This content is from: New Zealand

New Zealand: New Zealand introduces further measures affecting investment in residential property

The new Labour Party-led government formed late last year is implementing policies to dampen speculation in the residential property market. The cost of housing was topical in the lead up to last year's election and New Zealand has a benign tax regime for property investors and speculators that is perceived to have contributed to increasing house prices. Such investments are not subject to stamp duty or similar transaction taxes and, in many cases, gains on disposal would be non-taxable capital gains.

Extension of bright-line test

Before the introduction of the bright-line test in 2015, the sale proceeds of residential property were taxable only if the property was acquired as part of a business involving property dealing, acquired for the dominant purpose of resale, or in certain other specified circumstances. Because these tests depend to some extent on the intention of the taxpayer, it was in many cases difficult to determine whether a gain was taxable. The bright-line test was introduced to provide greater certainty. The test deems the proceeds of selling residential property (other than a person's main home) within a specified period of acquisition to be taxable. The specified period is two years.

The government has proposed extending that period to five years. Other than the change from two to five years, the details of the bright-line test will remain largely unaffected.

The five-year bright-line test will therefore have the following features:

  • The five-year period for the bright-line test runs from the date of settlement of the acquisition to the date a person enters into an agreement to sell the property;
  • The extended (five-year) bright-line test only applies to properties for which an agreement to purchase the property was entered into on or after the date the amendment comes into force (expected to be some time in the next two to three months);
  • The bright-line test applies only to residential land. Residential land includes empty land planned to be used for residential purposes, but excludes business premises and farmland;
  • The bright-line test does not apply to a person's main home. A person can only have one main home. The main home exception is available to properties held in a family trust;
  • There are exceptions for relationship property and inherited property;
  • Taxpayers are allowed deductions for expenditure on property subject to the bright-line test according to ordinary tax rules; and
  • Losses arising from the bright-line test are ring-fenced so they may be used only to offset taxable gains from other land sales.

A corresponding amendment will extend the specified holding period for the purposes of the residential land withholding tax (RLWT). The RLWT requires a vendor's conveyancer to withhold approximately 10% of the purchase price where the sale is of residential land subject to the bright-line test, and the vendor is an 'offshore RLWT person' (defined to include natural persons who are not New Zealand residents or citizens (or have been outside New Zealand for a certain period of time), or a company, trust or other body established outside New Zealand or meeting certain overseas ownership thresholds). A New Zealand resident for this purpose refers to a person holding a residence class visa under the Immigration Act (rather than tax residence).

The 'ban'on foreign buyers of residential property

A further measure introduced to dampen foreign speculation in New Zealand's property market is the so-called 'foreign buyer-ban' in respect of residential property. This measure is to be implemented by amendment to New Zealand's Overseas Investment Act.

The proposal, once implemented, will mean purchases of residential land by an overseas person (being a natural person that is neither 'ordinarily resident in New Zealand' [as defined] nor a New Zealand citizen, or that is a company, trust or other body established outside New Zealand or meeting certain overseas ownership thresholds) requires approval by the Overseas Investment Office. Under the proposals, such purchases will be approved only if:

  • The overseas person will be developing the land and adding to New Zealand's housing supply; or
  • The overseas person will convert the land to another use and is able to demonstrate that this would have wider benefits to New Zealand; or
  • The overseas person holds an appropriate visa and can show they have committed to residing in New Zealand.

It is expected that Australian and possibly also Singaporean nationals will be exempt from the new restrictions due to commitments New Zealand has made to those countries in trade and investment agreements.

Brendan BrownChris Harker

Brendan Brown ( and Chris Harker (
Russell McVeagh
Tel: +64 4 819 7748 and +64 4 819 7345

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