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Residential Land Withholding Tax (1)

In this edition, we will discuss a topic which was recently introduced – residential land withholding tax.

Let us first have a look at the actual statute. This particular piece of statute shows unique form in that the Act causes existing statute to amend relevant sections. This Act is not designed to contain the messages of the Parliament within its statute. This Act causes to make amendment largely in three different statute and they are Student Loan Scheme Act 2011, Income Tax Act 2007, Goods and Services Act 1985 and Tax Administration Act. Thus, if you wish to read the actual wording of the Act, you need to read the amended section from each of the statutes amended such as Tax Administration Act and Income Tax Act 2007, etc.

With regard to residential land withholding tax obligations, Section 54B to S54E are newly inserted to the Tax Administration Act. It is therefore logical to study these sections to start with.

We now turn to the details of each sections. S54B obliges persons to make return of statement of RLWT at the time the tax is payable, in other words when they dispose of the land under s6A of the Income Tax Act. This follows that if you sold a land which you bought before November 2015, your sale is not subject to s6A of the Income Tax Act and thus you do not have any obligation to make the returns under s54B of the Tax Administration Act.

S54C obliges a person to provide sufficient information to his or her solicitor to determine the tax obligation. The solicitor acting for the sale of a Bright-line land is then to forward the same information to the solicitor for the purchaser. It is the solicitor for the purchaser to withhold the amount of tax payable and account to IRD within the time prescribed.

S54D provides that if a person is to get a refund from the IRD due to tax credit is available, the Commission is obliged to make refund of the amount, to the extent, surplus to the amount of taxation.

S54E provides an avenue where a person may be able to obtain a certificate of RLWT certificate. This is the section you can use, for example, if you meet all the requirements and when you could not claim exemption at the time of the purchase of the property. Family trust is a good example for this. As we discussed in our previous edition (6th article), you may not be able to claim an exemption in advance at the time of the purchase, due to relevant statutory considerations. However, if you are in this circumstance, you may wish to consider this certificate under this S54E at the time of sale of your house.

Let us consider further from different angle. Let us assume purchased a block of rural land and then you managed to obtain a subdivision consent into 10 lots. You were registered for the gst at the time of the purchase and you claim input tax credit. Once the land is sub-divided into 10 lots, the zoning of the eventual lots are now turned into residential land and triggered the RLWT to apply. As you have claimed gst input, you now need to make output payment of the sale of each lots. The real issue is whether you are obliged to make the gst output payment on the date of settlement. We advise you need to take legal advice on this.

This article is designed to give general information to the audiences and readers of this article. This is not designed to provide a legal advice to a particular person of particular circumstance. If you have any enquiries, you should seek legal advice on that issue. A. B. Lawyers Limited does not accept any liability arising from misjudgment by the audience, without having independent legal advice on his/her case.

The writer advises that translation to Chinese, from English version, is done by one of the office legal assistant. There may be occasions you notice misinterpretation, despite we do our best to make correct translation. If you notice that, it is much appreciated you let us know that.