlement, Peter pays a $300k deposit. RLWT is not required to be withheld upon payment of the deposit. On settlement day, the $66k RLWT liability is required to be withheld from the $700k payment made to Jess.

5.22 If the withholding agent fails to withhold the correct amount of RLWT and pay this amount to the Commissioner, they may be liable for a monetary penalty. The Tax Administration Act 1994 sets out when and at what rates such penalties may be charged. This ensures that penalties for breaches of tax obligations are imposed consistently, at a level that is proportionate to the seriousness of the breach. Penalties under the RLWT could be set in accordance with other penalties in the Tax Administration Act 1994.

Discharge of other obligations upon settlement

5.23 As mentioned, most countries place the withholding obligation on the purchaser or, in effect, the purchaser’s solicitor. This means that as a practical matter, the payment of the withholding tax occurs before any other payments are made in relation to the property.

5.24 We consider this should be the result for the RLWT, regardless of who bears the withholding obligation. If the payment of the tax ranked equally or behind other disbursements (e.g. repayment of mortgages) or other charges, RLWT could be easily avoided by taking out a loan or increasing an existing loan just before the sale of the property. In any event, our expectation is that the standard RLWT rate would be used in the majority of cases. This means that in the case where the property value has declined, there would be no RLWT and it should not affect the repayment of mortgages and other obligations of the vendor.


Mary purchases a residential property for $500k, with a $400k mortgage secured over the property. 18 months later Mary agrees to sell the property to Dan for $450k. Using the default RLWT rate, the amount to be withheld would be $45k. Combined with other expenses to be paid upon settlement (e.g. rates), this may leave insufficient funds to repay Mary’s mortgage. However, by applying the standard RLWT rate, no withholding is required because Mary’s acquisition price exceeds the sales price agreed between Mary and Dan. This means that under a “lower of” approach, the standard rate would be used and withholding would not be required.


Ben purchases a residential property for $300k, with a $300k mortgage secured over the property. One year later he agrees to sell the property to Elizabeth for $320k. Using the default RLWT rate, $32k would be required to be withheld. If the default RLWT rate applied, Ben would be unable to repay his mortgage. Applying the standard RLWT rate means that only $6,600 (33% x (320k - 300k)) would need to be withheld. This would leave sufficient funds remaining to discharge Ben’s mortgage.

Payment of withheld amounts to the Commissioner

5.25 Conveyancing agents who handle large volumes of such transactions could incur compliance costs in paying each withheld sum at the time of each transaction. One possibility would be to allow conveyancing agents to pay withheld RLWT amounts on a monthly basis (or “batching”).

5.26 We suggest that the standard due dates for withheld amounts could apply. For example, PAYE, RWT, and NRWT due dates are set out in section RA 15 of the Income Tax Act 2007.

5.27 However, we also suggest that withheld amounts could also be paid on a transaction-by-transaction basis. This may be preferred by the conveyancing agent where RLWT is only occasionally withheld. The parties to the property transaction may wish to negotiate for immediate payment of RLWT to the Commissioner, for example if the vendor would like to file an interim income tax return shortly after settlement and claim a credit for RLWT (this is discussed in further detail in Chapter 7).

5.28 From an administrative perspective, it would be possible to allow both batching and payment on a transaction-by-transaction basis. For example, a conveyancing agent may wish to make payments of withheld RLWT to the Commissioner on a monthly basis, but may agree with some vendors to make immediate payment to the Commissioner.

5.29 When completing the title registration on Landonline, an additional field could be introduced for the withholding, signifying that the RLWT obligations in relation to the transaction have been fulfilled and the appropriate amount has been withheld and has been or will be paid to Inland Revenue.

5.30 We do not consider that a delay in the payment of RLWT should delay the title registration process.

No registration of title

5.31 There may be situations where a sale of residential land does not involve a registration of title. This includes, for example, “off the plan” sales.

5.32 If the parties to the transaction are using conveyancers and/or solicitors, we propose that the primary withholding obligation falls on either the purchaser’s conveyancing agent or the vendor’s conveyancing agent as set out in chapter 3. If there is no conveyancing agent, we propose that the primary withholding obligation falls on the purchaser (also proposed in chapter 3).