When RLWT obligations are not met

(Clauses 42, 44, 72 and 73)

Summary of proposed amendment

The standard penalties that apply to other withholding taxes will also apply to RLWT. However, when RLWT has not been retained from a residential land purchase amount by a paying agent, late payment penalties will not apply.

The Commissioner of Inland Revenue will be able to report details of non-compliant paying agents to their relevant professional bodies.

Key features

Penalties

Under new section RL 2(6) the rules relating to penalties as set out in the Tax Administration Act 1994 will apply to paying agents as though they have failed to pay an amount of withholding tax equal to the amount of RLWT they failed to satisfy. This will mean that the general penalties rules that apply to withholding taxes (such as late filing penalties) will apply to RLWT, irrespective of whether the person required to satisfy RLWT is a paying agent or a withholding agent.

Late payment penalties

New section RL 2(6)(b) provides that when the paying agent has not retained the amount of RLWT from the residential land purchase amount, late payment penalties will not apply. This is because in most cases, the paying agent will not be liable for the underlying amount of RLWT and once they have released the funds to the vendor, they will not be able to pay the RLWT out of the residential land purchase amount.

However, new section RL 2(6)(a) provides that when a paying agent has subtracted or retained an amount of RLWT from a residential land purchase, but has failed to pay the RLWT to the Commissioner, late payment penalties will apply. The late payment penalties are set out in section 139B of the Tax Administration Act 1994.

Liability for underlying RLWT

As noted previously, under new section RL 2(5), a paying agent will not be jointly and severally liable in relation to the vendor’s RLWT debt, despite their obligation to satisfy the vendor’s RLWT liability. However, if a paying agent has retained RLWT from a residential land purchase amount, but has not paid the RLWT to the Commissioner, they may be liable for the RLWT.

If the vendor and purchaser are associated persons, the purchaser will be the withholding agent and will therefore be liable for the underlying RLWT, in a similar way to standard withholding taxes.

Reporting to professional body

An amendment to section 81 of the Tax Administration Act 1994 is proposed, to allow the Commissioner of Inland Revenue to provide details of RLWT paying agents to their relevant professional body when they have failed to fulfil their RLWT obligations. These professional bodies might include, for example, the New Zealand Law Society, Auckland District Law Society, and the New Zealand Society of Conveyancers. This will allow professional bodies to take appropriate action against members who do not comply with their legal obligations under the proposed RLWT.

This is an important design feature that will support the integrity of the RLWT, as paying agents will not be liable for the underlying RLWT in most circumstances.