New Zealand has changed its tax laws for property investors in an attempt to ensure a fairer market.
The new bill, which will amend the Land Transfer Act and Tax Admnistration Act, will require buyers and sellers of property to provide IRD numbers at the time of the property transfer.
The measures were proposed last month by Revenue Minister Todd McClay and Land Information Minister Louise Upston, before passing its first reading in Parliament. They follow additional funding for the country's Inland Revenue, designed to chase down those evading taxes.
The move has been fuelled by growing fears surrounding rising house prices. Indeed, New Zealand has seen property prices hit record highs in the past year, particularly in Auckland, thanks to demand overtaking supply. Some have blamed overseas investors for helping to push up values, a situation similar to other expensive city markets around the world, such as London and Sydney.
In March 2015, estate agency Barfoot & Thompsom reports that it sold 1,597 homes, the highest ever recorded in a month. A quarter of those were sold for more than $1 million, another record high.
As a result, the average sales price rose 3.9 per cent month-on-month, taking March's average to an all-time high of $776,729, more than $17,000 over the previous record set in December 2014.
In such conditions, it is not unusual to find foreign investors making speculative investments designed to be sold on at a profit, a practice that can exacerbate a potential bubble.
"While itâs not illegal to trade property to make a gain, property traders are subject to the tax rules like everyone else. 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," comments Ms Upston.
Foreign investors will now be required to provide their Tax Identification Number from their home jurisdiction - to get a New Zealand IRD Number, they will also need a bank account in the country. Citizens who have been out of the country for more than three years will also be subject to the same rules as foreign buyers.
"These measures provide extra information which will help Inland Revenue detect people seeking to avoid their tax obligations. When people try to get out of paying tax, itâs unfair to all those people who do pay," adds Mr. McClay.
"These rules wonât unfairly impact New Zealanders who have worked hard to buy their family home, but will help enforce the reasonable expectation that anyone who has obligations to pay tax in relation to their property should pay that tax," says Ms. Upston.
The bill is expected to be passed by October 2015.