There is currently significant public interest in the New Zealand housing market, whether it be issues relating to the Auckland ‘bubble’, property speculation, non-resident buyers, banking restrictions or a combination of these. In response, the Government is introducing a number of changes designed to either directly influence the market, or assist with decision making when deciding whether further changes are required. The key changes are summarised below.
In the 2015 Budget the Government announced a new bright-line test that will apply to residential property acquired from 1 October 2015. The test will require income tax to be paid on any gains from the sale of residential property bought and sold within two years, with the exception of the ‘family home’, inherited property and property transferred in a relationship property settlement.
Inland Revenue has now released an issues paper setting out how the test might work and to ask for feedback on the finer details.
It is proposed that the two-year period will run from the date a purchase is registered on Landonline (Land Information New Zealand’s online centre), and end on the date the person enters into a sale and purchase agreement.
Because of the risk (from the Government’s perspective) that the new rules could apply at the height of Auckland’s property bubble, the issues paper recommends that losses incurred on the sale of land should be ring-fenced and only able to be offset against profits from other land sales.
IRD numbers for purchase and sale of property
Buyers and sellers of residential property will be required to provide their IRD numbers at the time a property is transferred. Their IRD numbers will be included with the information submitted to Land Information New Zealand as part of the transaction process. There is an exclusion for New Zealand individuals purchasing or selling their main home (only one main home is allowed). But the exclusion doesn’t apply to:
- someone selling their third main home in two years,
- trusts, or
Where a person is currently a tax resident of another jurisdiction, they will also be required to provide their country of residence and their overseas equivalent of an IRD number.
This initiative is designed to provide the Government with better information regarding the volume of overseas buyers purchasing in New Zealand and improve Inland Revenue’s ability to enforce income tax obligations and prevent tax evasion. Whilst the need for the change has merit, it will mean a large number of private Trusts that don’t derive income will have to register with Inland Revenue and face annual compliance costs going forward.
Reserve Bank of NZ (RBNZ) Deposit changes
The RBNZ’s deposit rules will change from 1 October 2015. Banks will be required to limit lending for residential property investment in Auckland at LVRs greater than 70% (i.e. a 30% deposit) to 2% of new lending. This initiative aims to promote financial stability by slowing down investor activity in the Auckland region.
For those outside Auckland, the minimum deposit requirement will remain at 20%, but instead of lending below this threshold being capped at 10%, it will be relaxed to allow 15% of new lending to have a deposit below 20%.