If you are selling or purchasing residential property in New Zealand, it is more than likely you will need to provide your IRD number to your lawyer because of the “Bright Line Test”. The current exception to this rule under the Bright Line Test is if the property you are selling or purchasing is your main home (i.e. your family home); then you are exempt from providing your IRD number.
However, if your main home is owned by a trust or company, then the entity’s IRD number is still required to be provided and we must record that IRD number in the transaction in order to settle. If you are still unsure about what the Bright Line Test involves, in short, under the Bright Line Test system in New Zealand you will pay tax on any profit when you buy and sell residential property within either two or five years, unless an exclusion (referred to above) applies.
Be aware that all existing property tax rules still apply even if the Bright Line rule does not apply in your situation. The Bright Line rule applies to the sale of any residential property you have purchased on or after 1 October 2015 as follows: if you purchased residential property between 1 October 2015 and 28 March 2018, inclusive – the two- year bright-line rule applies; if you purchased residential property on or after 29 March 2018 the five year bright-line rule applies. If your property transaction falls into that timeframe, an IRD number is very important and must be recorded.
However, from 2020, the government is looking to change this rule and virtually all people buying and selling properties will be required to record their IRD numbers on land transfer documents. This is in a bid to stop any residents from manipulating the Bright Line tax system.
We as lawyers are finding that many New Zealand trusts do not have an IRD number as they have never been required to have one in the past. This can cause issues when a trust has entered into a Sale and Purchase Agreement with a short settlement timeframe. The IRD information is required before a transfer of property can occur and the time to obtain an IRD number should be taken into account in any settlement timeframes.
If your property is held in trust, make sure the trust has an IRD number before entering into an Agreement so you are not caught out at settlement. IRD numbers can be applied for through the Inland Revenue Department. If your trust or in some circumstances, your company has a very old IRD number, it may be that the IRD number for that particular entity simply needs to be reactivated.
If your trust (or company) does not have an IRD number or you are unsure whether or not your particular entity holds one and you are thinking about selling or purchasing property, please contact us. We would be more than happy to assist you in the process.
