Calculating RLWT

(Clauses 44 and 45)

Summary of proposed amendment

There are two main calculation methods for RLWT, with the amount of RLWT payable being the lesser of the amounts calculated under these methods. A third method is available, where the paying agent is the vendor’s conveyancer and the amount of RLWT would exceed the amount available from the total purchase price once a mortgage obligation with a New Zealand-registered bank or non-bank deposit taker has been discharged.

Key features

New section RL 4 provides that the amount of RLWT to be paid will be the lesser of:

• 33% (or 28% if the vendor is a company that is not acting as a trustee) x (current purchase price – vendor’s acquisition cost) (set out in proposed section RL 4(2)); and
• 10% x current purchase price (set out in proposed section RL 4(4)).

New section RL 4(3)(b) defines “current purchase price” as the price agreed by the vendor and purchaser for the disposal of the residential land that the residential land purchase amount relates to. This figure includes deposits and part-payments. New section RL 4(3)(c) defines the “vendor’s acquisition cost” as being the purchase price paid by the vendor for their acquisition of the residential land being disposed of.

It is expected that the vendor’s acquisition cost will generally be available from Quotable Value.

When RLWT exceeds the funds available following discharge of mortgage obligations

To maintain the integrity of the RLWT and the broader tax system, RLWT will generally be paid before other disbursements.

A vendor may have a mortgage secured over the residential land being disposed of. The mortgagee may require the vendor’s mortgage obligation to be discharged before the title to the residential land can be released.

In most cases this should not be a problem, due to the vendor’s gain approach used in new section RL 4(2), but in some situations, the amount of RLWT payable calculated using the two methods outlined above may result in insufficient funds to discharge the vendor’s mortgage.

A third calculation method will be available when the vendor’s conveyancer is the paying agent and the amount of RLWT payable will be the lesser of the amounts calculated using the methods set out in proposed sections RL 4(2), RL 4(4), and RL 4(6).

The amount of RLWT payable using the method in new section RL 4(6) is the current purchase price less the “security discharge amount”. The security discharge amount is defined in section RL 4(7) and (8) and will be the total amount required by a New Zealand-registered bank or non-bank deposit taker (as licensed under the Non-bank Deposit Takers Act 2013) to discharge their mortgages or other securities over the residential land.

Officials will monitor the situation to ensure that this provision is not used to undermine the integrity of the RLWT and the broader tax system.

It is expected that the vendor’s conveyancer will be the paying agent in the majority of transactions. However, when the paying or withholding agent is the purchaser’s conveyancer or the purchaser themselves, this third calculation method will not be available. This is consistent with other withholding tax rules.