As written about before, the Government is now close to passing the last part of the legislation to bring residential property into the tax net, but without calling it a "capital gains tax". The Bill received its Second Reading last night. In September the Government enacted the various administrative laws required to secure disclose of information on residential land transactions from 1 October 2015. However, the principle legislation actually taxing sales of land (where land was acquired on or after 1 October 2015) has taken a bit more time. Thankfully really. When legislation is rushed there are too many corrections to count on ones fingers and toes in the following years.
Changes have been made to the original bill when returned for the Second reading. These changes have closed some obvious loopholes (and not obvious ones) and the Official's Paper that was published at the same time summarised the submissions made and either accepted, rejected or simply noted the comments. These comments helpfully include discussion on the order of the Bright-line rules compared to the existing land taxing rules, and critically the exemptions. The ordering (or application) rules are important because, amongst other things, losses arising under the Bright-line rules cannot be offset against other (non-land) taxable income for the person. This reminds us of a time long, long ago where the tax legislation ring-fenced certain types of expenditure or losses from being deducted from ordinary income (showing our age!)
In simple words we say this:
- If you think this law change will not apply to you, you are wrong
- Eventually it will apply to every person, company, partnership, estate and trust in New Zealand as one day you will buy, sell or inherit property
- The actual tax take of those caught within the Bright-line rules may be low, but the information gathering will be immense
- Non-resident buyers and sellers (including New Zealand citizens living offshore) may be subject to a withholding tax
- Conveyancing solicitors will have a significant administrative burden
- Banking institutions in New Zealand will have greater obligations placed upon them, to approve non-resident's opening New Zealand bank accounts
We are currently providing training to clients and their staff on the issues, impacts and rules around this new legislation. Our feeling is that many professional advisors realise that this tax change will have significant legal, social and adminstrative implications in the years to come. We do not disagree with them.
The comments in this paper are the personal opinion of the writer and are not necessarily the opinions of Shellock Consulting Ltd.