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Are you ready for RLWT?

Residential land withholding tax (RLWT) kicks in on 1 July 2016. “Offshore RLWT persons” who sell land subject to the bright-line test may have RLWT deducted from their sale proceeds. Primarily, the vendor’s conveyancer will be responsible for deducting the tax, however, accountants may need to assist with calculating the amount payable to Inland Revenue.

The tax was introduced as a means of ensuring that offshore taxpayers who are required to pay tax under the bright-line test meet their New Zealand tax obligations. Collection of income tax from these taxpayers is more challenging then from New Zealand based taxpayers, and so deducting at source can be seen as a way around the issue.

Important things to note include:

  • RLWT only applies to “offshore RLWT persons” (this is a defined term but broadly, it covers offshore based taxpayers and includes individuals, companies, trusts and partnerships)
  • It only applies to residential land (including bare land)
  • The tax applies to bright-line disposals of land (briefly, where land is acquired and disposed of within two years). It also captures foreign land dealers, developers and builders who would normally be subject to tax under a different land taxing provision other than the bright-line test
  • It is not a final tax meaning that taxpayers will need to file an end-of-year tax return to determine the final tax liability in respect of the land disposal. The RLWT is available as a tax credit to offset against any tax liability
  • Taxpayers concerned about cash flow problems or funding the RLWT can file an interim tax return if they think they are a due a refund in respect of the land disposal
  • Foreign land dealers, developers, and builders can apply for a certificate of exemption from RLWT if a good tax history can be demonstrated or if a security is paid to the Inland Revenue.

 

Vendors who dispose of land subject to the bright-line test will have to complete a form “Residential land withholding tax (RLWT) declaration” (IR1101) disclosing their name, IRD number and whether or not they are an offshore RLWT person. Conveyancers will then need to undertake reasonable checks to verify the information provided.

Conveyancers must also complete an RLWT return (form IR1100) and send this to the Inland Revenue, along with any RLWT deducted, by the 20th of the month following the month in which the RLWT is deducted.

Lawyers and accountants who have offshore clients engaging in New Zealand residential land transactions should be aware of RLWT and its potential impact.

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