Bright-line test for residential land sales
The main feature of this Bill is the proposed new objective bright-line test for land sales which will impose income tax on any gains from residential property acquired and disposed of within two years. An exception is provided where the disposal is of a person’s “main home” as defined. The bill essentially follows the proposal in the issues paper with some refinement based on submissions.Key features of the proposed rules
- The two-year period for the bright-line test runs from the date of acquisition of the land to the date of disposal. The date of acquisition is the latest date on which the person acquired an estate or interest in land (generally the date the instrument to transfer the land to the person is registered for the purchase of the property).
- The draft legislation makes it clear that the rules will also apply to disposals of residential land outside New Zealand. For example, if a New Zealand resident purchases an Australian rental property after 1 October 2015 and disposes of it within the two years, this would appear to be subject to tax in New Zealand under the bright-line test.
- Deductions in relation to losses from disposals can only be used against other income arising from prescribed income tax provisions in relation to property.
- All existing property will be grandparented. That is, property acquired before 1 October 2015 will not be subject to the proposed rules.
Rules for people resident in another country acquiring property in New Zealand
- There will be a requirement to provide an IRD number at the time of property transfer (and a Tax Identification Number for people resident in another country).
- There will be a requirement for offshore persons to provide a New Zealand bank account number to obtain an IRD number.
- The first of these changes will see further disclosure requirements at the conveyancing stage of a property transaction. Parties to a property transaction will be required to provide their IRD number (or Tax Identification Number) as part of the conveyancing process although some exceptions apply.
- The IRD number requirement does not apply to a New Zealand individual (who is not an “offshore person” as defined) buying or selling their “main home”. This is a defined term. Draft legislation also allows for Government to provide for exempt transfers by regulation. The “main home” exception does not apply where a person is selling their third main home in a two-year period.
- This information will be collected by conveyancers from property vendors and purchasers and provided to Land Information New Zealand (LINZ) which, in turn, will provide the information to the Inland Revenue Department. This will impose a greater level of costs for the extra work required by conveyancers.
- Although it may be tempting for some to simply make up an IRD number, it is an offence to provide false information and a $25,000 fine can be imposed for a first offence ($50,000 thereafter).
- The second proposal is to require all non-resident IRD number applicants to have a New Zealand bank account. A non-resident for the purpose of being issued an IRD number will be defined as an “offshore person”. It is not clear how the rules will apply, if at all to existing non-residents that already hold IRD numbers. A clause is being introduced to ensure this information is immediately provided on a person becoming an “offshore person” as defined.