Hi all,
Have read through the lengthy topic “NZPI Tax/Accounting…” but am still confused!
Am in the process of setting up a NZ Family Trust to put our IPs in NZ into. Our NZ accountant and solicitor are worried about the ramifications for it in Australia and the compliance costs here if it is treated as an Australian Trust.
My husband and I are both Australian Tax Residents. We will both be trustees along with our NZ solicitor.
The ATO tell me that it depends on who the “controlling” trustee is as to whether it will be seen as an Australian Trust and therefore needing to have an Australian Tax return done. My question is how does the ATO tell who the controlling trustee is? Our NZ solicitor has our Power of Attorney so will be signing all documents on our behalf regarding property purchases etc so is this enough to say he is the “controlling” trustee and therefore it won’t be deemed to be an Australian Trust.
I realise we will have to declare any income we derive from the Trust in our Aus Tax returns as foreign income but don’t want to also have the added expense of having to put in a Tax Return for the Trust here when we are already doing that in NZ.
How have other people here gone in this situation?
Shar
Hi Shar,
Firstly, I am by no means a fully qualified accountant, all I have is a few weeks of intensive study in Australian Tax Law.
My understanding of trusts in general for asset protection is that you have a corporate trustee. I’m not sure what happens when you have individuals as both trustees & beneficiaries…things may start to get messy there…I would think that if you are the trustee and that you are an Australian resident then the trust would also be a resident of Australia.
This is irrespective of the fact that the solicitor in NZ has control over the trust. The commissioner generally looks at the substance of the situation. Ultimately, the control rests with you.
Thats just my 2c worth…if I happen to be wrong, someone please correct me.
Shar,
Seeing as I am studying for an tax exam, I’ve looked up my text. Here is a bit of a quote from the legislation/guide I have in front of me:
“A trust estate is a “resident trust estate” if:
(a) a trustee was a resident at any time during the year of income; or(b) the central management and control of the trust estate was located in Australia at any time during the year of income: sec 95(2) ITAA36
So even if you did argue that central management and control of the trust came under the NZ solicitor, you would still come under (a) I think…
Mark? are you around ?
Thanks for your help guys.
I might put this question into the Help section to see if I can get some more answers.
Are you sure your solicitor is going to be trustee? Does that mean he/she will be guarranteeing your loans? – that would be good!
I think the ‘controlling’ of the trust would refer to who the appointor is as well as the trustees. The appointor usually has the power to change the trustees – in Aussie trusts anyway.
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
Yes Terry, the solicitor is a trustee along with myself and my husband. He seems fine with that. He also has our Power of Attorney for signing documents dealing with property as we are out of the country. I can’t see it being a problem for him though as the properties more than cover the loans. The appointor is myself and my husband combined.
I have mentioned to the solicitor that I thought that if we are appointor, trustee and beneficiary it may not be a bona fide trust. Am awaiting a reply from them.
We haven’t signed the trust deeds yet as want to make sure its right first. Unfortunately we have a purchase which is settling 4 Mar which I was hoping to be purchased by the Trust but it might have to be purchased in our own names as our other properties were. However, better to get the Trust structure right first.
Shar
Shar,
Don’t worry I started the other thread and am still totally confused and in the same situation as you, waiting to buy property in NZ but wanting to get the right structure first.Your concern over a sham trust (a massive topic in itself) could be answered in a book I just read called “Success with Trusts” by Ross Holmes – a NZ book. I dont know the answer to your concern but I am guessing it may be about your intention of the trust to preserve you investment for future children not yet listed as beneficiaries. This would need to be documented in the Trust minutes early on. But hey, I would expect your trust lawyer would tell you that. I got the feeling lawyers I got quotes from just wanted the fee to set it up. That book had some good pointers as to what you should get for your trust $$$ like templates on how to enter trust minutes etc.
I dont think we can avoid paying any tax here in Aussie as at the end of the day we earnt $$ and owe the government some! I guess Trusts are for long term asset protection, not tax avoidance.
I am now looking down the path of a LAQC whose shares are owned by the trust – just to confuse things even more!
Hi Surfer,
Pardon my ignorance, I have heard of LAQC a few times on the forums – what does it actually stand for ?
Cheers,
Andrew.[cap]Originally posted by aptam:I have heard of LAQC a few times on the forums – what does it actually stand for ?
Loss Attributing Qualifying Company. I gather it’s pretty much a standard company except that it can pass losses on to the shareholders.
See http://www.approved.co.nz/resources/laqc.php for some info about them.
GP
Shar, that is amazing!
Things must be different in NZ. In Aust all trustees would be required to guarrantee the loans!
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
Woops, half way through a reply and it disappeared? Will start again.
I don’t have a problem paying tax in Oz on monies received from NZ. I would expect this to be included in my normal tax return as foreign income. However, what I’m trying to avoid is having to lodge a separate return here in OZ for the trust and then having to pay my accountant an extra fee for having to do this over and above the fees for lodging our personal tax returns.
On a separate issue, some topics have mentioned the fact that you get charged CGT in Oz on sale profits from NZ, when speaking to the ATO they say if we receive profits here from the sale of a property in NZ, it would be CGT on our returns, however, it would be taxed at the same rate as any rental income we received would be taxed at ie whatever our income rate is, so personally I don’t see that as a problem.
Surfermark, that sounds a good book. I will look into getting it.
Regarding LAQCs, I was told they are no good for non-residents of NZ?
Shar
Originally posted by shar30441:it would be CGT on our returns, however, it would be taxed at the same rate as any rental income we received would be taxed at ie whatever our income rate is
If it’s CGT then hopefully you should be able to get the 50% discount if the property has been held for more than 12 months.
Did the ATO mention his, or specifically say you wouldn’t with a foreign property?
GP
Hi Greatpig
No they didn’t mentioned the 50% discount.
I spoke to Nick at Strategicwealth who Simon Macks often recommends on this Forum. He is a very helpful chap. Unfortunately though he doesn’t deal with overseas investments. He put me onto another accountant who specialises in overseas income. He isn’t sure about the trust thing and is going to get back to me. He did say that he doesn’t recommend his clients who are buying only 1-2 properties overseas use Trusts as it is very complicated when it comes to tax compliance.
However,he did mention that in some circumstances now you can negative gear overseas. Something to do with some tax changes from 2001 but alot of accountants don’t know about it!
Originally posted by shar30441:He put me onto another accountant who specialises in overseas income.
Yeah, me too.
However,he did mention that in some circumstances now you can negative gear overseas. Something to do with some tax changes from 2001 but alot of accountants don’t know about it!Yes. See ID2002/764 in the ATO legal database. I can’t get the link to show up properly here, but go to the ATO legal database at http://law.ato.gov.au/atolaw/search.htm and use the search function on “2002/764”.
GP
Shar,
I feel shouldn’t really post too much (to avoid showing my ignorance) as I’m still learning but the reason I am looking at a company structure is firstly they could be more flexible in transfering ownership without triggering depreciation recovery ie you can just sell shares rather than the property. Secondly I am trying to figure out if I can retain the profits within the company in NZ and use them to re-invest in other properties etc. (probably basic company accounting stuff) So avoiding paying out taxable profit dividends to me as a Aussie resident/shareholder. If you lived in NZ the dividends are CGT free under LAQC structure and likewise if the company makes a loss it can be passed onto the shareholders – I dont know if the loss can be passed onto Aussie shareholders?
I believe there may be risks with company structures in getting double taxation, in NZ then OZ, though – this is my current research topic!Whatever I choose its a great way to force yourself to buy lots of properties – just to get back your investment in setting these structures up!
Originally posted by surfermark:the dividends are CGT free under LAQC structure
Dividends are normally treated as income, not capital gain. Are you sure that’s not the case in a NZ LAQC as well?
Secondly I am trying to figure out if I can retain the profits within the company in NZ and use them to re-invest in other properties etc. (probably basic company accounting stuff) So avoiding paying out taxable profit dividends to me as a Aussie resident/shareholder.You may want to take a look through this stuff to answer that questions:
In particular, the first part about Controlled Foreign Companies and attributable income from them. An older version used to be downloadable as a PDF file, but I can’t find it on their site now.
And if you’re feeling real keen, you can look through the tax act as well:
Part X is the bit you want.
Finally, I’m not familiar with NZ company rules, but are you sure that capital gains in a company are in fact tax free and not taxed at the company rate?
GP
Originally posted by shar30441:Yes. See ID2002/764 in the ATO legal database. I can’t get the link to show up properly here, but go to the ATO legal database at http://law.ato.gov.au/atolaw/search.htm and use the search function on “2002/764”.
This is the link to the document mentioned above if you are interested.
http://law.ato.gov.au/atolaw/view.htm?find=%222002%2F764%22&docid=AID/AID2002764/00001
Thanks,
LuckyoneOriginally posted by GreatPig:Originally posted by aptam:I have heard of LAQC a few times on the forums – what does it actually stand for ?
Loss Attributing Qualifying Company. I gather it’s pretty much a standard company except that it can pass losses on to the shareholders.
See http://www.approved.co.nz/resources/laqc.php for some info about them.
GP
I have been a tax accountant in Australia & NZ.
What people should realise is the two countries have completely different tax laws relating to trusts, companies and property. Overseas (Australian) ownership of NZ trusts and companies can create a lot of headaches for the NZ non residents. Higher NZ taxes can be imposed and financial accounts can require being audited every year.
I would recommend anyone thinking of going down this track to go to one of the international accounting firms that has offices in NZ & Oz. Sure you will pay top dollar for the advice but at least there should be no suprises further down the track.
ned kelly
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