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  • Taking loan in NZ over Aussie property.

    I have a house in Aussie with a mortgage of $164000 au, my accountant says that I should borrow the money here and pay off Aussie loan.
    His reason is that the Kiwi dollar will rise to about 95 cents to the aussie dollar in the next few weeks.
    At 95 cents would have to borrow $172,632 here which gives me a profit on paper of $37000 is this true.
    Anybody have any thoughts on this.
    Parks.

  • #2
    Ask your accountant about any possible tax implications due to capital gain on the currency trade.
    Last edited by speights boy; 08-03-2014, 03:24 PM.

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    • #3
      Yes thanks for that will email him on Monday.
      Parks.

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      • #4
        Originally posted by speights boy View Post
        Ask your accountant about any possible tax implications due to capital gain on the currency trade.
        This came back from my Accountant.



        Capital Gain tax of any kind is not subject to tax under the current government.



        My caution at the moment is this –

        NZ $ may continue to climb and when that happens,

        it may become a risk in you losing the margin of any further gain ( they may not be a lot – but worth consideration).

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        • #5
          I'm not sure you passed on the queston correctly or otherwise if your accountant understood the question correctly.

          Generally if you make a loss on currency exchange it is deductible, if you make a profit it is taxable. So exchange changes are subject to tax!

          Say you purchased the rental in Aussi and had a $100,000 Aussi debt. Exchange rate was 0.80 so debt was really $125,000 in NZ terms
          If you repaid the Aussi debt which was still $100,000, but the exchange rate was now 0.95, so you only paid $105,000 to repay the debt in NZ terms. The $20,000 is an exchange gain, that is taxable.

          With your original question - I'm not sure you have worded this well or have this right, or maybe I'm not understanding right.
          - ARe you saying your original Aussi loan was $164k and at 80cents this was $205k NZ
          - if you are, and you pay off for $164k at 95cents is $172k NZ - you have made a $33k exchange gain! Which is taxable!

          Let me know if your question is different!

          Ross
          Book a free chat here
          Ross Barnett - Property Accountant

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          • #6
            Thanks for that Rossco; I was hoping you'd be along as you have more patience and are able to explain things such as this better than I.

            I should have just used the word 'gain' in my suggestion to parkwood.

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            • #7
              Originally posted by parkwood View Post
              I have a house in Aussie with a mortgage of $164000 au, my accountant says that I should borrow the money here and pay off Aussie loan.
              His reason is that the Kiwi dollar will rise to about 95 cents to the aussie dollar in the next few weeks.
              At 95 cents would have to borrow $172,632 here which gives me a profit on paper of $37000 is this true.
              Anybody have any thoughts on this.
              Parks.
              The rate is currently 94.5, how on earth are you going to make $37k out of a 0.5 cent exchange rate movement? What happens if the exchange rate moves the other way? If you want to trade currencies, why spend all the money to rearrange mortgages when you could just get a CFD?

              Additionally, you do realise Aussie mortgage rates are significantly lower that in NZ don't you?

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              • #8
                Generally you have the mortgage in the same country as the loan to reduce risk.

                If you had a $160,000 property in Aussi and at 0.8 this mortgage was $200k NZD. And you borrowed in NZ

                Great if NZ dollar goes down, but if it became 1.5 NZD to 1 Aussi dollar, then you have a property if sold in Aussi that is only worth $106k NZD, but the mortgage is in NZ and still $200k NZD.


                Ross
                Book a free chat here
                Ross Barnett - Property Accountant

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                • #9
                  Originally posted by Rosco View Post
                  Generally you have the mortgage in the same country as the loan to reduce risk.
                  I assume you mean the same country as the property? I would agree that is the best most of the time. There can be an advantage in borrowing in an other currency if, say, you earn your income in that and perhaps the rate is lower, but you need to understand the risks involved.

                  Originally posted by Rosco View Post
                  If you had a $160,000 property in Aussi and at 0.8 this mortgage was $200k NZD. And you borrowed in NZ
                  If you had does this 12 months ago, you would now have a property worth $168k in NZD, you could be pushed into a negative equity position, or at least into paying a higher LVR rate/fees. Mortgage rates in NZ are about 1% higher too, I just can't see much logic in this except as a exchange rate play. In that case, a CFD is a much more straightforward tool that you can close out almost instantly and it doesn't put your property on the line.

                  Just another question on this, is an accountant allowed to advise on a mortgage in this way? Its is in essence speculation on the exchange rate, is that not 'investment advice'?

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