Bright-line Bill passes third readingRevenue
Revenue Minister Todd McClay says the passing of the bright-line legislation in Parliament today is an important tool to ensure property speculators pay their fair share of tax.
The bill, which contains further measures to strengthen the property tax rules announced as part of Budget 2015 passed its third reading in Parliament today.
Mr McClay says proposals in the Taxation (Bright-line Test for Residential Land) Bill were part of a three-pronged approach announced by the Government in May to tighten the property investment rules.
The new bright-line measures will require income tax to be paid on any gains from residential property purchased on or after 1 October 2015 and sold within two years. The exceptions are an owner’s main home, inherited property, and the transfer of relationship property.
“We should be clear that the current ‘intention’ test will remain after the two year period. This means that when someone buys a property with the intention of making a profit they must pay income tax on that gain,” says Mr McClay.
“The proposals in this bill, together with recently enacted rules requiring buyers and sellers of property to provide an IRD number, and non-residents to also provide the foreign equivalent of an IRD number and a New Zealand bank account number, will help Inland Revenue to better identify investors in New Zealand’s residential property and ensure they pay their fair share of tax on gains from property sales.
“IRD will be watching transactions as part of this requirement to provide IRD numbers at the time of sale. This will enable them to enforce income tax rules on those who might try to avoid their obligations outside the two year period,” says Mr McClay.
“We have provided IRD with $29 million out of Budget 2015 to focus on property tax compliance. In total, they have $62 million in funding over five years, which is expected to generate an additional $420 million of tax revenue.
“As a result of this investment, as many as 100 compliance officers will undertake this important work.
“The third part of the Budget property package, which proposes a withholding tax collection mechanism for the bright-line test that will apply to sellers who are defined as an “offshore person” under the tax rules, is part of a larger tax bill that I propose to introduce soon.
“Together, these new rules will make for a clearer, more cohesive approach towards taxing gains on residential property,” says Mr McClay.
“They will allow Inland Revenue to more accurately identify investors in residential property, here and overseas, and ensure they pay their fair share of tax.”