The May 2015 budget announced a number of changes to the information that must be disclosed as part of a property transaction and also introduced a new ‘bright line test’ regarding property sold within two years of being purchased. At the time of the announcement the specifics of the legislation were unclear. The legislation has been in place since 1 October and here is what we now know:
- In addition to the existing ‘intentions test’ all residential property sold within two years of purchase will be taxable. The key exceptions are:
- The family home – Can be owned by either individuals or a Trust. A person (or Trust) can only have one main home. What this means is that the family home exception cannot be used for additional houses such as the holiday home.
- The main family home exception cannot be used more than twice in a two year period.
- The family home exception cannot be used for the sale of a bare section as it has no dwelling.
- The family home exemption does not apply if more than 50% of the property is used for a business purpose. (This could be significant where the property contains more than one dwelling and the other dwelling is rented out).
- The bright line test does not apply to inherited property or property transferred under a relationship property settlement.
- If you have tax to pay under the bright line test, this income will need to be factored into your calculations regarding:
- Working for Families Tax Credits
- Student Loan repayment obligations
- Child support payments
- Any losses arising from the bright line test will not be able to be offset with other types of income. The losses can only be used to offset taxable income under the bright line test.
- All transfers of Property must be accompanies by a Land Transfer Tax Statement. This form collects all of the relevant tax information for both the vendor and purchaser. (IRD number, place of tax residency etc). The information gathered through these form will significantly improve the information gathering and therefore Inland Revenue focus on property speculation.
- A residential Land Withholding Tax is still being investigated. No legislation is in place for this as yet. It is envisaged that the withholding tax will be utilised to ensure tax compliance of offshore investors.
Does this change my ability to invest in New Zealand?
None of these new rules alter the ability to invest in New Zealand property. Property investment is not restricted to NZ residents or citizens. However what it does mean that buyers must have a NZ Inland Revenue number and NZ bank account, each of which are easily obtained