WELLINGTON – Foreign property speculators selling residential property in New Zealand may soon face a withholding tax to ensure that all liabilities are paid on the profits made. On August 31st the Inland Revenue Department of New Zealand issued a statement confirming that public consultation has begun on the proposal to implement a withholding tax on the sale of any residential property held by a non-resident.
Under the details of the proposal, when a seller who is classified as an “offshore person” sells residential property in New Zealand, a portion of the gains shall be retained by the lawyer facilitating the sale, to be subsequently paid out to the Inland Revenue Department.
The amount to be withheld will be the lower of either 33 percent of the gain on the sale or 10 percent of the sale price.
The proposed regulations would also take into account the cost of any improvements made to the house, a move which will ensure that if the seller has made an overall loss on the property due to the cost of improvements, then they will not need to pay the withholding tax. The proposed withholding tax is not a new tax but a collection mechanism on incomes garnered from property sales, a system which the IRD deems necessary due to the difficulty of collecting taxes from individuals who do not reside in New Zealand.