Budget 2015: Extra property tax measuresFinance Revenue Budget 2015
The Government is taking extra steps to bolster the tax rules on property transactions – including those by overseas buyers - and to help Inland Revenue enforce them, Finance Minister Bill English and Revenue Minister Todd McClay say.
The tax measures are also expected to take some of the heat out of Auckland’s housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues, Mr English says.
“Taken together, they will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax – whether they’re from New Zealand or overseas.”
The Budget this week will confirm that, from 1 October this year, the following will be required when any property is bought or sold:
- All non-residents and New Zealanders buying and selling any property other than their main home must provide a New Zealand IRD number as part of the usual land transfer process with Land Information New Zealand.
- In addition, all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport.
- And to ensure that our full anti-money laundering rules apply to non-residents before they buy a property, non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.
- In addition, a new “bright line” test will be introduced for non-residents and New Zealanders buying residential property, to supplement Inland Revenue’s current “intentions” test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement.
“Tax rules are complex and affect people in different ways, so we will consult on these measures before they take effect on 1 October,” Mr English says.
The “bright line” test will then apply to properties bought on or after 1 October.
To further ensure overseas property buyers meet both existing tax requirements and those of the new test, the Government will investigate introducing a withholding tax for non-residents selling residential property.
Officials will consult on these details with a view to this withholding tax being introduced around the middle of 2016.
Mr English reiterated owner-occupiers of residential property will not be affected by the new measures when they sell their main home, or if property is inherited from a deceased estate or transferred as part of a relationship property settlement.
“It’s important to reiterate that these changes will not apply to New Zealanders’ main home, although existing tax rules will still apply in addition to these new measures,” Mr English says.
“It’s equally important that people buying residential property for gains meet their tax obligations, whether they are from New Zealand or overseas.
“The combination of collecting IRD numbers and introducing this new bright-line test will help ensure that non-residents pay their fair share of tax in New Zealand.”
Since Budget 2010, the Government has provided Inland Revenue with $33 million more for property tax compliance and enforcement. In return, up to March this year, this has resulted in an extra $258 million of assessed tax revenue – a return of over $7.80 for every $1 invested.
The Budget will provide Inland Revenue with a further $29 million for property tax compliance, taking its total budget for work in this area over the next five years to $62 million. This is expected to generate around $420 million of additional assessed tax in the coming five years.
Mr McClay says the extra information disclosure requirements for property buyers, particularly for non-residents, will help Inland Revenue track and identify transactions that are likely to be taxable.
“In particular, they will allow Inland Revenue to share information about non-residents with overseas tax authorities,” he says.
“Under the current law, anyone buying property with the intention of selling it for a gain is liable for tax on that gain. As the extra tax assessed confirms, Inland Revenue has had good success in enforcing the existing rules in recent years.
“So we’re providing Inland Revenue with more resources, information and tools to ensure that both New Zealand and non-resident property investors pay their fair share of tax.
“The new bright line test will create a clearer rule that ensures buyers who sell properties within two years are taxed on their gains, subject to the few exemptions we’ve set out.
“They will still be subject to tax under existing rules if they buy a property with the intention of selling the property for gain – even if they do so outside the two-year “bright line” period,” Mr McClay says.