The Government has passed a new law that imposes new requirements on anybody transferring or receiving land in New Zealand to provide a “tax statement” and IRD number at the time of transfer. This law takes effect from 1 October 2015.
This bill will affect any transfer of land, and we will need to ask you for this information when completing the transfer. Complying with these new requirements may take some time, so you need to bear these in mind when considering buying or selling a property and make the necessary preparations well in advance.
Any instrument of transfer (a registerable document changing the ownership of a land title) will need to be accompanied by a tax statement providing certain tax information from both the transferor (seller) and transferee (buyer). This information needs to be held on file by lawyers for a minimum period of 10 years, and needs to be provided by your lawyers to the appropriate government authority. Some of the information that is required in the tax statement includes:
- Your IRD number, whether or not you are resident in New Zealand. This may mean buyers and sellers need to apply for an IRD number, which can take some time – especially for foreign buyers;
- Declaring whether or not you are a tax resident in any other jurisdiction apart from New Zealand;
- If you are a tax resident in a jurisdiction other than New Zealand, some more details relating to that are also required, including the equivalent of your IRD number in that jurisdiction.
If you are transferring property as trustee of a Trust, then the Trust will need its own separate IRD number. The trustees will also need to be alert to whether the Trust becomes a tax resident in another jurisdiction. The same goes for a partner acting on behalf of a Partnership, or any person acting on behalf of any unincorporated body – that body needs an IRD number.
Penalties for Non-Compliance
A new offence will be created, where a person gives a tax statement which they know contains false or misleading tax information, or does so with intent to deceive. The first time a person commits this offence, there is a fine of up to $25,000, but it doubles to $50,000 for the second and subsequent convictions. This is potentially a huge fine for private individuals, which means a great degree of care needs to be taken when signing a tax statement.
The information set out above does not need to be provided in the tax statement if the transfer is “non-notifiable” under the Act. “Non-notifiable” transfers include the following:
- Where the transfer relates to the person’s main home, being the one home that is mainly used as a residence by the person and their family. Note that there can only be one main home, and secondary homes are not exempt;
- Subsequent regulations may specify other transfers which are exempt, but these are not confirmed yet. These will probably include inheriting property from a deceased estate, and relationship property settlements.
- Whenever transferring land to or from a Trust, it does not matter if it is a main home; the tax statement must be completed in full anyway. Also, if you have transferred a main home at least two times within the two years prior, then you cannot do it a third time within that two year period – you have to provide the full statement.
Finally, any transfer by an offshore person always needs to be filled out in full.
This legislation is brand new and our clients are still coming to grips with these changes. Complying with these requirements may be time consuming, particularly for people and entities who do not have an IRD number. Obtaining an IRD number may involve opening a New Zealand bank account, which for a new customer is a complicated process with many hoops to jump through. We understand that Trusts and similar entitles applying for an IRD number can expect to wait several weeks to receive one.
For these reasons, if you are considering buying or selling property and are concerned that you may not meet one of the exemptions, you should start satisfying these requirements now. Similarly, you may want to engage professional advice from your lawyer or accountant in preparing to sell or buy property, to ensure the necessary applications are made in good time, and you have plenty of time available to you in the Agreement for Sale and Purchase.