Tax / financing position for overseas investor

[lissie]

Hi,
My brother and sis-in-law are living in Ireland and looking to invest in NZ. They have come up with some interesting questions :

1. Currently the interest rates in Irealnd have gone up to the outrageous figure of 4.3% . Is there any reason why they should raise a mortgage in NZ if they can get a lender to lend on NZ property in Irealnd ? If they do that is the interest paid in Ireland still a deductiion in NZ (under irish law you cant deduct interest expenses) ?

2. Either way if they take a tax loss in NZ can they offset that against Irish income, or do they have to offset the NZ tax loss against future NZ income, or neither of the above ?

3. Do overseas investors use LAQC structures - or is joint ownerhsip better because you would only be on the 19% rate ?

I know I need proper accounting advice but I thought I would try the forum too :-)

[CJ]

I will answer a couple of questions.

1. The interest rate may be lower but you will be subject to foriegn exchange gains or losses. Based on the econimic theory of interest rate parity, if a countries ntereset rates are lower, it is expected their currency will devalue.

For NZ purposes, the interset will be deductible and the forex likewise. NOt sure to Irish purposes.

2. They will need to do a NZ tax return and an irish tax return. It depends on the irish rules as to if they can bring the losses to account. NZ you can (if personally owned) but australia I dont think you can.

3. LAQC are a normal company treated specially for tax. THe irish system wont recognise it. It will bepend on the Irish system to see which is best.

[roadrunna]

I thought the use of a LAQC was only useful if you currently lived in NZ and worked in NZ earning NZ income as it's offset from that? Which means its not the best options for overseas investors - correct me if I'm wrong someone??

From the impressions I got when I was doing some investigation on the subject is that if you are overseas and it's your first property then the best structure is to put it in your own name. Once you get up to say 5 properties then you can start transferring them into a ltd company (yes I know it costs money to do this, but worth it in the long run)

Of course, it does depend on your own individual circumstances I guess.

[LeanneS]

I thought that too - I spoke to someone at Matthew Gilligan who said that if you own NZ property you are considered tax resident whether you live here or not, so for simplicity's sake its better to have your properties in some other vehicle (trust/company etc.) No advantage to having an LAQC if you are not earning salay in New Zealand.

I'm assuming this information is correct and not a justification for selling me an unnecessary limited company!

Cheers,
Leanne

[CJ]

I thought that too - I spoke to someone at Matthew Gilligan who said that if you own NZ property you are considered tax resident whether you live here or not, so for simplicity's sake its better to have your properties in some other vehicle (trust/company etc.) No advantage to having an LAQC if you are not earning salay in New Zealand.

I'm assuming this information is correct and not a justification for selling me an unnecessary limited company!

Cheers,
Leanne

You are not tax resident just from having property in NZ - if you were your worldwide income would be subject to tax in NZ. If you just have rental property, you will be a non resident so you will only be subject to tax in NZ on NZ sourced income, therefore your rental income is taxed in NZ. I am sure that would have been what MG said (at least I hope it is). This doesn't mean a corporate structure isn't best - just making sure people dont start mis quoting the tax act (at 3 volumes, it is a bigger read than war and peace).