Tougher rules for property investors introduced in new bill

The government has introduced a bill aimed at tightening rules and scrutiny of property investors.

Property investors will now have  to provide their tax number and foreign investors will have to show they have a local bank account, although the bill doesn't go with the tax department's preferred options.

The Taxation (Land Information and Offshore Persons Information) Bill, introduced  by Land Information Minister Louise Upston, amends the Land Transfer Act and the Tax Administration Act to help Inland Revenue enforce the property tax rules. The changes announced in the Budget, give the tax department an extra $29 million to chase property investors, tighten rules on investment gains and link transactions to IRD numbers, or for foreigners, their tax information number, or TIN.

The moves are part of the government's response to Auckland's overheated property market, which the Reserve Bank has called a threat to the nation's financial stability.

"While it's not illegal to trade property to make a gain, property traders are subject to the tax rules like everyone else," Upston says. "The proposals in this bill will see Land Information New Zealand and Inland Revenue collaborating to ensure fairer taxation of people buying and selling residential property for profit."

The government will seek feedback on a second element of the budget announcement, a new 'bright line' test which makes it clear gains from residential property sold within two years of purchase will be taxed unless the property is the seller's main home, inherited from a deceased estate or sold as part of a relationship property settlement.

"I intend to release a public consultation document later this month seeking views on implementing the introduction of a 'bright line' test,"  Revenue Minister Todd McClay says.

The requirement that foreign investors, or Kiwis out of the country for more than three years, have a local bank account in order to get an IRD number is to ensure compliance with anti-money laundering rules, the ministers say.

The IRD itself didn't support the options chosen by the government for the amendments, according to two regulatory impact statements prepared by the department. The IRD didn't favour an exemption for property that is the buyer's main home, arguing that it will make the system more complicated. It also argued the benefits of collecting the information may be reduced, with some people potentially falling into a regular pattern of buying, improving and selling their main home, or using a property as their main home before moving out and making it an investment property with a rental income stream.

Under the exemption option "Inland Revenue will not be provided with the information that will help to investigate this," the department says.

The IRD also wasn't in favour of requiring non-residents to provide evidence of a New Zealand bank account. The department says "it is not apparent that, for individuals, the general anti-money laundering checks that a New Zealand financial institution carries out will yield significantly more information than IRD collects as part of the current IRD number application process." Bank account details are likely be collected anyway, once phase two of anti-money laundering checks are rolled out, so any advantage would be "temporary in nature."

The bill is to have its first reading this week and will then be referred to select committee. Mr McClay and Ms Upston say the bill is expected to be reported back to the House in time to be passed in late September. It will probably come into effect from October 1. 

(BusinessDesk)