Tax implications - using overseas (borrowed) funds

[Richard Mason]

I've been following Property Talk for years and have found it immensely useful. Thanks to everyone for their contributions. I have a specific question that I'm hoping some of the readers can assist with.


I have 2 IPs in NZ and have secured a loan against these to buy a third. Unfortunately, as I'm non-resident (Sydney-based) I can't get a loan for any new property I purchase (as far as I can determine). This somewhat limits my funds. Before the lending changes I had intended to use that loan to fund a deposit and get a new loan against the new property for the remainder. This doesn't seem possible and the money I have available (approx. $300k) won't buy the sort of property I was hoping to get.


I have an investment loan against my PPOR in Australia and could supplement the $300k but what would be the tax implications? I imagine that I won't be able to claim a tax deduction in NZ against the interest on the Oz loan. Hopefully, I can claim that on my Oz tax return. Has anyone been through something similar?


Am I better off readjusting my expectations and look for a property for $300k? Can I possibly find some NZ lender who would loan against the new property (or is that simply not allowed by the new rules)?


Thanks in advance
Richard

[Don't believe the Hype]

Hi Richard - it's worth talking to a trans Tasman tax expert - there are a few about but they're expensive - to review your situation. There is a double taxation agreement between Aus and NZ that may allow you to claim investment losses in one country against income in the other but you need to consider the impact of Aus CGT on your NZ assets as well as other barbs such as deemed disposal and fx rates impact on your situation - getting it wrong means you could have a significant tax liability with only a paper gain.

[Anthonyacat]

Hi Richard

I'm not a Trans Tasman expert by any means, but the borrowing costs to purchase the New Zealand asset should be deductible in your New Zealand tax return. I say should be, because I don't know your full situation and there's always complexities. But in almost every case, borrowing costs to buy the income-producing asset are deductible, it doesn't matter where the source of the borrowings is.

I doubt you'd be able to then claim the interest in Oz as well, but it may be the case. And as DBTH has said there are a variety of international tax law barbs to avoid - but you're probably already aware of those, since you already have NZ IPs.


But on the first bit, which may simplify the situation a whole lot - I'm not sure why you think non-residents can't get a loan for new property? Plenty of them do. Speak to a couple brokers who post here on the forum, or PM me for the details of the one I use. I'm sure they deal with non-residents all the time. The banks are a bit tricky with foreign income for servicing requirements, but I borrowed to buy two properties while living and working in London a year or so ago, with no problems at all.

[Richard Mason]

Thanks for your thoughts. I should have mentioned that my wife is Australian so, although I've read that "the restrictions don't affect Kiwis living abroad and buying with overseas income", there would be restrictions on getting a loan with both of us on it.

Anyone know a good Trans-tasman tax expert that I can speak with?

[Anthonyacat]

NSATax are the foremost tax experts in my mind. They're based in Ponsonby, but you'll find NZ tax experts in Australia also.

Also, while it's in a bit of a grey area, you could always incorporate a New Zealand company with yourself as the sole shareholder, and buy the property in that, then transfer half the shares to your wife. Legally, I understand this is perfectly above board, but the banks might not look at it favourably should they find out, and your contract likely requires you to inform them of such changes. But what's the likelihood they revoke the funding? I'd say that's pretty low.

[Richard Mason]

Thanks again Anthonyacat.

[brokerman]

Richard. It seems you may be caught in the new RB restrictions with Bank unable to use overseas funds in full. There are a couple of non Bank lenders who have a different view, have you explored these?