The tax, Residential Land Withholding Tax (RLWT) could potentially apply to anybody who owns a property in New Zealand but is based overseas, including many New Zealand expats as well as foreign national, and would take effect if a home is sold less than two years after it was purchased.
The goal of this new tax is to reign in international property investment from overseas investors, particularly those who buy properties speculatively in the expectation of significant short-term capital growth, and then turn them around quickly for a profit. It is hoped that the new tax will keep the country’s stock of affordable housing accessible to New Zealand nationals who wish to buy as owner-occupiers, and discourage international investors from snapping up these properties quickly as speculative investments.
The law does not just target foreign investors, but a wide variety of people based overseas including many New Zealand nationals who now live in other countries. Property owners who are based overseas and are not New Zealand citizens would be automatically subject to the tax if they were to sell their property within two years of purchase, as would expats who do not have a New Zealand residence visa.
New Zealand expats, and expats from other countries who hold a valid New Zealand residence visa but are not currently based in the country, could also fall within the remit of RLWT. After living outside of the country for a certain period – which could be up to three years – they would become subject to the same rules as foreign investors regarding their liability for the new tax.
The exact rules about who will be eligible to pay the new tax and who will not are quite complicated. Official guidance materials and flow charts have been published online by the New Zealand government to help overseas property owners work out whether or not they are liable. This guidance provides full and detailed definitions of which individuals and which properties are liable for RLWT.
It is expected that the bill, currently with New Zealand’s parliament for approval, will come into law at the beginning of July this year. The new tax will apply to all homes purchased on or after 1st October 2015, and then sold again after a period of less than two years. There will be no exemptions for main residences. This is because the law specifically targets property owners living overseas and therefore properties within the country cannot, the New Zealand government believes, be considered a main residence. There will, however, be an exemption for properties that are sold within two years because of the death of the owner.