Finance Minister Bill English
by Miriam Bell
Finance Minister Bill English
Speaking at a National Party regional conference today, Prime Minister John Key said it will ensure that people buying and selling residential property for profit – including overseas buyers – pay their fair share of tax.
Under existing tax rules, anyone buying property with the intention of selling for a gain is liable for tax on that gain, but it was necessary to ensure the existing law is better enforced, Key said.
The new measures, which are set to come into force on 1 October this year, are as follows:
• The Inland Revenue Department will get extra funding for compliance and enforcement.
• All non-residents and New Zealanders buying and selling any property, other than their main home, will have to provide a New Zealand IRD number as part of the land transfer process.
• All non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.
• All non-resident buyers and sellers will have to provide their tax identification number from their home country, along with current identification requirements such as a passport.
• A new “bright line” test to tax gains from residential property sold within two years of purchase, unless it’s the seller’s main home, inherited or transferred in a relationship property settlement, will be introduced.
Key said it is not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain.
“This is quite different to an investor buying with a long-term view of renting their property to tenants. And it’s completely different to New Zealand owner-occupiers who have worked hard to buy their family home.”
While the government welcomes overseas investment, those investors must follow the country’s rules when it comes to tax, Key added.
The new measures will also allow the collection of better information about overseas investors – which is something many have been calling for of late.
Finance Minister Bill English said the government will investigate introducing a withholding tax for non-residents selling residential property to further ensure overseas buyers comply with tax rules.
Consultation on the details will take place with a view to a withholding tax being introduced around the middle of 2016.
English said all the new measures, which will sit alongside the Reserve Bank’s new LVR restriction policy, should take some of the heat out of Auckland’s housing market.
Property investor representatives were generally supportive of the government’s move, although they were not convinced it would impact on Auckland’s skyrocketing property prices.
NZ Property Investors Federation executive officer Andrew King said the announcement was aimed at property traders, not rental property owners.
“As we have been saying for years, people trading property have always had to pay tax on their profits and this move will help to clarify this. This should finally put to rest all the unfounded comments from people who say that property has a tax advantage.”
He wasn’t convinced the measures would have an effect on house prices – despite the popular belief that property speculation is rife.
While they might have an impact if speculation is rife and pushing prices up, if speculation isn’t a major contributor to house price increases they will have absolutely no effect, King said.
In his view, the new requirements for non-resident buyers seemed reasonable.
Property Institute chief executive Ashley Church said the government’s measures were essentially welcome ‘tweaks’ rather than major policy changes.
But he too felt they will not impact on Auckland’s rapidly increasing house prices.
“I wouldn’t imagine that there are too many speculators buying and selling quickly in this market because capital growth is so strong. It’s more likely that most investors will hang on to their properties for a few years – at least until this current boom has run its course.”
Likewise, Church said the new requirements for overseas buyers, while welcome, are also unlikely to make any noticeable impact on the market.
“We’ve been calling for some form of registration of foreign investors for a while – not because we necessarily believe that they are skewing the market –but because all of the various opinions are based on guesswork until we actually have that information.”
He suspected that the evidence, once collected, will probably show that foreign investors are actually a far smaller problem than generally believed.
Overall, the changes get a tick, Church continued.
“They’re good, sensible, measures which amplify existing policy settings and allow for the collection of important information – but they’re not going to lead to a halt in Auckland house price inflation.”
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