Forums / Getting Technical / Legal & Accounting / Structures – Company v’s Trusts

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  • Profile photo of FluffyFluffy
    Member
    @fluffy
    Join Date: 2004
    Post Count: 35

    Hi All,

    I’m currently trying to research what type of structure I should set up for investment properties in NZ. Any suggestions on what might be the best structure if I wish to purchase a few properties? Also, trust v’s Company?

    Also, I don’t quite understand the security of these if I am the director doesn’t that mean I am still open to anyone accessing anything already existing under my name?

    Is there any websites you may know of that may help me with this?

    [blink]

    Cheers
    Fluffy :-)

    Profile photo of UGUG
    Member
    @ug
    Join Date: 2004
    Post Count: 4

    Hi fluffy, i’m personally not a big fan of company as the ongoing cost in maintaining them is quite a considerable amount. Company tax rate is 30% for every single dollar that you earn whereas with trust you can distribute the income to yourself, spouse or even your children and get taxed at your income level.

    But again it depends on your income level, you understanding of corporation law, your family situation and the type of business that you want to run.

    I will strongly suggest being a public accountant myself that you have a chat with your accountant so you will gain a more in depth understanding of what you need and the advantages/disadvantages of each type of structure.

    Hope that helps :)

    Yugi Tjoe

    Profile photo of masteraccountantsmasteraccountants
    Member
    @masteraccountants
    Join Date: 2004
    Post Count: 77

    Hi Fluffy,

    Companies and Trusts are cheaper to set up in NZ than in Australia. Companies in NZ cost $250 and Trusts cost $350. Companies in Australia cost $1000 and Trusts can range from $250 to $3000.

    You are right about asset protection lacking in companies, as you hold the shares and they are an asset and the company can be attacked though you.

    If you own property in a Discretionary Trust, then you have absolute asset protection. Even the offical assignee in bankruptcy (the equivalent of your offical trustee in bankruptcy) cannot tell the Trustee how to exercise their discretion. NZ Trust Law differs from other jurisdictions in ways that will no doubt suit you.

    1. You can be the trustee of your own Trust -this is not allowed in Australia.

    2. The tax residency of the Trust depends on that of the Settlor not the Trustee – it is the opposite in most other jurisdictions. So if you have a local Settlor in NZ – a once off role with no ongoing control or responsibilities for the Trust – then the Trust qualifies as a Qualifying Trust for NZ Tax Law.

    If you use a company in Australia to purchase property in NZ, you will be subject to capital gains tax (CGT) in Australia on the sale of any properties. The same applies for a Trust set up in Australia to purchase property in NZ.

    If you set up a Trust in NZ to buy property in NZ, you can avoid CGT in Australia and receive capital distributions that are not taxed in Australia. New Zealand does not have a CGT.

    So do you need any more convincing of which is better? companies or trusts? and whether in Australia or NZ?

    Christopher Raynal
    Master Accountants Group Limited
    PO Box 46018 Herne Bay
    Auckland New Zealand
    Ph +64 9 360 3259
    Fax +64 9 360 2180
    http://www.masteraccountants.co.nz

    Profile photo of itchyfeetitchyfeet
    Member
    @itchyfeet
    Join Date: 2004
    Post Count: 12

    Hi Fluffy,

    I have purchased 2 investment properties in NZ using a company/trust structure (the company is the trustee – my wife & I are directors). I dealt with Russell from the following law firm in Queenstown and found him excellent. He set up everything for me at a reasonable price and the service was great.

    http://www.queenstownlaw.co.nz

    Good luck!

    ItchyFeet

    Profile photo of FluffyFluffy
    Member
    @fluffy
    Join Date: 2004
    Post Count: 35

    Thanks everyone for the valuable information.

    I am going to chat to my Aussie accountant next week and am then going to talk to a NZ solicitor.

    Masteraccountants, Wow, so much cheaper than set up in Oz! Looks like a trust is probably the way to go. Can I ask, with a trust in NZ, do you have to distribute funds immediately (like you do in oz)?

    Also, would you recommend getting a solicitor closer to where you are buying the properties or doesn’t it really matter?

    Cheers
    Fluffy :-)

    Profile photo of masteraccountantsmasteraccountants
    Member
    @masteraccountants
    Join Date: 2004
    Post Count: 77

    Hi Fluffy,

    All the available distributions do not have to be made in the year. However, the trustee will have to pay tax at 33% on the net income. When it is distributed at some time in the future, the beneficiary receives the tax credit.

    No need to have a lawyer close to the area where you are buying a property. We use faxes and emails for speedy communication, so proximity is no longer a problem.

    Obtain quotes on companies and trusts before you act. Accountants and lawyers commonly offer company and trust setup in New Zealand.

    Christopher Raynal
    Master Accountants Group Limited
    PO Box 46018 Herne Bay
    Auckland New Zealand
    Ph +64 9 360 3259
    Fax +64 9 360 2180
    http://www.masteraccountants.co.nz

    Profile photo of FluffyFluffy
    Member
    @fluffy
    Join Date: 2004
    Post Count: 35

    Hi Masteraccountants,

    I have sent you a PM!

    Cheers Kylie:-)

    Cheers
    Fluffy :-)

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