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CORRECT: Inland Revenue seeks feedback on withholding tax on foreign property buyers
By Paul McBeth
Aug. 31 (BusinessDesk) - The Inland Revenue Department is proposing to introduce a withholding tax on foreign buyers of residential property from July next year as part of the government's plans to crackdown on speculators.
The tax department is proposing to implement the tax, which would require an amount to be withheld on the sale of residential property, to support the introduction of the two-year bright-line test. The test, once it comes into effect in October, will tax any investor capital gains on property that is sold within two years.
The IRD wants feedback on a consultation document released today, which proposes a withholding tax of 33 percent of a vendor's gain on a sale, or 10 percent of the total purchase price, whichever is the lower. Conveyancers and solicitors would act as the withholding agents.
"It can be more difficult to collect tax from people speculating on property in New Zealand if that seller lives overseas," Revenue Minister Todd McClay said in a statement. "For this reason we are proposing that a portion of the sales proceeds are withheld at the time of sale and paid to Inland Revenue as a pre-payment or bond against any tax that may be due."
The withholding tax was floated when the government unveiled plans to impose tighter policing of tax on property speculators in the May budget in response to growing fears about the pace of Auckland house price inflation.
Submissions on the paper close on Oct. 2, and officials are particularly interested in who should have to actually withhold the tax and how the process would work in practice.