Australian resident for tax purposes investing in New Zealand

[manny]

Hi everyone, just looking for some advice, tips and reading recommendations in regards to the following...

We are living and working in Aus. and looking to buy investment property back home (NZ). I'm trying to work out how we should go about structuring things for tax purposes. Do we just buy property in our own name and go from there or should we start a company, LTC, trust etc. keeping in mind that in the future we might buy a property to live in here in Aus. (or Europe) If so would you have the company etc. in NZ or Au? What are the pros and cons?

We're only just starting out and this would be our first property so pardon me if any of my questions don't make sense :P
I would like to educate my self a lot more before talking to an accountant.

I would greatly appreciate any comments and possible recommendations you guys might have!

Ciao!
Manny.

[Rosco]

Hi Manny,

There are lots of different options, and it depends a lot on your own circumstances.

A big thing to consider if you are an Australian tax resident, is capital gains tax. You will need to check into this further, but my understanding is that if you buy an investment property in NZ, then you would be subject to capital gains tax on it(in Aussi). Therefore establishing Trusts (have to watch link to yourselves) can have some large benefits for you. But Trusts also have downsides (such as no personal tax deduction or loss) and costs.

Search this forum as well, as I have previously posted more information on this

Ross

[KyronGosse]

If you buy it in your own name then you will be liable for capital gains tax, but then you will also be able to claim depreciation and losses against your Australian income. I believe a company will stop this from happening, or as Rosco said a trust.

You need to figure out if your property is going to be cash flow positive or negative and then seek an accountant in NZ who has a good understanding of the Australian system

[manny]

Thanks for your comments! I stumbled upon this site a few days ago... gold mine of info
I like the idea of claiming losses against my Australian income. Can a company structure work in a similar way?

[Tan]

Best keep it simple where possible. You need a good reason to complicate it - why are you looking at buying in NZ? Not that there is problem as such, but it is harder from Aus, especially when interest rates have just gone down.

[manny]

At the moment it seems like i would get better value for money in NZ... I find the Perth prices rather inflated for what's on offer.
Would an Australian bank lend you anything for investment in NZ?

[Tan]

Take accountants fees into account.
Buy the Australian Property Investor Mag and look at all the Perth areas still affordable. Perth is just starting to boom, I'd buy there if I could, I dream of it!

[ammar]

At the moment it seems like i would get better value for money in NZ... I find the Perth prices rather inflated for what's on offer.
Would an Australian bank lend you anything for investment in NZ?

may i ask what is the average/median house price in perth ?

[Rosco]

Thanks for your comments! I stumbled upon this site a few days ago... gold mine of info
I like the idea of claiming losses against my Australian income. Can a company structure work in a similar way?

Why do you want to buy a property that is making a loss?
Especially with extremely low interest rates at the moment, you should be looking for neutral or positive, unless you have some cash or very high income.

Ross

[Harvey Specter]

Hi manny,

Without knowing all your circumstances it is likely that buying in your personal name is the way to go. I don't believe trusts are good when residing in Australia as they have punitive trust taxation. Also LTCs are not likely to work due to certain fishhooks.

On the other hand, buying personally is simple. It means if your property makes losses, these will accumulate personally and can be used when you return home to NZ and start earning income here. If your property makes profits, it will be taxed as low as 10.5% on the assumption you have no other NZ oincome (subject to the below comment).

It is definitely an issue to seek advice on, not just that but also whether you will remain a NZ tax resident. This affects your obligation to file tax returns in NZ after you have left declaring your worldwide income.

[KyronGosse]

Hi Manny
I was in a similar situation to yourself, I was working in the oil industry FIFO Perth and wanting to buy back in NZ. I previously owned a house which was negatively geared and my accountant suggested moving it into my own name to gain the tax advantages. You cannot claim tax advantages in Australia for any other entity owning it.

[manny]

Thanks for your comment Harvey, would the taxes on profit also be 10.5% if i am a tax resident in AU? Or would i get taxed double :S

[manny]

Hi Kyron, thanks for sharing. Did this make a significant difference on your income tax and how much if you don't mind me asking ? Would you have considered a neutral or positive geared property in your situation?

[manny]

may i ask what is the average/median house price in perth ?

I believe its around the AUD$510K (at least a few months ago)

[Rosco]

Hi Manny,

Ideally you want to buy an investment property that pays for itself (positive or neutral cashflow).

If you are an Australian Tax resident, and own a NZ property that makes a profit. You 1) pay tax in NZ on the profit. If this is your only NZ income it is likely to be taxed at only 10.5%. But 2) you have to return your worldwide income in Australia. So the rental profit would also be returned in Australia, with a credit for the NZ tax paid (as long as structured reasonably, ie personal name would achieve this). If you have high earnings in Australia, you will be paying additional tax in Australia on the rental profit.

Presuming you have family in NZ, if the property is positive, it is relatively easy and quite common to have a NZ Trust owning property that is seperate from yourself, and therefore not linked to Australia capital gains tax. If done correctly, the Trust would pay tax at 33% in NZ alone, and have the ability to allocate income to parents and other family. If you are looking at staying in Australia for a reasonable period of time, maybe for years after your Europe OE too, this can have major advantages.

If the property is negative, then most likely personal ownership is easiest and works effectively to offset the NZ rental loss against your Australian income. But be aware that current rules can change. In this case you would be accumulating a loss in NZ, which if you come back to NZ you will be able to access later.

Overall I personally find it easier to invest in the Country where I reside. I think there are opportunities anywhere, and this avoids any double taxation issues, or accountancy costs in filing tax returns in two countries.

Ross