General policy statement
This Bill is an omnibus Bill introduced under Standing Order 263(a) (dealing with an interrelated topic that can be regarded as implementing a single broad policy).
The broad policy of the Bill is to improve compliance with the Income Tax Act 2007. In particular, the focus is on gathering better information for tax compliance. For the Land Transfer Act 1952 amendments (and other consequential amendments) the focus is on getting better tax information from all people (New Zealanders and offshore people) dealing in land.
This is complemented by amendments to the Tax Administration Act 1994, which also relate to concerns with tax enforcement against people dealing in land. However the amendments to the Tax Administration Act 1994 are wider than just tax compliance in land dealings. They are intended to promote the enforcement of tax obligations of offshore persons generally (offshore persons may include certain New Zealand residents and certain New Zealand citizens). The changes are intended to give Inland Revenue greater assurance about the identity of the offshore person.
Land Transfer Act 1952 amendments
Purchasers and vendors of property will, subject to certain exceptions, need to provide tax numbers—a New Zealand Inland Revenue Department (IRD) number and, in the case of those who are currently tax resident in another jurisdiction, an overseas Tax Identification Number—as part of conveyancing processes prescribed by the Land Transfer Act 1952. When a person is acting in another capacity (for example, as trustee of a trust), the number provided must relate to the capacity in which they are acting, rather than their individual capacity. Nominees must provide details of the principal.
The IRD number requirement does not apply to a New Zealand individual (who is not an “offshore person” as defined) buying or selling their main home, or to any other transfers specified as exempt transfers in regulations, unless they are selling their third main home in a 2-year period.
This information will be collected by conveyancers from property vendors and purchasers, and provided to Land Information New Zealand (LINZ) which in turn will provide the information to Inland Revenue. This will help ensure taxpayers’ compliance with tax obligations, both in New Zealand and overseas.
While principally a tax measure, the amendments to the Land Transfer Act 1952 will provide the mechanism for collecting the information during the conveyancing process on behalf of Inland Revenue. Tax information provided to LINZ will be personal information. It will not form part of the land transfer register administered by LINZ and will not be publicly available.
A conveyancer will be required to provide the declared information before certifying the property transfer. Conveyancers will not be required to certify the accuracy of the information provided. In this way, the onus will be on purchasers and vendors to provide accurate information. An offence will be committed if a transferee or transferor provides false or misleading tax information.
Regulations will be made under these provisions to provide exemptions for particular transfers or parties to transfers that meet the following criteria:
collecting the IRD number must be impractical or involve high compliance costs; or
the transaction or person must represent a low tax avoidance risk.
Regulations can also be made to include transfers of other estates in land to be covered by the tax information requirement.
Tax Administration Act 1994 amendments
Non-residents will, before being issued with an IRD number, be required to have a New Zealand bank account. This is intended to assist tax compliance by giving Inland Revenue greater assurance about the identity of the person. Greater assurance can be achieved by ensuring that a non-resident looking to obtain an IRD number has first been subjected to New Zealand’s anti-money laundering rules.
A non-resident for the purpose of being issued an IRD number, will be defined as an offshore person, with this definition using elements of the Overseas Investment Act definition of overseas person and tests used in the Electoral Act 1993 that relate to people being eligible to be on the electoral roll.
In essence, a person that is not a citizen or permanent resident will be an offshore person and subject to the bank account requirement. However, a New Zealand citizen can also be an offshore person if they have not been to New Zealand for 3 years. A person with a resident class visa can be an offshore person if they have not been to New Zealand for 1 year. A non-individual will be an offshore person if it is 25% or more owned or controlled by individuals referred to above. The account can be with any registered bank or licensed non-bank deposit taker. Lists of these entities are maintained on the Reserve Bank of New Zealand website.
To prevent a situation whereby, for example, shares in a New Zealand company with an IRD number are sold to a non-resident to avoid the application of the rule, the Bill also imposes an obligation on a non-individual to provide a bank account number in the event that they become an offshore person at a later date.