Anyone with overseas properties?

[bexml]

Hi again!
My partner and I are headed off to Canada for a few years and plan to invest over there, then come back to NZ at a later date.
We're curious to know, does anyone have any overseas properties and how do you find managing them from offshore? What are some of the problems you have experienced? Anything we should be wary of?
Thanks
-

[Monid]

Hi again Rebecca

We are presently based over in the UK, but we still own five rental properties in NZ. So far things are so good, actually we have probably been getting more info from our property managers now that they communicate with us electronically. One even uses a digital camera when she does property inspections and emails us the pictures so we can see for ourselves. The main issue I think is making sure that you have very solid property managers in place, you need to be able to trust them, because changing is going to be tricker from the other side of the world...

David

[Kay]

Check out the big article in the Herald on Sat 17 June about going overseas, taxes, etc where they advise getting everything set up before you leave NZ, or you could end up paying double tax - in both countries - in some cases.
Kay

[Monid]

Kay's point is sound. If at all possible get yourself declared as non-resident for tax purposes. That way you won't have to pay tax on your Canadian income in NZ. The important thing to establish this is that you have no enduring relationship with New Zealand.

[whitt]

I held one property in NZ whilst I lived in OZ for several years.
I was fortunate enough to have had a excellent house to rent out. Maintenance was extremely low as it was brand new and location was perfect. This meant that the logistics of running it from overseas was easy.
I will say that obviously there were times early on when incidences occurred, cash flow and tenants etc. These are always a challenge whether you are nearby or not you just need to work harder at fixing them.

[SwissKiwi]

IRD - 'Enduring Relationship Rule'

This enduring relationship rule is very vague - and I have thought about it a lot.

From the opposite perspective - If a NZ resident property owner is going overseas to work it may be better to be 'on holiday' than making a formal declaration as to becoming non-tax resident.

In this way if you are away earning Sterling or Euros and still own an NZ property (hence retaining the enduring relationship) you wont be taxed on foreign income when returning to NZ. (dependant on actually declaring that foreign income)

Any thoughts on this ??

[Monid]

The enduring relationship is I think purposively vague. We got declared non-tax resident... Despite having five properties still in NZ and all of our extended family.

So being a property owner is fine as long as it is a rental investment. And in our case one of our rental investments used to be our own home.

But I think you are better to declare your non-residency if you can. Since otherwise you will be liable for taxation in both countries! While since in the UK example there is a double tax agreement you won't get taxed on the same pound twice nonetheless you will still get NZ tax on top of your british tax... Especially because here we pay for our health care not out of our taxes but like you pay for ACC in NZ, meaning in effect you pay for health care in both countries...

[SwissKiwi]

Thanks for the post Monid - if - like we agree - the rule is intentionally vague - how are you so sure you are definately judged non tax resident ?

Surely this is not a single one off judgement the IRD make ?

What will happen when you want to return to NZ with all the cash you have earnt while in UK / Ireland ?

eg - would you be confident transferring say 20,000GBP or more into an NZ account ? Or paying a large lump off a mortgage ? That this would not be asking for tax trouble ?

[Monid]

Hmm interesting question.

It is sort of a single one off judgement, in that once you have been declared non-resident then you are non-resident unless your situation changes and you become resident again.

If we return to NZ to live then obviously we would become nz residents again but presuming we paid tax on our cash in the UK and it was earned prior to the return then it shouldn't be an issue.

As for transfering money to an NZ account, I'd agree that this would be asking for tax troubles since it would definitely look like an enduring relationship with NZ. We closed our NZ bank account, retaining only our revolving credit account for the purposes of operating our investment properties.

Paying a large sum off a mortgage shouldn't be a problem as long as it is a sound part of an investment plan, this would simply be paying down some of our investment properties which happen to be in NZ, not part of an enduring relationship with NZ... Since someone who didn't originate in NZ (I'm looking at you Aussie property investors) could have IP's in NZ without having an enduring relationship.

What do you think?

[spaceman]

The IRD

I have ranted a little before about the IRD.

I have to disagree with Monid and SwissKiwi say the "enduring relationship" rule is vauge.

It's (in my opinion) very clear. It's says that pretty much everybody has an enduring relationship with NZ. So that anybody can be obliged to pay tax to the IRD. By simply stating (bexml) that you are planning to return to NZ in the future ....you have hoist yourself on your own petard ....and clearly stated your enduring relationship with NZ.

HOWEVER...I don't think this means that you will have to pay tax to the IRD. What I think is the purpose of the legislation here is for the IRD to be able to catch anybody they decide is worth catching.....The only way I see to become a non-resident is to declare your situation to the IRD and then ask for a ruling.... I have been declared a Non-resident for tax purposes but as Monid says, the letter form the IRD states quite clearly. That if my situation changes then the IRD have the right to change my status.

Relying on any other than a ruling from the IRD on your specific case is fraught with risk. Because if you read the clip below from the IRD website ...it catches pretty much everybody.... all you need to be caught by the IRD net is return to NZ from time to time, have some immediate family there, have an investment there etc etc.

Some people would rely on not getting caught, such as the habitual "doer-upper" who doesn't declare income from a series of renovations and sales at a profit, or the "flipper" that only sells one or two properties a year "so it's not really trading" Others would rely on a decision going their way after the fact .... these options are far to risky for my liking I would supply the info to the IRD and live with the ruling they give you

The form to fill out is ...... New Zealand tax residence questionnaire IR886

Cheers
Spaceman

from the IRD web site

you know?
If you leave New Zealand for a long time you may become a tax non-resident

If you are away from New Zealand for more than 325 days in any 12-month period, you become a non-resident if you do not have an enduring relationship with New Zealand.

The 325 days need not be consecutive. Remember that if you are here for only part of a day it is counted as a whole day.

A number of factors will be considered to decide if you have an enduring relation with New Zealand or not. Factors can include:

Presence in New Zealand - whether you are here continuously or from time to time.
Accommodation - whether you own, lease or have access to property in New Zealand.
Social ties - where your immediate family lives; if you have children being educated here; if you belong to any New Zealand clubs, associations or organisations.
Economic ties - if you have bank accounts, credit cards, investments, life insurance or superannuation funds here.
Employment or business - if you run a business here; if you are employed here; if you have employment to return to; the terms of any employment contract.
Personal property - if you have vehicles, clothing, furniture and other property or possessions kept here permanently.
Intentions - whether you intend to live in New Zealand or to return overseas after a time.
Benefits, pensions and other payments - whether you receive any welfare benefits, pensions or other payments from New Zealand agencies or organisations.
This list is a guide only. Please note that you can maintain similar ties, or even a physical home in other countries, but still be a New Zealand tax resident. If you have an enduring relationship with New Zealand (permanent place of abode) you will be a New Zealand tax resident.

[SwissKiwi]

Thanks Spaceman - Did you actually take a ruling from IRD ? was it favourable ?

I think being out of NZ ''on a long holiday'' could make this problem go away - its the same as the thousands of young people away on OE - who presumably come back to NZ with some cash - which is technically liable for tax - as they are only away for a year or two - still have family and probably bank accounts etc in NZ - thus qualifying as have an enduring relationship.

[SwissKiwi]

In fact unless you sell EVERYTHING you own in NZ - cancel ALL NZ club memberships and bank accounts - have all your NZ family and friends killed - and never return to NZ -

you can still be judged to maintain an ''enduring relationship'' according to IRD definition !

[bexml]

Tax Treaty

I believe that NZ has tax treaties with some countries to the general effect that one country will credit you for taxes paid in the other country to avoid paying tax on the same money twice. So for example, if we earn $100,000 in Canada while living in New Zealand, and Canada's marginal tax rate on that money is 25%, we pay that tax in Canada and declare the income and tax paid to Canada on our NZ tax return and only pay the difference of NZ's 39% and Canada's 25% to IRD (which is 14%, note these figures are only examples and Canada's tax rates are actually much different).

[SwissKiwi]

Hi Yes Bex you are right that is the reason.
Which is arguably fair.
However a non-tax resident would not even have to pay the difference of NZ's 39% and Canada's 25% difference of NZ's 39% and Canada's 25%.

So I think the discussion here is how to be sure of being ''non-tax resident''.
There is also the ''long holiday'' solution - spaceman and monid are yet to give an opinion on that......

[Monid]

Hi Rebecca

You absolutely right NZ does have double tax agreements with several countries... But the devil is in the details, as I've mentioned elsewhere things that might be covered by your NZ tax in NZ are covered by something which isn't classed as a tax in the other country. In this case you would effectively be paying for something twice. So in the UK example health care isn't covered by tax, instead you pay a seperate amount out of your wage like ACC in NZ. However since this isn't a tax it isn't covered by the double tax agreement so you still have to pay NZ tax on this money, despite the fact that you don't actually get this money since it is deducted from your wages automatically.

As SwissKiwi points out though being non-tax resident is better still though.

SwissKiwi I'm not convinced the long holiday solution is a solution I was under the impression that if you were an NZ tax resident then any income earned anywhere in the world is still subject to NZ taxes, regardless of whether you are on holiday or not... What do you think Spaceman?

David