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NEW TAXATION DISCLOSURE REQUIREMENTS FOR LAND TRANSACTIONS

From 1 October 2015 transfers of Land have been subject to new Taxation disclosure rules.   The aim of the law changes is to ensure enhanced compliance with the tax laws.

The new rules apply to all contracts entered into after 1 October, and require every purchaser and every vendor to provide information in a Land Transfer Tax Statement.

The Tax Statement collects information on every transaction which includes:

Whether the land has a home on it.

If the party or a member of their immediate family is a New Zealand citizen or a holder of a resident, work or student visa.

Whether the purchaser or a member of their immediate family intends living on the land.

Unless the transaction is exempt, every purchaser and vendor will also need to provide their IRD number.   A land sale or purchase is exempt if the property is your main home.   There are also other exemptions relating to estates and mortgagee sales, but for most people, the “main home exemption” will be the only one which may apply.

Notably, the “main home exemption” does not apply to a Trust.  A NZ IRD number will be necessary for every Trust, company, other incorporated entity or off shore person where they are either the purchaser or the vendor of land even if they are already the owner of land but have never had an IRD number before.

Offshore persons will need to apply for NZ IRD numbers which will require them to have a New Zealand bank account which is fully operational or has been scrutinised through the banking processes applicable under the anti- terrorism and money laundering legislation.

Off shore persons must also provide full details of all tax numbers relating to their overseas tax residences.   For some people, this may involve more than one country.

For most New Zealanders, the big change will come in relation to Family Trusts.   Trusts have always required IRD numbers but it is common for Trusts which passively own non income assets to be non-compliant in that area.  That will need to change.

As it will not now be possible to sell or purchase land in a Trust without the Trust having a tax number, this may require the Trust to furnish past returns to IRD.

Trusts with overseas Trustees may also find that the trust is categorised as an offshore person depending on whether the taxation jurisdiction in the country the trustee resides in treats the trust as a tax resident for their purposes.

We suggest that if you have a Trust that owns property and the Trust does not have an IRD number, then you should take steps to acquire an IRD number and make the Trust compliant with the tax laws early on whether or not you are intending on selling soon.

If you are intending to sell, then you need to take into account the time frame for obtaining an IRD number as you will not be able to settle until the tax information is provided.