Hi all,
Like many others before me, I have been thinking about investing in New Zealand property.
I have been in touch with a NZ accountant who tells me buying in a trust is the best way because i can avoid paying tax on the rental income.
He says:
“My preference would be to buy the property in a New Zealand discretionary trust. You could make capital distributions to yourself in Australia, and not have to declare the distributions or pay tax on them – as they would be capital. It would also mean that no capital gains tax be paid in Australia, as no distributions would be made from that source on sale of the property.
And there is no capital gains tax in New Zealand, so you would not pay CGT in New Zealand. In this way, you could legally avoid paying tax on the rental property in Australia.”Does this sound kosher to anyone else who has gone down this road? It sounds too good to be true…?
You’ve spoken to a NZ accountant. Have you spoken to an Australian one familiar with this area?
If you’re talking about rental income, then I would have thought either the trust in NZ would have to pay tax on the income if it retained in the trust. Or if you distribute it then you are liable. I don’t know if rental income to the trust can be converted into a capital distribution to you.
But, I’m no accountant.
regards,
Rod
I’d support Rod. Speak to an Australian accountant who is experienced in this particular field. While there might not have been a great deal of difference betweeen Australian and New Zealand tax laws 30 years ago, there will be usbstantial ones now.
I always think that a little knowledge is a dangerous thing with tax.
Alternatively you can hope your NZ accountant has given the advice in writing and that if things blow up his professional indemnity insurer will be around to meet your claim and that there is no cap on liability.
Thanks guys.
I’ve asked my accountant here about it and she said i’d need to speak to an accountant in New Zealand! [blink] Anyway i’ll now ask my accountant here if what he says sounds correct.
Rod, i agree with you and i think what he’s saying is that the trust pays tax on the rental income and then i make a capital distribution to myself in Oz which i don’t pay tax on because i’ve received a tax credit.
But then again, i thought this is the way things happened anyway withhout a trust?
I’ll let you know how i go.
Cheers [biggrin]
Hi guys
sorry to disappoint you but the NZ accountant doesn’t know what he is talking about. Sure the NZ stuff is correct but you will have to pay tax on the capital gains in Australia. This issue isn’t a NZ one, its an australian tax issue.
sadly there is a lot of missinformation by accountants because they don’t understand the complexity of the Australian side of the matter. My accountant here in NZ has spend a huge amount of time understanding the complexities (sadly i’ll have a huge bill), if you want his details please ask me.
There is little way to legally avoid CGT unless you move to NZ and become a NZ tax resident. Yes illegally you may be able to not declare income, but you could also fail to declare capital gains made in Australia (at your own peril)
regards westan
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Hi Westan,
I’m no accoutant, and am just confused here: if you set up a trust/company in NZ won’t it be a NZ entity (based on foreign investment) that should be working on itself independent of AU? And just how does AU government tax it since it is not an AU company?Thanks in advance!
Cheers,
YCYC
The ATO wants to tax aussies on their world wide income. Have a look at the latest Taxpack – there are various questions on income earned overseas etc.
But the good news is Australia has various taxation agreements with other countries, so you may not be taxed twice if you have already paid tax overseas. I beleive that there is no CGT in NZ, so they want to tax you on this in Australia.
Terryw
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Sure, that’s not too hard to understand. But what happen to companies? I wonder if you can set up a company in NZ and use that to manage your property? Or is it that overseas investors in NZ are not allowed to set up a company?
Thanks for the reply.
Cheers,
YCHi,
Before I say anything – I AM NOT AN ACCOUNTANT, SO DON’T TAKE WHAT I SAY AS LAW….
I beliece your accountant is correct in what he says. He is referring to a NZ RESIDENT TRUST, the only catch is that the person CONTROLLING THE TRUST, must be a resident in New Zealand.
If you are controlling the Trust from Australia, the ATO & IRD deem it to be an Australian Trust.
We have been through this with our Aust & NZ Accountant, and we now have a proper NZ Resident Trust.
This is a complex structure, so make sure you get some good advice from both ends of the Pacific.
Regards,
Del
Hi YC,
No problems to set up a NZ company/trust structure. It can be done in a few hours if you need it to be. The things is that to qualify as a NZ resident corp there are certain requirements to met in relation to NZ shareholders. That isn’t really difficult to overcome.
.
If distributions are made to you (capital or income) you will be taxed in NZ and Aus but not twice. There are recipricol tax treaties as others have said.
.
That said, NZ has recently been voted the easiest place in the world to do business. Their legislature and tax system are still supportive of local and foreign investments in property.
.
xxx if you need to know specifics pm me. The people I have used worked well for me and are happy to keep me informed of the latest developements.
.
henryThanks for all the info guys,
I plan to mostly buy & hold property in NZ, so paying capital gains tax isn’t a big issue for me… but i’d love to reduce any tax i have to pay on the rental income
At the moment, i plan to transfer it online from my ASB account to an account here.Wilandel you said you’d managed to set up a proper NZ Resident Trust. I assume this is because you live in NZ? Is it a lot different to a Liquidated Discretionary Trust?
I believe your accountant is correct in what he says. He is referring to a NZ RESIDENT TRUST, the only catch is that the person CONTROLLING THE TRUST, must be a resident in New Zealand.Cheers [biggrin]
Del is correct.
For the trust to be a NZ trust, the trustees (or a majority of them) must be NZ resident. If you aren’t a NZ resident you will either need someone in NZ to act as trustee or set up a NZ company to be a corporate trustee. Just beware of the NZ audit requirements for companies with >50% non NZ ownership.
regards,
Rod
Hi xxx,
We live in Victoria. We have set up someone in NZ who we trust to be our Trustee…
A lot of accountants in NZ do it on behalf of their Ozzi customers. It is not a “done thing” in Australia for this to happen I believe.
If you need the name of an Accountant in NZ who does this on behalf of their clients, I can let you know of a pretty good one.Good luck,
Del
Thanks Del and Rod, i think i’m making more sense of it now. I got a reply to a recent email from the NZ accountant and this is what he says:
If the Trust shows a net profit, after depreciation and other expenses, the Trust will pay tax at 33% on any income not distributed to a beneficiary. If you distribute income to yourself, then the NZ tax rate would be lower (15% up to $9500 and 21% from $9500 to $38000), however you would have to declare the income in Australia and pay the difference between what you pay in NZ and what would be charged in Australia – a higher rate.Should you decide at some future time to come and live in New Zealand, you could pay the distributions to yourself, claim a tax refund on the higher tax already paid by the Trust and not have to declare the income in Australia, as you would no longer be a tax resident of Australia. So some tax planning is possible.
In answer to your second question, the crucial issue is the nature of the Trust distribution. If the distribution is capital, then it is not taxed in either country. Only if the distribution is of income is it taxed in Australia.
In answer to the third question, the rental income of the Trust cannot be converted into a capital distribution. However, the depreciation charge which is non-cash can be distributed as a capital distribution. In the case of a new property such as yours, the depreciation charge can be large – $20 000 or more per annum.
In answer to the fourth question, you do not have to pay tax on the capital distribution because it is capital, not because tax has been paid in NZ on the net rental profit. The tax credits are available for future tax benefits should you come to New Zealand.
In regards to your question on tax paid in NZ, you can claim the NZ tax credits on income distributions made to you. Tax will be assessed in Australia on the income distribution at your marginal tax rates, and would be likely to be higher than what you would have paid in NZ. So there would be a top up of tax to pay to the ATO.
The capital distributions from the Trust to you in Australia could reasonably be made on a monthly basis. It would be wise to record minutes to show that a meeting had taken place, bank account balances had been reviewed and that the Trustee (you) had exercised his discretion to make a capital distribution. As it would be a standard set of minutes and resolutions, with only the dates changing, they could be produced for the annual cost quoted of $100.
So… i guess the gist is that the trust pays tax in NZ and i declare that income here and and pay any difference to the ATO.
Del, what is the main advantage of having a NZ trust (NZ trustee) over an Australian Trust (Aust. trustee)?
Is it basically because you can reduce your tax bill? Sorry for all the questions but i’m trying to get my head around it and get the correct structure set up from the start [blush2]
Many thanks,
xxx [biggrin]
ee? Is it because you plan to What is the advantage of having a NZ trustee?
Originally posted by wilandel:Hi xxx,
We live in Victoria. We have set up someone in NZ who we trust to be our Trustee…
A lot of accountants in NZ do it on behalf of their Ozzi customers. It is not a “done thing” in Australia for this to happen I believe.
If you need the name of an Accountant in NZ who does this on behalf of their clients, I can let you know of a pretty good one.Good luck,
Del
Thanks for your offer
Hi XXX
Just remember a NZ Trust is an entirely separate entity which is taxed in it’s own right. Only distributions to yourself will be subject to Aus tax and that is only if you make those distributions.You may also find you have considerable tax deductible losses over the years which you may accumulate. This in effect defers your future tax liability.
Now, if you were to take a loan from your NZ Trust as a beneficiary, would this be deemed taxable income in Australia?
Many of these threads on Trusts and structures for investing seem to be missing the point. Every individuals situation is different so instead of putting the cart before the horse it would be best to plan your overall investment strategy and then adopt the appropriate structure.
Think twice, act once.
Cheers
Jeff
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