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Borrowing in my father's name - how to get around tax issues

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  • Borrowing in my father's name - how to get around tax issues

    My lender (and most of the other ones) have changed their rules so they no longer lend high LVR to non-resident New Zealanders like myself. This is going to leave me high and dry.

    My properties are currently in a limited company (not a LAQC).

    I thought if I made my father shareholder and/or co-borrower then we can use his NZ-residency status to get the high LVR. Overlooking that his income may not service it (he's on a pension but with the rental income should cover it), won't that put us in trouble with tax/means testing if he's ever put in care?

    His own home is in a trust.

    Should I put the company in the trust, or the properties directly in the trust? Is there another options which means that Dad can provide the residential status and the proof of serviceability without being means-tested against those assets if it ever comes to that?

    Thanks all!

    Leanne

    PS I'm in NZ this week so if anyone's in Auckland or Napier give me a shout!

  • #2
    Hi Leanne,

    There is a solution with a Trust where a property management agreement can allow that any tax losses from the rental properties flow to the individual taxpayers - usually the trustees of the Trust. So you have asset protection and tax optimization - the best of both worlds!

    I would have thought that owning the properties in an LAQC while you are a non-resident was not the way to go. If you are a shareholder in the company, the Accounts have to be audited - more than 25% foreign-owned shareholding. This raises the annual costs.

    Also, the tax benefits to you as a foreign shareholder are delayed, as they accumulate as carried forward losses until you return to New Zealand and are able to offset them against New Zealand sourced income.

    We set up Trusts for overseas investors. As long as the Settlor is NZ resident, the Trust is regarded as NZ resident. So this circumvents the problem you are facing.

    NZ Trust Law is different from other jurisdictions in this regard, where the tax residency of the Trust depends on that of the trustees.

    You can contact me as below -

    Chris Raynal
    Master Accountants Group Limited
    300 Richmond Road, Grey Lynn, Auckland.
    Ph 09-360 3259
    Fax 09-360 2180
    www.masteraccountants.co.nz

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