Investing in NZ tax Implications

[trent]

Hey Guys,

I am thinking of investing in a apartment in NZ and I am a NZ citizen with permanent residency in Australia. Can anyone tell me the tax implications, namely, Capital Gains and Income tax. Any handy hints on places to invest will be welcome.

[pablo]

Okay, let's start with the easy tax issue. You are buying an income-producing asset in another country. So you are involved in international tax issues, namely the double tax agreement between Australia and New Zealand.

This means that tax returns should be lodged firstly in the source country, namely New Zealand - where the income-producing property is located.

If there is tax to pay - a net profit has been made - tax is paid firstly in New Zealand and then in Australia. However, you claim the NZ tax paid as a foreign tax credit in Australia. So you might pay a top-up tax if the Australian tax rates are higher than the NZ rates.

If the property is owned in your own name, you will pay CGT in Australia if a capital gain is made on the sale of the property. There is no CGT in New Zealand, so you won't pay it here.

If the property is owned in your name, and it is negatively geared - a lot of borrowings - you can claim the tax loss against your income in Australia. So that might be attractive.

If the property is breaking even or making a small loss, and you consider that substantial capital gains might be made over a 5-10 year period, you might consider a structure that will allow you to defer or avoid CGT.

The structures are not simple, but they are also not costly. They can also be used for investment in properties in the USA.

Good Bye!!