The new Land Transfer Tax Statements and property transactions
As of 1 October 2015, new tax reporting laws came into play aiming to ensure better tax data collection and compliance with property tax laws for the IRD. These new laws have implications for buyers, sellers and their conveyancing professionals as such laws must be complied with in order to be able to complete legal property transactions.
1. What land do the new laws apply to?
The Tax Statement will need to be completed for transfers of the following types of land:
- freehold (including fee simple and life estates),
- stratum estates,
- licences to occupy, and
- any other estate in land declared to be a specified estate in land by regulations made under the Land Transfer Act 1952.
Therefore, the laws capture residential sales and purchases, although there are exemptions to the rules (see below).
The information contained in the tax statement will be provided to Land Information New Zealand as part of the transfer documentation, and then forwarded to the IRD upon settlement.
2. Who must comply with the laws?
All buyers and sellers must provide the required tax information to their conveyancing professional before their transaction can be completed legally. An instrument to transfer an estate in land is not ready unless each of the buyers and sellers have completed a tax statement and their conveyancing lawyer/ professional has then entered those tax details onto LINZ.
In order to provide the correct information, parties to the transaction must fill in and sign Land Transfer Tax Statements. These statements record such details as the party’s full name, whether the party is the buyer or seller, their IRD number (unless the transaction falls into an exemption), any overseas tax residency details, and state whether the transfer is notifiable or non-notifiable and if non-notifiable, which exemption applies. Such statements must then be signed by the party to show that the information is correct. It is an offence under section 156E(1) of the Land Transfer Act 1952 to provide a tax statement that, to the signing person’s knowledge or with their intent to deceive, contains false or misleading information.
However, some transactions are exempt from requiring those involved from providing their IRD number. The tax statement will still need to be filed with LINZ and the IRD but the exemption will be listed on the statement and the transaction will be classed as ‘non-notifiable’. (See below at part 3).
3. What are the exceptions to the rules and when is a transaction ‘non-notifiable’?
Exceptions to the new rules do exist. Some transactions are such that the party involved is not required to record their IRD number and the transaction is classed as ‘non-notifiable’. If claiming an exemption, the correct exemption code (lettered ‘A’ to ‘H’) must be recorded on the statement and on LINZ.
In order to claim such an exemption, the transaction must come under one of the following:
- Where the transaction involves the buying or selling of a natural person’s ‘main home’. A main home is one where the dwelling is predominantly used as that person’s place of residence or the dwelling with which that person has the greatest connection. (The greatest connection is determined by looking at such factors as the where the person’s personal belongings are kept, where they spend the most time, where the person’s immediate family live, whether their strongest business and social ties are in the area).
- The Agreement for the sale or purchase was entered into before 1 October 2015 and settlement occurs on or before 1 April 2016.
- Where you are acting as the administrator, executor or trustee of a deceased’s estate and are disposing of the land in the administration and distribution of the estate.
- You are acting on behalf of a local authority (as defined in the Income Tax Act 2007).
- You are acting on behalf of a public authority (as defined in the Income Tax Act 2007).
- The transaction involves the compulsory disposition of land:
-as part of a mortgagee sale,
-as part of a rating sale under the Local Government (Rating) Act 2002,
-or it is a court or statute ordered sale.
- Where the transfer is a Maori Land transfer.
- Where the transfer relates to the Treaty of Waitangi land settlement process.
4. What is not exempt from the rules – ‘notifiable’?
The completion of a Land Transfer Tax Statement, including the provision of an IRD number, will be required to be filed (notifiable) where:
- The main home exemption has been utilised more than twice in the last 2 years immediately preceding the date of the transfer.
- The dwelling on the property has not been used predominately as your main home (seller) or is not intended to be used as your main home (buyer).
- The property is a bare section so there is no main home dwelling on it.
- The property being bought or sold is an investment property.
- The party involved is not a natural person (i.e. trustees acting for a trust (including a family trust), partnerships, body corporates, unincorporated bodies, and those using agents with powers of attorney).
- The party involved is an off shore person (a non-New Zealand resident).
(Offshore persons who need to apply for a New Zealand IRD number will need to set up and an operational New Zealand bank account as a pre-requisite).
5. What if I am a tax resident in another country?
This will need to be stated on the Land Transfer Tax Statement as well as the IRD equivalent number and country code. (You can find a country code at www.ird.govt.nz). In general, you will be classed as a tax resident of another jurisdiction if you are required to file income tax returns there for your worldwide income. If in doubt, contact the tax authority in that jurisdiction.
6. What if I am acting on behalf of a Trust, partnership or company?
If the party signing the Land Transfer Tax Statement is not acting in their personal name but is instead acting on behalf of a trust, partnership or unincorporated body, then they must provide the tax details of that trust, partnership or body. Therefore, instead of their own personal name and IRD details being entered, the IRD number and name of the trust or body would be entered, with the signatory stating their name and position in relation to the trust or body (i.e. as director or trustee).
The same applies to those acting:
- as a nominee or under a power of attorney whereby the should enter the name of the person who made the nomination or granted the power of attorney;
- on behalf of a Body Corporate under the Unit Titles Act 2010 whereby the Body Corporate and the number would be entered.
Trusts that own land or other income generating assets must have and provide an IRD number when buying or selling property. Non-income generating family trusts that own the main family home as their only asset are included. Therefore if you are planning on buying a property through your family trust, ensure that you apply for an IRD number with the IRD as soon as possible to avoid delays.
If a person or body does not have an IRD number, they must request one from the IRD as soon as possible to avoid delaying the settlement and incurring penalties. IRD numbers can be obtained reasonably easily by applying for one from the IRD but it can take several weeks to be issued so bear those timeframes in mind. Go to www.ird.govt.nz to find out how to apply.
The new tax rules do require those who are buying or selling to provide more information to their conveyancing professionals and in a timely manner. Please bear the above requirements in mind so that you can provide the necessary information when needed and avoid delaying settlement.