NZ govt introduces bill aimed at property speculators

NZ government introduces bill requiring tax numbers from property speculators, more scrutiny of profits

By Jonathan Underhill

June 23 (BusinessDesk) - The New Zealand government has introduced a bill aimed at tightening rules and scrutiny of property investors, including the requirement to provide their tax numbers and for foreign investors to show they have a local bank account, although it didn't go with the tax department's preferred options.

The Taxation (Land Information and Offshore Persons Information) Bill, introduced yesterday by Land Information Minister Louise Upston, amends the Land Transfer Act and the Tax Administration Act to help Inland Revenue enforce the tax rules for property. The changes were announced in Budget 2015, giving the tax department an extra $29 million to chase property investors, tightening rules on investment gains and linking transactions to IRD numbers, or for foreigners, their tax information number, or TIN.

The moves were part of a government response to Auckland's overheated property market, which the Reserve Bank has called a threat to the nation's financial stability.

“While it’s not illegal to trade property to make a gain, property traders are subject to the tax rules like everyone else," Upston said in a statement. "The proposals in this bill will see Land Information New Zealand and Inland Revenue collaborating to ensure fairer taxation of people buying and selling residential property for profit.”

The government will seek feedback on a second element of the budget announcement, a new 'bright line' test which makes clear that gains from residential property sold within two years of purchase will be taxed unless the property is the seller’s main home, inherited from a deceased estate or sold as part of a relationship property settlement.

“I intend to release a public consultation document later this month seeking views on implementing the other major budget announcement – the introduction of a ‘bright line’ test which would make gains from the sale of certain residential properties sold within two years of purchase taxable," Revenue Minister Todd McClay said.

The requirement that foreign investors, or Kiwis out of the country for more than three years, have a local bank account in order to get an IRD number is to ensure compliance with anti-money laundering rules, the ministers said.

IRD itself didn't support the options chosen by the government for the amendments, according to two regulatory impact statements prepared by the department. IRD didn't favour an exemption for property that would be the purchaser's main home, arguing that it would make the system more complicated. It also argued that the benefits of collecting the information may be reduced, with some people potentially falling into a regular pattern of buying, improving and selling their main home, or using a property as their main home before moving out and making it an investment property with a rental income stream.

Under the exemption option "Inland Revenue would not be provided with the information that would help to investigate this," the department said.

IRD also wasn't in favour of requiring non-residents to provide evidence of a New Zealand bank account, saying that "it is not apparent that, for individuals, the general anti-money laundering checks that a New Zealand financial institution would carry out would yield significantly more information than IRD collects as part of the current IRD number application process." Bank account details would likely be collected anyway, once phase two of anti-money laundering checks were rolled out, so any advantage would be "temporary in nature."

The bill is to have its first reading this week and will then be referred to select committee. McClay and Upston said the bill is expected to be reported back to the House in time to be passed in late September in order to meet the target of coming into effect from Oct. 1.

(BusinessDesk)

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