I’m looking for some good accounting/tax advice from EXPERIENCED NZ property investors. I have emailed 6 accountants in Australia and NZ and have only received 1 avg response.
It seems one needs a good accountant in each country. If anyone has any recommendations of Australian accountants with EXPERIENCE in NZPI that would be great!
I’ll keep it to a couple of key issues I would appreciate help with as this is the biggest hurdle to getting hold of my first NZ property. Keep in mind I am looking at cashflow positive properties
1) What is the best structure to invest through? As a personal investor using NZ finance, Australian finance? Or through a separate NZ company structure. The only advice I got was to use an Australian Trust and an Australian Trustee company of which the cost to setup seemed pretty high and no rationale was given. (Personally I’m in the top Aussie tax bracket, single, no dependents planning to live here for the foreseeable future)
What have other’s used and why?
2) All the talk of no Capital Gains Tax in NZ is great but does not the Australian government charge you CGT when you sell your NZ property? Is there a way to avoid this if so?
3) An extra curly one – any kiwis living in Australia that have any extra tax tips for a fellow kiwi? It may not be applicable but I’m willing to think outside the square such as having NZ family members (I can trust) to partner with under an NZ structure?
Any suggestions appreciated. I’m sure others must have been through this
ThanksHi Surfermark,
As for Australian Accountants, I can definitely recommend our accountant. (We invest in NZ as well as Australia).
He is based at Warragul in Victoria. About 1hr from the GPO.
His name is Paul Bright (director)
Armitage Downie
Accountants & Advisers
PH 03 5623 6322He has been our accountant for 5 yrs and he has helped our business immensely. He is also great guy and an investor himself. He knows NZ well.
Let him know that Will & Del recommended him.
U gave spoken a fair bit to Steve McKnight & David Bradley’s accountant. He is also a great guy, easy going and very up with the tax rules.
His name is Mark Unwin
Williams Partners Pty Ltd
Southbank Melbourne
PH 03 9682 5288Good luck with a good NZ Accountant!
We have been disappointed with ours of late.[confused2]Del
Sorry, I am not an accountant or an expert in this but since no-one else has replied, I thought I would add my own 2 cents. From the research I have done, it is better to have a trust in NZ to buy properties through, otherwise you will be liable for CG tax in Australia. Currently there is no CG tax payable in NZ. NZ accountants are probably helpful to set this up, but you may need some advice from someone in Australia if this is actually correct or not. Australian accountants may not suggest to do it this way as they would be losing out on some fees.
Please let me know how you get on.
My online investing diary: http://retireyoungandwealthy.blogspot.com/
I’ve been told that even if you have a NZ trust, you still need to pay capital gains tax here in Australia on profits gained from a sale. All the trust allows you to do is defer paying the tax to a later date of your choice. The only way to completely avoid paying CGT is to move to NZ for 6-12 months and become a NZ resident, where you will then be taxed under NZ laws. Since you are then a NZ resident, you can pay yourself the profits, then move back to Austrlia without getting taxed in Aus. There may be other ways, if you get super creative.
Regards,
OziChanging tax residence to NZ might have other ramifications as it might possibly trigger CGT events on your assets that don’t have the necessary connexion to australia, or if your change of residence results in your australian trust becoming non-resident.
If you’re serious about these kind of things you need to get good advice early. Read “The rise and fall of the house of Vestey” by Knightley
Hi,
We set up NZ Trusts in a way to avoid CGT in Australia. Our cost for the structure is $NZ600.
If you send me a private mail with your email address, I can send the info and attachments.
The structure involves an NZ Trust with 2 NZ resident company trustees. This avoids the ATO deeming the Trust to be an Australian Trust.
As long as any transfers to the Trust, to pay for deposits on properties to be purchased for example, are recorded as loans, then you also avoid the Trust Transferor Rules.
When you buy properties overseas, you unwittingly become involved in international tax issues, so you can avail yourself of international tax planning. There are options to not only defer CGT, but not to pay it at all. It’s up to you. We give the options, you decide.
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.nzAn Australian entity is generally no good for purchasing in NZ. You will need a NZ structure and you will need to borrow from a NZ bank. The NZ banks tend not to lend to Aussie entities unless you are buying in your own name.
Be careful of setting up a NZ entity where NZ residents ‘control’ your structure to avoid being taxed in Australia.
Cheers,
Mark Unwin
Mark is finance the only reason to have an NZ structure over and Aus one ?
Is there any other benefits?
Originally posted by masteraccountants:As long as any transfers to the Trust, to pay for deposits on properties to be purchased for example, are recorded as loans, then you also avoid the Trust Transferor Rules.
Are you certain about that, Chris?
From that same document we discussed before:
You will be regarded as a transferor if you:• have at any time transferred property or services to a non-resident discretionary trust estate
Then under the definition of services:
ServicesThis term includes any benefit, right, privilege or facility. Services include a right in relation to real or personal property as well as an interest in real or personal property. Services also include a right, benefit, privilege, service or facility that is provided or is to be provided:
• under an arrangement for or in relation to:
– the performance of work, whether or not property was also provided as part of the work performed
– the provision of entertainment, recreation or instruction or the use of facilities for entertainment, recreation or instruction or
– the conferring of benefits, rights or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar payment
• under a contract of insurance, including life assurance or
• under an arrangement for, or in relation to, the lending of money.I’ve run up against this same wall with indirect value shifting when trying to do interest-free loans between companies.
Cheers,
GPSparticus10,
Finance seems to be the biggest hurdle as to why you need a NZ Trust. However, as the entity has to lodge a NZ tax return and apply for the relevant file numbers, it is probably easier for your NZ accountant to have a NZ structure (Best to ask them).
Cheers,
Mark Unwin
Williams Partners Pty Ltd
http://www.wp.com.auHi Mark,
great to see you posting on the forum. I had a question – would a spotter’s fee be tax deductible for an Australian?
Also, would an ‘educational’ trip to NZ such as a seminar or training day, even if you didn’t own property there yet, to learn about property investing over there – be tax deductible?And if so, how would the tax department decide if if was ‘education’?
cheers-
MiniEntrepreneur, Strategist, Problem-solver, Creative
Hi Mini,
1. Spotters Fee – If you are an investor, this would be added to the cost base of the asset as an ‘incidental cost in acquiring the asset’. The deduction is not allowable as the cost was incurred before the asset derived income.
However, if you were a property ‘trader’, the cost would be tax deductible.2. NZ Seminar / education – This would be deductible if you owned investments either in Australia or NZ. If you were starting out in investing and did not hold any investments in Oz or NZ, you would not be able to claim the deduction.
In order to claim a deduction for tax purposes, the expense must relate to an income activity. This is what the ATO would look at.
Note – the NZ laws may be different in claiming a tax deduction over there for spotters fees and education. Advice should be sort from a NZ accountant.
Cheers,
Mark Unwin
Williams Partners Pty Ltd
http://www.wp.com.auHi GP,
Yes, I am sure about what I have said about the Trust Transferor Rules.
If you remember, the Rules go as follows –
Under transferor trust measures, tax is imposed on a taxpayer where they have transferred property or services to a non-resident discretionary trust or, after 12 April 1989, to a non-resident non-discretionary trust for inadequate or no consideration. They may have certain income of the non-resident trust included in their assessable income.
New Zealand and Australia have a double tax agreement in place, and regard each other as being on their ‘grey list’. This means that they do not regard the other country as a tax haven, so the Foreign Investment Fund (FIF) rules do not apply.
The only way that the transferor trust rules will apply is where the property is transferred at less than its market value. This usually happens where the trustees transfer the family home into a Trust and gift their net equity to the Trust. In this way, the property has been transferred into the Trust for less than its full value. If the net equity is recorded as a loan, then there is no less than adequate consideration on the transfer of the property to the Trust.
When you have a Trust that is buying rental properties as investments, I see no reason to not record the deposit supplied by the trustees as a loan. They have no reason to disclose less than the full purchase cost of the investment. Gifting should not be an issue, as the property is income producing and will pay itself off. It will pay down its loans.
The middle part of the transferor trust rules extract only acts to qualify a start after which non-resident non-discretionary trusts can fall under the rules. Read this part on its own –
or, after 12 April 1989, to a non-resident non-discretionary trust
The last part of the paragraph applies to both types of trusts –
for inadequate or no consideration
This is the reason for the rules. The common meaning of ‘transfer’ is where something is given with no intention or expectation of return. This is why the rules do not define what is and is not a transfer. It is given its common everyday usage.
To ensure so confusion, the extract ends with the term “for inadequate or no consideration” to indicate what it is meant to capture.
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.nzHi Chris,
so the Foreign Investment Fund (FIF) rules do not applyBy that, are you including the transferor trust rules as outlined in the Foreign Income Return Form Guide? It would seem not from your later comments – and the T/T rules there do specifically include NZ as a broad-exemption country along with a few other countries (unless it’s changed, but that was the latest guide available when I downloaded it a few months ago).
The only way that the transferor trust rules will apply is where the property is transferred at less than its market value…The last part of the paragraph applies to both types of trusts –
for inadequate or no consideration
I thought you agreed back in this thread https://www.propertyinvesting.com/forum/topic/13880.html that that was incorrect, the last statement only applying to fixed trusts (which is very clear in that document I mentioned above).
Even if it did apply, adequate consideration for loans generally means at commercial interest rates, but in this case, according to that document, the amount of consideration doesn’t come into it, and the lending of money would, I believe, be considered a transfer of services and thus make the lender a transferor.
The only other conditions I can see there where the rules wouldn’t apply for discretionary trusts is if the transfer was made in the course of carrying on a business (which wouldn’t normally apply) or if the transferor was not in a position to control the trust. Their definitions of trust control are pretty broad though, and I personally think it might be difficult to convince the ATO that the person concerned had no influence at all over the trust or trustee in the setup you’re describing.
But of course this is only my own interpretation. Naturally everyone should seek their own legal advice if they have any doubts.
Cheers,
GPGuys,
great to finally see some replies that snowballed. I stopped checking for a while as I didnt see anything.The lively debate still seems to me that its not as clear cut as I hoped but as I am orginally a kiwi, have family and potential beneficiaries there and could possibly move back one day, then a trust could well be the way for me to go.
As Steve McNight has warned I feel like I’m suffering from Analysis Paralysis and just want to get on with it but I figure if I setup a trust from day one I can keep all the investments (that hopefully snowball) within the trust, then I will be better off.
The only other thing that anyone left checking this thread might answer is should I have an NZ LAQC that the trust owns the shares of? I’m getting myself confused as to why but thats just a structure I have seen referred to before
Thanks again for all your responses!
Hi there,
First I have to admit my ignorance of the NZ tax laws so please correct me if anything is inaccurate.
I’ve been doing a course on australian tax law. One of the first things we looked at was the two concepts of Residency and Source.
Now if you were to set up an NZ type structure, it would presumably have a NZ resident trustee company. From memory companies are defined to be Australian residents if they are incorporated in australia, or have central management & control in Aus, or the voting power is controlled by Aus residents.
Wouldn’t this make the NZ trustee company also an Aus resident?
this is where things start to get a bit hazy for me…
– obviously if the NZ trustee company is classified as an Aussie resident as well, then this is where the DTAs come in…can anyone elighten ?
– who would be the beneficiaries of the NZ trust ? Presumably if you were australian and a beneficiary, when you receive a distribution from the nz trust. Would this distribution just count as income (rather than CGT) to the beneficiary in their australian tax return?
cheers,
Andrew.hmm..
I think I must have scared everyone away with scary tax talk
[blush2]
Hi Andrew,
Looks like the study is paying off. You are spot on with your discussion about source & residence.
There are creative ways of trying to avoid this but I do not encourage that.
The NZ rental income is declared on your NZ tax return and also your Australian tax return as foreign income (with a foreign tax credit).
If a capital gain eventuates, that is not declared as income in NZ but is declared on your Australian tax return as a capital gain.Keep up the study and full marks to you!
Cheers,
Mark Unwin
Williams Partners Pty Ltd
http://www.wp.com.auMark,
Thanks for the encouragement!
Like others have said in the forums..the trust structure is more about asset protection than avoiding capital gains.
Even if you managed to dodge CGT via a weird/wacky/”creative” arrangement, the commissioner always has Part IVA up his sleeve.
For anyone who doesn’t know, Part IVA is the anti avoidance legislation of the tax act. If the commissioner deems that the primary/dominant purpose of your “scheme” is to obtain a tax benefit he can still get you…and scale back your benefits…
Cheers,
Andrew.What about taking advantage of the different tax years in both Aust and NZ.
Your NZ trust could distribute to your Aust trust in late march – just before the end of the year. So the trust would have no income to pay tax on.
Your Aust trust then distributes income to your NZ trust on 02 Apr, just after the new NZ tax year starts, and before the Aust tax year ends.
You would never have to pay tax!
(at least you never used to!)
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You must be logged in to reply to this topic. If you don't have an account, you can register here.
