New Zealand’s government said it plans to tighten tax rules on residential property, acting in tandem with the central bank to arrest Auckland’s housing boom.
Beginning on Oct. 1, gains on residential property sold within two years of purchase are to be taxed unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement, New Zealand Minister of Finance Bill English said yesterday in an e-mailed statement.
Nonresident buyers must have a New Zealand bank account and New Zealand Inland Revenue tax identification number.
The measures “will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax — whether they are from New Zealand or overseas,” the finance minister said.
This is “expected to take some of the heat out of Auckland’s housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues,” he said.
The Reserve Bank of New Zealand last week said it would require residential property investors in Auckland to make a minimum down payment of 30 percent to qualify for a mortgage, also effective on Oct. 1. Housing prices in the nation’s largest city jumped by 16.9 percent from a year earlier in March, compared with 3.2 percent in the rest of the country, posing a risk to financial stability, the Reserve Bank said.
Surging prices in Auckland, home to one-third of New Zealand’s 4.5 million people, have prompted debate about the role of speculators, including overseas investors. While capital gains on property bought for investment purposes are taxable in New Zealand, the rules are not rigorously applied.
English said a new “bright line” test would be introduced for nonresidents and New Zealanders buying residential property, to supplement Inland Revenue’s current “intentions” test.
To further ensure that overseas property buyers meet both existing tax requirements and those of the new test, the government plans to investigate introducing a withholding tax for nonresidents selling residential property to start in the middle of next year, he said.
Measures to curb housing-price gains in Auckland might give the central bank more scope to lower interest rates later this year.
The New Zealand dollar fell on April 30 when Reserve Bank Governor Graeme Wheeler said it would be appropriate to lower the benchmark rate from 3.5 percent if demand weakens and low headline inflation starts to temper wage and price-setting behavior.
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