I have a couple of properties in NZ which I decided to buy through my Aussie discretionary trust. There was no advantage to setting up a NZ registered trust or a company structure like an LAQC (Loss Attributing Qualifying Company). Using my existing trust I gained the asset protection and tax benefits I am getting in Australia so I went with that.
NZ tax returns are still required on any NZ sourced income, a null one for the corporate trustee and one for the trust itself. Income is taxed at the standard 33% but any losses are accumulated in NZ to be offset against future income in NZ. If tax is paid a credit voucher is issued by the IRD to be included in the trusts tax return here so there is no double taxation.
There are a couple of issues though. Although there is no CGT payable in NZ, any profits you make on the sale of a property have to be recorded in your Australian tax return as income and you will pay Australian CGT on this profit. This can be minimised of course but it’s good to be aware of. Also, if you sub-divide a section to build a new dwelling and on-sell it you will be charged income tax on this as you are running a business. If you unit-title a block of apartments (like strata titling) within 10 years of purchase you will pay income tax on the profits from the sale of that block or any of the individual flats whenever that is unless you can prove you did it to increase rental return. So adding another dwelling on a section and renting it out is OK but just splitting up the titles on a block of flats for finance reasons is not. Also if you claim depreciation on everything using a QS report and then sell for a profit, the amount you have claimed over the years is calculated and you will pay income tax on this unless you can prove that all the growth gained in the property was purely in land value. Lastly there are the thin capitalisation rules for foreign investment. If you buy anything via a company and the ownership of that company is less than 50% NZ resident for tax purposes, you will only be able to borrow 75% LVR of that asset. Any more than that and you will not be able to claim the interest costs on that loan.
So it’s not as simple as everyone thinks and there is a lot to be aware of before making the leap. Get yourselves very good international tax accountants both here and in NZ before you take the leap and plan your investments carefully. Raw numbers don’t tell the whole story.
