Tax Question!

[TurnipOrange]

I live in Australia and have one rental property in NZ. At the end of the financial year I have a $5k loss as I did the year before. So how long can I keep the tax credits as I have made a loss for the last 2 years and don't have any NZ income to adjust it too! Thanks for any help,Turnip

[Perry]

Last I knew, tax credits carried forward
were only lost on death, bankruptcy, etc.

[Rosco]

Yes, they will continue to carry forward until you have other NZ income to offset them against.

Ross

[TurnipOrange]

Yes, they will continue to carry forward until you have other NZ income to offset them against.

Ross

Thanks Ross, Any idea how long you have to keep the loses to claim back....Regards Turnip

[brend]

Thanks Ross, Any idea how long you have to keep the loses to claim back....Regards Turnip

Not 100% sure what you mean but the rental losses aren't ring fenced to only rental activities. tax losses carried forward are available to be offset against any future taxable income. For example if you decided to move to NZ and took up employment here you could offset that loss against this income.

I would also be careful about selling the rental while you are an Australian resident as you would be subject to CGT but I don't think that matters anyway because I think the CGT can be realised if your residence ceased? someone else confirm?

[epsomtax]

rental losses in nz deductible in australia

I live in Australia and have one rental property in NZ. At the end of the financial year I have a $5k loss as I did the year before. So how long can I keep the tax credits as I have made a loss for the last 2 years and don't have any NZ income to adjust it too! Thanks for any help,Turnip

You can offset losses from property owned in NZ in your personal name against income earned in Australia. I can't post the link here, but put "are the rental losses in nz deductible in australia" into www.google.co.nz and you'll see the correspondence we've had with ATO concerning this. We can also give you a recommendation for a good property accountant in Australia.

Regards
EpsomTax.com Ltd
Property Accountants, Auckland

[Anthonyacat]

EpsomTax, I'm curious - If your NZ losses are offset against AUS income, are they still able to be used in NZ? Clearly that wouldn't be fair if it were the case, but how does the IRD know you have utilised them with the ATO?

[TurnipOrange]

And what about capital gains tax in Australia if you sold your investment? Thanks turnip

[Rosco]

EpsomTax, I'm curious - If your NZ losses are offset against AUS income, are they still able to be used in NZ? Clearly that wouldn't be fair if it were the case, but how does the IRD know you have utilised them with the ATO?

Anthonyacat, aren't you a tax agent? This is kind of a key concept to tax residency!

Doesn't matter if IRD know or not, the NZ loss is still claimable in NZ. Recently I had a dumb IRD auditor have my client up about this (other way around), but they very quickly went away when asked to clarify.

Ross

[Anthonyacat]

Honestly, my overseas tax knowledge isn't what it should be - I've not dealt with much. Mostly NZ based individuals, SMEs and charities. I am working on it though. And on that note, yes Turnip there will be AUS capital gains tax on the sale of an NZ property if you hold it in your personal name; less sure if it is in a company or trust structure.

Rosco, I was just thinking, with regards to concepts like parliamentary intention and genuine economic loss (Alesco, etc), that having already received the benefit from your NZ losses overseas might disallow their use here. Interesting that this is not the case.

[TurnipOrange]

Thanks Anthonycat, If she has been living in Australia and pays taxes on her property here and sells it should she have to pay tax in Australia on the sale? Regards Turnip

[brend]

Might be best to split out the types of taxes here.

If she is currently paying income tax on the rental property in New Zealand, she should also be returning this income in her Australian tax return. She would also be entitled to claim a tax credit in her AUS return on the tax paid in New Zealand.

When she sells the property, any capital gain will be tax free in her NZ tax return. The capital gain would be taxable in AUS tax return.

[Matt Gilligan]

Good answer Brend, I agree.

In addition I would add that entity type comes into play here and affects whether she can claim the loss or tax credit in Australia. If she owns the asset in a company or ltc in NZ, in Australia three problems arise. Firstly the ATO deny the 50% CGT discount that trusts and individuals enjoy. Secondly losses are locked into the company and cannot be offset in her Aussie tax return. Thirdly tax credits from companies in New Zealand cannot be distributed in Australia with the income, causing double tax.

There is a bit more to it, but my point is the assumptions above are all predicated on her having direct individual ownership. If she is using a company in NZ, the above analysis from Brend and others changes, so check the ownership structure in NZ.

In relation to Anthonycat discussing parliamentary intention, it is both Australian and New Zealand parliamentary intention that you get losses from domestic and international investment activities. The double dip that occurs where you get to use a loss twice on both sides of the Tasman, is a biproduct of the tax treaty rules.

I have written about the basics of cross border tax transactions with some discussion on Australian investing in my book, Tax Structures 101. Check it out if you are interested on our Web at www.gra.co.nz under resources/books.

Hope that helps.

Cheers

[epsomtax]

EpsomTax, I'm curious - If your NZ losses are offset against AUS income, are they still able to be used in NZ? Clearly that wouldn't be fair if it were the case, but how does the IRD know you have utilised them with the ATO?

@Anthonyacat @TurnipOrange sorry, I haven't been able to get back to you, but I see your questions have been answered by two of my fellow property accountants!