When selling a property, your lawyer will ask you to complete a document known as a Land Transfer Tax Statement.
Introduced in October 2015, it has the intention of providing the correct information to the IRD in terms of property transactions and enables LINZ to collect and pass on information to the IRD which is required in order to implement the bright-line test. This has a two-fold function – it ensures that information is provided to the IRD prior to the end of the financial year, and it also serves as a net to prevent those sales which should have been subject to taxation, from “slipping through”.
The statement includes your name and IRD number or that an exemption applies and is a non-notifiable transaction. The form must be completed by Vendors and Purchasers of the property as part of the settlement process.
Agreements for Sale and Purchase that were entered into prior to 1 October 2015 are exempt if the transfer of the property was registered prior to 1 April 2016, which was effectively the cut-off date. After 1 April 2016, the provisions applied to all transactions and parties to the transactions.
It is an offence to provide false or misleading information on the statement, and those who do so may be subject to heavy fines according to s156E(2) Land Transfer Act 1952.
Exceptions to the Requirement
Those transfers of land which are in relation to a Treaty of Waitangi settlement, or if the transfer relates to Maori Land (as the Te Ture Whenua Maori Act 1993 specifies), are exempt.
The main home exemption is the most commonly used exemption, and as in the bright-line test, must have been the only main home, and lived in by the owner for more than 50% of the time it was owned. Furthermore, the main home exemption may only be used twice in the space of 2 years.
Further exemptions or non-notifiable transfers when acting as the Vendor (transferor) include:
- Disposing of land as a part of mortgagee sale, rating sale under the Local Government (Rating) Act 2002, a Court Order sale or Statute Order sale; or
- Transfers by a Public or Local Authority and when Public or Local Authority is purchasing Land; or
- If you are acting as an executor or administrator for a deceased persons estate.
What are the issues that have arisen from this test?
The statement only allows for a main home exemption. It doesn’t allow for those properties which may have been in ownership for a period of time longer than the bright line test parameters. Therefore, if you purchased your property prior to the introduction of the bright line test, and it was not your family home, the onus may rest upon you to prove your intention at the time of purchase was not to make a profit on the property, but rather any profit you made on it was incidental.
My property is in a trust in which there are several trustees and beneficiaries. How does the statement work?
All trusts must have their own IRD number. The main home exemption only applies to a trust if either the house sold was the main home of the principal settlor of the Trust, or when the principal settlor does not own a home, and it was the main home of a beneficiary of the trust.
What if I filled out my Land Transfer Tax Statement incorrectly?
It’s possible from time to time that incorrect information is used in a statement. Provided this was a simple error, your lawyer is able to update and send through an amended statement. You can hold off on filing your IR3 return whilst you’re doing so.