Property and Tax. The Facts.
Some deductions are allowable when a property subject to the bright-line test is sold. However, where losses arise as a result of the bright-line test they have been ring-fenced so they may only be offset against taxable gains arising on other land sales. It is not possible to claim a loss arising from a transfer of property to an associated person.
INLAND REVENUE WILL LOOK AT COMPANIES AND TRUSTS
Inland Revenue keeps a close eye out for where land-rich companies and trusts try to get round the bright-line test. They may view a transaction as subject to the bright-line test where:
– 50% or more of the shares within a 12-month period are sold
– There is a change in the trust deed
– A decision-maker under the trust deed changes
This applies where at least 50% of the value of the company or trust is attributable to residential land either directly or indirectly.
IRD NUMBERS FOR PROPERTY SALES
All vendors and purchasers of property other than their main home must now provide an IRD number as part of the land transfer process.
Non-residents |
Offshore buyers may be required to provide a New Zealand bank account number before they can obtain a New Zealand IRD number. 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. |
Family trusts |
A family trust is not exempt from providing an IRD number where a family’s main home is owned by the trust. Up till now family trusts haven’t needed IRD numbers unless they operated a business or owned rental properties. Now, when the family home is transferred into the trust or when the trust buys or sells property, the trust needs an IRD number. Trustees’ own personal IRD numbers aren’t acceptable. The new requirements also affect changes of title. So, if a trustee dies or retires and the new trustee’s name needs to be registered on the property title, the trust needs an IRD number to register the change. |
Residential Land Withholding Tax (RLWT)
Where a vendor is an ‘Offshore RLWT person’, a withholding tax may be required to be deducted from the sales proceeds and paid to the IRD where property is sold within 5 years of acquisition. An offshore RLWT person is defined widely and captures owners of property that may appear to be in New Zealand, for example New Zealand registered companies whose majority directors are New Zealand based (but have 1 or more directors based overseas). A certificate of exemption may be applied for if certain criteria are met.
Our Recommendation
Please contact us if you are considering buying or selling residential property; if your company is thinking about a large scale share transfer; or there are any changes to your family trust’s trust deed or trustees.
If you are arranging for the family trust to buy, sell or transfer property, and the trust does not already have an IRD number we can take care of this. Otherwise you could face costly and stressful delays while you sort out the paperwork.
You might also like to have a catch up with us on whether the changes affect your tax profile or investment strategy.