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  • Investment for expats

    Husband (Kiwi) and I (Aussie) are working in Singapore at the moment. We'd like to get a property in NZL as an investment. Financing side - brokers helping us out and we're aware of a 40% deposit requirement.
    What I'd like to find out is whether Look Through Company or a normal company would be a suitable option for us? Intension is pure investment that might involve subdivision or development and selling. We've been researching but I'm not that familiar with different benefits of LTC vs. normal company. Trying to get a very basic idea while we look for an accountant.
    Thanks heaps!

  • #2
    You’ll get some good info on Gra.co.Nz Gilligan Rowe and Assoc are property accountants.

    Matthew has a couple of books plus they host free webinars where you can ask questions.

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    BusinessBlogs - the best business articles are found here


    • #3
      I am no accountant, but have NZ property, Aus property and work in Aus, so here are some things to consider:

      As an Aussie citizen, you are probably liable to capital gains for your world wide assets.
      As an Aussie, in your tax return you are required to declare any interest in world wide assets over 50k. (clearly so ATO can keep an eye on potential capital gains events)

      A NZ company requires at least 1 NZ citizen / resident owner (director/ shareholder)

      An LTC is perculiar to NZ, it is not recognised in Aus.
      An LTC can become a Normal company

      The advantage of an LTC used to be that losses could be passed through to the owners, ie exactly as the name says, from a tax perspective the transactions look through the company as if it is not there, and are attributed directly to the owners on an ownership proportion basis.
      The issue is, now that the Govt is intending to prevent the claiming of interest, and has already ring fenced losses, they have effectively taken the worst aspects of having a company, and those of owning privately, and combined them, defeating any purpose of LTC even existing.
      ie any losses can no longer be passed through to the owners, only "so called Profits", or more precisely "Gross Income".
      interest can no longer be offset against income (owners income or company income).
      In the LTC situation, all income, less the remaining limited expenses (insurance, body corp, some maintenance, agent fees, rates) is then attributed to the owners and is taxable at the owners relevant income tax rate, ie increasing the world wide income of the owners, while not allowing for the most major cost of generating that income- the loan interest.

      In a normal company (and LTC) situation, the losses are ring fenced in the company until such time as the company makes a profit sufficient to counter the accumulated losses.
      With the loss of interest deductability, the "so called Profit" state will occur much quicker than the "Actual Profit" state,ie the company can easily be making an operating loss due to interest costs, while at the same time being taxed on INCOME which is being falsely classified as "Profit".
      In most cases, even with only a 60% loan, based on current average NZ house prices, i would expect that rent would get no where near to covering all the expenses (including interest) so the company is going to require ongoing cash injection in order to pay the bills and stay solvent.
      If the company acquires assests that are able to provide cashflow above expenses, eg low end property that is cash positive, a number of these types of property can help support a more expensive loss making property, but again, all rent is taxed while only some expenses are allowable to offset the rent.
      If the company starts operating some sort of income generating busines, eg selling some product, the interest on money used for the product side of the business is deductable, but not the interest on loans used to buy or maintain the property.

      From an Aussie citizen point of view, you may not own the property directly, hence not directly liable for capital gains tax in Aus on NZ property, but you will likely have an ownership in a company which has a value of more than 50k. ie the company will own property (or equity in property) of well over 50k, (value, less its loan liability of 60%, less its shareholder stake -40%). Since you / the company are going to have to come up with the 40% deposit in the first place, and probably ongoing cash injection, your investment in the company (either as shareholding, or as loan to the company) will be well over 50k, and as time progresses, the difference in property value against the loan and shareholder liabilities ie equity, will grow and add to your capital gains tax liabilities in Aus. Plus, with the NZ bright line test liabilities (10 yrs for existing property, 5 yrs for new property) you could also be up for capital gains tax in NZ.

      If your intention on purchase is resale, then you are liable for capital gains tax in NZ regardless of years held.
      If you are looking to buy with the intention of subdividing / developing then you are also liable for capital gains tax in NZ, on the sale of the subdivided part.
      Both situations probably also come with Aus capital gains tax liabilities, and it is not clear that paying capital gains tax in one country offsets the liability in the other.
      I can tell you from personal experience that when filing my NZ tax return, only a proportion of the Aus income tax i have paid on my Aus income, is offset against my NZ tax liability. I can't tell you how that will work with the capital gains tax side of things, but suspect it will be similar. so you end up being taxed twice on some proportion.

      You need to keep digging to find information relevant to you, i have found very few accountants understand both NZ & Aus tax law.
      I would be surprised if an LTC is going to be of any benefit to you.
      A NZ company or private (shared)ownership seem to be your alternatives, and that is going to be dependant on how your Singapore income is treated in Aus (and NZ for hubby), when you intend to return to Aus or NZ.

      Be very careful, the situation has dramatically changed in NZ in the last year, causing many landlords to sell up in NZ.
      Be also aware of tenancy law changes in both NZ & AUS that make it very difficult to get rid of bad tenants, and require many equipment upgrades/ installs to meet artificial "one size fits all" regulations.


      • #4
        Keith has laid out a lot of valid info for you. When you said, "we'd like to get a property in NZL as an investment" you did not specify the type of property. Some of what Keith has described are fish-hooks in NZ residential rental properties. (And there are lots!) If you meant commercial or industrial property, they wouldn't apply. But I suspect that most of the tax law pit-falls which Keith's detailed will apply, much the same.


        • #5
          Yes, thanks Perry, my perspective is from residential rental, although i suspect a lot of the capital gains issues will equally apply to Aus, whether residential or commercial.


          • #6
            Have you found that residential renting in Oz has as many fish-hooks for LLs as there are in NZ?


            • #7
              Not quite as many, but in Victoria the new regs suddenly just appear, theres no consultation or advance notice.
              Many are exactly the same as those proposed then implemented in NZ, often to the letter, pointing to being driven by powers outside Aus (& NZ).
              eg no reason given evictions, tenants right to minor mods, general difficulty in evictions, right to have pets etc
              Fortunately have not yet had the HH legislation as has been implemented in NZ, but there are some aspects of it - energy efficient appliances, wired smoke detectors, insulation

              Have forgotten the fine details, but remember when they came in i noted that they were identical to what was proposed in NZ. I came to the conclusion that the risk / reward in Aus rental is no longer worth the effort, and as my places have become vacant i have not put tenants back in them. Trying to sell one or 2 but it is 2 very different markets here, houses which have rocketed in price, (but not as much as in NZ), and units/ apartments, which have not.
              In general, i have found rents in Aus are nowhere near as high as in NZ, and "price growth" (i know how you love the term Capital Gain) has been a lot less, so overall the return is low when compared to NZ.
              At the same time, the investment is less, it is not necessary to pay $1m for a house, you can still get something decent for 500-600k (but will not be close to CBD)


              • #8
                Good to get a first-hand-experience view of the Oz - NZ comparisons.

                I don't have a passionate aversion to the expression, "capital gains." Rather, I'm more than nakedly hostile to the gross and total misuse of the term. Just today, to illustrate the point, a fresh example of the vacuous idiocy that pervades STUFFed.


                “MPs have pocketed $50 million in capital gains from their property interests in the last year amid a growing housing affordability crisis, a Stuff analysis has found.”

                Do those financially illiterate morons not realise that no one has ‘pocketed’ anything? There’s just been a change in numbers on a valuation certificate.

                “It represents a significant increase in wealth for many elected representatives, around 95 per cent of whom have land or property interests.”

                And as most everyone else’s certificates will have changed by the same percentages, there was not – nor can be – any increase in ‘wealth.’

                And to think that NZ taxpayers are subsidising that sort of arrant disinformation via the governmentsroots interest journalism fund.

                Despair - thou art my tireless companion.