Surprise Announcement on Property Taxation

Monday 18 May 2015

Authors: Mathew McKay and Graham Murray

​On Sunday 17 May 2015 the Government announced proposed changes to the tax rules for property investments (land) as a pre-cursor to its Budget 2015 package. The proposals include a tax on gains from the sale of residential property held for less than two years (subject to exceptions) and new information requirements for those who acquire or dispose of New Zealand property. The proposed rules are to apply from 1 October 2015.

Proposed two year rule

The proposal which will give rise to most debate is the proposal to tax gains from the sale of residential property sold within two years of acquisition. Such properties will be deemed to be held on revenue account for income tax purposes even if they are not acquired for the purpose of resale, unless the property:

  • is the seller’s main home;

  • is inherited from a deceased estate; or

  • is sold as part of a relationship property agreement.

The rule will apply to properties acquired on or after 1 October 2015, which is in alignment with the commencement date for the new 30% LVR rules for investment properties. The proposed rule will apply to both New Zealand residents and non-residents.

The rule will supplement the existing provisions which apply to property acquired for resale. Gains on the sale of property held more than two years will therefore remain subject to income tax if the property was acquired with the “intention” of sale (applying the existing rules relating to ascertaining “intention”).

Information requirements

Supplementing the proposed two year rule are information measures relating to ownership of New Zealand property by residents and non-residents.

Residents and non-residents buying and selling New Zealand property will be required to provide an IRD number as part of the usual Land Information New Zealand transfer process (unless the property is their main home). Many non-resident property owners will not have an IRD number and will need to apply for one to meet this requirement.

Under the proposals a non-resident will need to have a New Zealand bank account in order to obtain an IRD number and therefore comply with the new requirements. Non-residents will also be required to provide their tax identification number from their home jurisdiction along with specified identification (e.g. a passport).

These information requirements are intended to provide the IRD with the means to enforce the proposed two year rule and existing tax rules.

Possible land withholding tax for non-residents

The Government has also signalled its intention to investigate a withholding tax for non-resident property owners. A withholding tax is suggested as a potentially appropriate way of ensuring that non-residents pay what is due in respect of their New Zealand property investments. The withholding tax is signalled to apply from mid-2016, if implemented.

What next?

To date the Government has only released general information on the proposals in an IRD fact sheet. The next step in the process will be the release of an IRD “issues paper” in July for public comment. Draft legislation is signalled for late August.


The two year rule is arguably the most significant change to the land tax rules proposed in the last decade, but many of the key details remain unknown at this stage. The definition adopted to narrow the two year rule to residential properties will be of critical importance. The treatment of transfers between associated persons (e.g. from an individual to their family trust) will also need to be evaluated when more detail is released. The extent to which this rule will contribute to more affordable housing remains uncertain.

If the Government introduces a withholding tax for non-residents then the scope of the withholding obligation will be of critical importance. Whether the withholding is imposed on the vendor, or perhaps the real estate agent acting in respect of the sale, will be important. Sale and purchase agreements will need to accommodate these requirements and allocate risk in relation to the imposition of this withholding tax.​


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Mathew McKay

    Partner Auckland
  • Graham Murray

    Partner Auckland
Related areas of expertise
  • Tax
  • Real estate