Inland Revenue - Tax policy Tax Policy

News and information about the Government's tax policy work programme, including:
- proposed changes to the laws that Inland Revenue is responsible for
- updates on the progress of bills through Parliament
- policy announcements

Budget 2015 – property compliance proposals announced

17 May 2015

The Prime Minister John Key announced proposals today to improve tax compliance in the property investment sector. The proposals, which are not aimed at the main family home, include:

- A New Zealand IRD number will be required as part of the land transfer process.

- As part of the land transfer process, non-resident buyers and sellers must also provide their tax identification number from their home country.

- Non-residents will also need a New Zealand bank account before they can get an IRD number in order to buy a property.

- 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.

- An extra Budget allocation for Inland Revenue work investigating property compliance, aggressive tax planning and hidden economy initiatives.

For more information see the media statement from the Prime Minister, the joint media statement from the Minister of Finance Bill English and the Minister of Revenue Todd McClay, and the fact sheet.


Rt Hon John Key
Prime Minister

17 May 2015

Media statement

Budget 2015: Taxing property gains fairly

The Budget will include extra measures to ensure that people buying and selling residential property for profit – including overseas buyers – pay their fair share of tax, Prime Minister John Key says.

“People calling for a new capital gains tax often overlook the fact that under existing rules, anyone buying property with the intention of selling for a gain is liable for tax on that gain,” Mr Key told the National Party’s Lower North Island regional conference in Lower Hutt today.

“Everyone – whether from New Zealand or overseas – should pay their fair share of tax according to the law. So we need to ensure the existing law is enforced.”

Mr Key confirmed the Budget this week will contain several measures to bolster tax rules on property transactions and to help Inland Revenue enforce them.

They include:

  • Providing Inland Revenue with extra funding for compliance and enforcement.
  • Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.
  • Requiring non-residents to have a New Zealand bank account to get a New Zealand IRD number.
  • Introducing a new “bright line” test to tax gains from residential property sold within two years of purchase, unless it’s the seller’s main home, inherited or transferred in a relationship property settlement.

The changes will be subject to consultation and take effect on 1 October this year. The “bright line” test will apply to properties bought on or after that date.

“These measures will not affect New Zealanders’ main home, although existing tax rules will still apply in addition to these new steps,” Mr Key says.

“They are aimed squarely at ensuring that property buyers – including overseas speculators - who buy residential property with the intention of selling for a gain pay their fair share of tax as required by the law.

“It’s not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain.

“This is quite different to an investor buying with a long-term view of renting their property to tenants. And it’s completely different to New Zealand owner-occupiers who have worked hard to buy their family home.”

Mr Key says that while the current law is clear about taxing property gains, decisions often rely on the intent of the buyers or an assessment of their intentions by Inland Revenue.

“One of the reasons this has become an issue, particularly with overseas investors, is that we don’t always have good information about them. And some overseas investors can be difficult to track down – even if Inland Revenue knows they owe tax.”

Mr Key says New Zealanders would expect Inland Revenue to apply the same tax rules on overseas property investors that are applied to New Zealand property buyers.

“That’s what these changes are about. As New Zealanders, we expect each other to pay our fair share of tax.

“That same requirement must also apply to overseas residents. The Government welcomes overseas investment, but in return those investors must follow our rules when it comes to tax,” Mr Key says.


Hon Bill English
Minister of Finance

Hon Todd McClay
Minister of Revenue

17 May 2015

Media statement

Budget 2015: Extra property tax measures

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.

Media contact: Lesley Hamilton 027 490 1345


PROPERTY TAX MEASURES – FACT SHEET

Summary

  • The Budget will include steps to bolster the tax rules on property transactions and to help Inland Revenue enforce them.
  • These measures will ensure that property investors pay their fair share of tax – whether they are from New Zealand or overseas.

What is changing?

The Budget will provide $29 million of extra funding specifically for Inland Revenue to increase its property tax compliance activities, taking its total budget in this area over the next five years to $62 million. This follows an extra $33 million for property compliance and enforcement since Budget 2010.

After consultation, the following will be required when any property is bought and sold from 1 October this year:

  • 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.
  • All non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification, such as a passport.
  • To ensure that our full anti-money laundering rules apply to non-residents before they buy a property, all 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 sold as part of a relationship property settlement. The new test will apply to properties bought on or after 1 October.

What’s the purpose of these measures?

Under New Zealand’s existing tax laws, anyone who buys a property with the intention of selling it for a gain is liable for tax on any gain. This applies equally to New Zealanders and to overseas buyers. The Government wants to make sure this existing law in enforced across the board.

The measures announced today will bolster the tax rules on property transactions and help Inland Revenue enforce them. In turn, this is expected to take some heat out of Auckland’s housing market

Extra funding for Inland Revenue

The $29 million of extra funding in Budget 2015 will be used to increase property tax compliance activities. This will focus on targeting property speculation, particularly in Auckland and Christchurch.

This will take Inland Revenue’s total budget for work in this area over the next five years to $62 million. In return, this is expected to generate around $420 million of additional assessed tax over the next five years. Since 2010, the Government has provided Inland Revenue with an extra $33 million for property tax compliance, and this has led to an extra $258 million of assessed tax – a return of over $7.80 for every $1 invested.

More information from property transactions

From 1 October, all non-residents and New Zealanders buying or selling property other than their main home must provide a New Zealand IRD number as part of the usual land registration process.

If a person is resident for tax purposes in another jurisdiction, they will also have to provide any tax identification number (which is the equivalent of an IRD number) that has been issued to them by that country.

This information will help Inland Revenue identify people who may be trading property for the purpose of making gains in the New Zealand market. Inland Revenue will also be able to provide information to overseas tax authorities in line with existing New Zealand legislation.

Anti-money laundering rules

As a prerequisite to applying for an IRD number, a non-resident will need to open a New Zealand bank account. This will ensure that non-residents investing in residential property are subject to our full anti-money laundering rules.

“Bright line” test

The new “bright line” test will require income tax to be paid if a residential property is bought and sold within two years, unless it is the seller’s main home. Following consultation on details, the test will apply to residential property bought on or after 1 October 2015.

If a property is sold within two years, any gains on sale will be taxed at the seller’s normal income tax rate. Sellers will need to include the gain in their income tax return for the year.

There are a small number of exemptions from the “bright line” test - if the property being sold is the seller’s main home, if it is inherited, or if it is transferred as part of a relationship property settlement.

The “bright line” test supplements Inland Revenue’s current “intentions” test for taxing property sales. It will help ensure that people who buy and sell property for gains actually pay tax on those gains. And it means that if property is bought and sold within the two years, there will be a presumption that the gain is taxable unless it falls within the exemptions.

Withholding tax for non-residents

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.

Some overseas property buyers and sellers can be difficult to track down - even if Inland Revenue knows they owe tax. Requiring non-resident property buyers to provide a New Zealand IRD number will help Inland Revenue to identify which of them should pay the new withholding tax under the new “bright line” test.

Officials will consult on the details with a view to the withholding tax being introduced around the middle of 2016.

What is the process from here?

The Government will consult on the details of the measures announced today. An issues paper will be released in July on the “bright line” test before legislation is introduced by late August. The new test will then apply to properties bought on or after 1 October.