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tax issues from aus, with nz rental income

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  • tax issues from aus, with nz rental income

    have shifted to australia from nz july 2008, have a property in nz that i purchased 8 years ago, was for pursonal use and has since tripled in value and is now practically morgage free, i am renting it out fully furnished, my income for the year from nz from previous job was around 20k paying about 5k in tax, plus income from house been about 10k no tax paid yet tell the end of nz tax period, rough guess i well earn 20k aus in australia for their financial year, now trying to work out tax returns, little confused if to depriciate house and use that to offset income, rang ird where lady said i would have to pay tax on my australian income and to full out a ird form to work out if i was still a resident, only things that i would say yes to are owning a house, furniture and a vechile that i was doing up, rego been on hold for 7 years, well be out of the country for over a year
    should i just do a tax return in nz for years income there and rental income, and not high light that i have been in aus earning, play dumb
    then just do a tax return in aus
    or look at putting house into a trust in nz remorgage at same time possibly for purchasing here in a later date, not planning on selling, and may be in a few years may want to shift back there, although the weather here is amazing and wouldn't mind buying a place here when the market drops a bit more and if i can find better employment
    or could i switch to aus classed resident then use there tax rate back home
    and if i shift back to nz, change back to nz tax rate and avoid aus capital gains tax if i then decided to sell
    any one been through same thing and worked out best plan of attack

  • #2
    confusedkiwi - wow, you have alot of thinking going on there!
    1. You should never tax dodge. Always pay to Caesar what is due to Caesar.
    2. You should always ask a good accountant to advise you on your tax setup.

    How is your shift to OZland? Hope all turned out well. All the best!


    • #3
      Contact Matt at GRA in Auckland. They do inter country stuff and can sort you out easily. They will tell you what to do even if you want to do it yourself.
      Email [email protected]


      • #4
        Here's the gamble of overseas monetary risks again.
        It depends on what you want, but to me it's better to have an LAQC company and sell the property to that to have cash yourself for any purchase over there. Make sure you intend to stay there first unless you want to be active investing in that market aswell. This will also depend on if a bank here gives the LAQC a mortgage and what guarantees they may ask for, you may be at more risk to them than those of us still here.
        Also you need to find out if living in the house here makes it hard now to claim as a rental as there is rules about this aswell.


        • #5
          Matthew Gilligan Advice On Aussie Investing

          Although we will require more detail from you in order to give you specific advice here are a few general points to get started:

          § The first issue to determine is going to be your tax residency. Tax residency is determined under both domestic law and also the tax treaty between Australia and New Zealand. You are obviously retaining some ties with New Zealand and depending on your anticipated length of absence may retain tax residency here. On the other hand if you minimise your ties here and are largely absent for a period of more than three years you will likely lose tax residency here and assume tax residency in Australia. Tax residency is important as the general rule in both New Zealand and Australia is – if you are a tax resident of that country you will need to return worldwide income in that country. In other words, if you are a tax resident of New Zealand you will need to return your income in a New Zealand tax return regardless of where it is sourced. The same applies in Australia in that if you are tax resident in Australia you will need to return New Zealand income in the Australian tax return which could potentially include capital gains tax.

          § It is also worth noting that Australian tax residents are subject to capital gains tax not only when they sell property, but also potentially when they leave the country. For example, if you have an offshore property within the Australian tax net and you leave Australia permanently, this triggers a deemed disposal.

          § Having said this there are exemptions in Australia for what are known as “temporary visa holders” from having to return offshore income. This may prove advantageous for you if you qualify for it.

          § You will also need to be bear in mind that tax works on a source basis. This means even if you are not a resident of a country you still have to file a tax return there if you have an income source there. If, for a moment, we proceed on the basis that you are likely to lose New Zealand tax residency what this means you would have to return your New Zealand sourced income in New Zealand only. This would be the rental income less applicable expenses. In Australia you would have to account for worldwide income in your Australian return unless you qualify for the temporary visa holder exemption.

          § This means two tax returns, but doesn’t necessarily mean double tax. Tax paid in one country on any rental income, can be claimed in the other as a credit.

          § Your future plans are also important. This is particularly relevant in terms of the structure for any property that you are likely to retain long term. For example, if you are only going to be absent from New Zealand for a few years then it is going to be more important to structure the New Zealand property in a manner that is appropriate for long term tax residency in New Zealand. On the other hand, if you are not going to return then it obviously makes no sense to structure New Zealand ownership of the New Zealand property based on New Zealand considerations. You would have the Australian considerations drive this.

          § You should also note that LAQC’s are not recognised in Australia and the use of companies can lead to double taxation when you are across borders. Although losses are attributed to you personally from an LAQC in NZ they are not recognised in Australia.

          In summary, the starting point for this is to determine your tax residency and then get an idea from you as to what your likely plans are forthe future. If you are wishing to proceed with this, you will need to be interviewed in person by a properly qualified advisor.

          Watch people saying they are good at Aussie tax, - when they no little about it. A telling sign is if they start talking about using companies as cross boarder investing vehicles - a 100% no no. If they are talking companies/LAQC's as a potential solution, they know nothing about cross boarder tax planning !
          Last edited by Matt Gilligan; 23-06-2009, 11:18 AM.
          Matthew Gilligan CA - E-mail Matt
          Chartered Accountant Specialising in Tax Structures, Property & Trusts
          Read my book: Tax Structures 101


          • #6
            thanks Matt, some more to think about, my biggest problem is trying to work out what i want to do for the future, becoming a "temporary visa holder" sounds like the best solution, was also suggested i form a laqc company but in the name of some one in the family i trust, and they could use this to offset there tax, would the capital gains tax apply from purchase price, or difference in gv's from when i shift over to when i shift back?
            almost feel like the nz gov wants you to sell and to take your money out of nz, looking at the economy here i'm not sure i would be investing, little spike at the moment on property, but deffinatly not out of the recession, with my job i talk to alot of random people and more and more are struggling, more cases of people been laid off, sales at where i work has dropped, and was talk that the debt per property under what the goverment is doing here is 35k, with them selling assetts to fund running costs


            • #7
              where abouts would i find out about applying for a temporary visa ?


              • #8
                I agree with Matt.

                Decide on what you are going to do first in terms of residency etc and then look at your structure.

                Don't try and play dumb....ignorance is no form of defence in court.

                If you buy property in Australia as an investment you will pay capital gains tax on it whether you are a resident of Australia or NZ so just get used to that idea.

                If your intention is to come back to NZ rent something in OZ and buy more investments here.


                • #9
                  My own understanding as a former resident of Aussie, was that I would be subject to aussie tax on capital gains regardless of the location of the asset being sold, subject to any losses I was holding at the time.... to offset that gain.

                  So short term, don't sell..... in the current NZ market I doubt you can go any further backwards than currently exists value/sales wise....


                  • #10
                    Here is a link to the Australian Tax Office web site with some useful information.


                    Planning on making the move myself so got advice from GRA which was very worthwhile.


                    • #11
                      do i need to complete a NZ tax return?

                      hi everyone,
                      this is site is fantastic and I've spent quite a few hours reading through so many different topics. Its great.

                      I've been trying to get some info that would apply to my situation, but each person's circumstances are so unique I'm finding myself getting a bit confused.

                      so here's my story............and ultimately I'm trying to work out if i need to do a NZ tax return and then offset NZ IP losses against OZ income, as i believe there has been a new tax law come into effect here in oz.
                      Apparently i cant give you a URL until i've posted 10 times, but you can search the ATO website for this:
                      Summary of changes to foreign loss and foreign tax credit calculation rules from 1 July 2008 including transitional rules

                      anyway, partner and i live in Brisbane Australia. house was purchased 2 years ago in Dunedin as an IP in our joint names. it has been vacant since we purchased, so no rental income and none in the short term future - needs renovations. so I'm wondering if no income means no tax return?

                      my partner holds dual citizenship, he's been living in OZ since he was a kid. there are family ties on the north island. not sure if this comes into play anywhere.

                      we have been making 2 trips per year to come and work on the house, and have had a small amount of work done by trades people. from my small base of knowledge the work sounds like capital work that can be depreciated (probably not until completed im guessing - at this stage ripping stuff out and painting the exterior - not very major work).

                      however our flights are an expense, as with interest and bank fees on NZ mortguage. not sure where draftmans fees fit.

                      so do we need to do a NZ tax return? one each or just one for the 'business' even though its not a business structure? can the losses be a reduction on our personal tax returns in OZ even though we didn't earn any income from the activity?
                      and if not, can we include any of these NZ property expenses directly into OZ personal income tax returns, or must it go through a NZ tax process first?

                      cheers, kerry