Hello,
I am looking to set up a structure in NZ for investing (I am an Aussie).
I have been advised by a NZ accountant that because the Companies Act 1993 (NZ) stipulates that where a New Zealand company has overseas residents as shareholders, and they hold 25% or more of the shareholding, the company has to have its Accounts audited. (around $650 per annum).
The accountant is proposing that we make him the 76% shareholder. As the trustee company’s only role is to act as trustee of the Trust, and will not own a business, earn any income or pay any dividends, there is no financial benefit to be gained by being a shareholder. However, there is the saving in annual administration costs.
Can anyone comment on this or explain how they have worked around this issue.
Thank you. Angela
Originally posted by angela.goodsir21286:The accountant is proposing that we make him the 76% shareholder.
I know nothing about NZ structures, but I would not be comfortable giving a 76% stake in any of my companies to anyone (maybe the better half).
I would do alot more research before I agreed to this, doesn’t sound quite right.
CATA
Asset Protection Specialist
[email protected]Hi Angela,
I’ve recently setup a structure that I believe is identical to the one that’s been proposed (possibly by the same accountant). The company acts as a corporate trustee for a family trust that ‘owns’ the property. The directors of the company retain full control and responsibility for the asset, but the company itself earns no income and has no assets – therefore the shareholders have no benefit or claim to any funds. Only the beneficiaries of the family trust can benefit from the asset.
I’d be interested to hear feedback from others regarding this, but I believe it to be a commonly used and effective structure.
-GaryHi Guys,
I have done the same as above…..
The reason for the 76% share is the ruling in NZ that if any shareholder NON RESIDENT (NZ) owns more than 25%…. must pay income tax and do two lots of tax docs. (NZ and AUSSIE).
To get around this you simply make the biggest shareholder 76% (as long as they are NZ based) and in our case I have 1% and my Wife 24% sharehold. Then we made sure the trust clearly defines that the 76% shareholder relinquishes all stake in any income, investment, Shares or property share (current or future).I cleared this with my solicitor firts of course!!!
This all took less than 3 days to set up and cost $650.00 (NZ)We Obtained finance VIA one of the big NZ banks… and they were fine with the whole structure. WE must thank our great finance brokers in NZ for thier efforts though as one of our key team members they have made our investing in NZ a breeze.
Cheers
KiwiI can see one potential risk.
What if the controlling shareholder forces the company to appoint a new director (maybe themselves). The new director would then control the trust.
A suppose the appointer could then sack the trustee and appoint a new one.
Terryw
Discover Home Loans
Parramatta
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I reckon I know who you mean too, this person does a lot of our clients. Okay so the feedback is that some ‘trust’ (arr arr no pun intended) this accountant (as you sorta have to do, to some level) and give up this element of control to save the fees.
others decided they feel a bit funny about this and are happy to pay the fees/taxes and retain control of their investments. (i mean, the percentage basis.)
Not everyone (i.e. me) has a Dad in NZ who is a chartered accountant!
Still others don’t bother about structures for the first few properties, until such time as the taxable income or profit makes a difference, or the equity gained is worth ‘being sued’ over, or any number of reasons. Also in NZ with no stamp duty, it’s easy as pie to transfer the assets to a structure along the road. banks seem to be cool with it too.
cheers-
MiniHi Terry,
Yes this is a very common structure.
You can allocate many different types of shares to a shareholder and not every shareholder has the same rights in relation to voting.
cheers
D&L Property Projects NZ Ltd
Sourcing Investments that fit.
[email protected]
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http://www.nzproperty.orgHi all
I am aware that as an australian resident that I am still liable to pay CGT should I sell a property in Nz. Is the structure that you are talking about able to minimise the CGT liability?
Thanks
Hi MaiA,
Yes, the proposed structure quarantines the capital gain in NZ, where there is no CGT.
The style of the corporate trustees and Trust ensures that the Trust is only a resident NZ Trust and is not considered an Australian resident Trust.
As it is not an Australian resident Trust, it does not need to lodge a tax return in Australia.
However, if a distribution from the Trust to an Australian resident beneficiary is sourced from the capital gain, then the Australian resident will have to pay CGT on that distribution.
There are ways around that. However, most investors want to grow their property portfolio, so leave the capital gain in the Trust to help fund future property purchases – reducing the need to fund from Australia the deposits for future property purchases.
When it is desired to repatriate those capital gains to Australia, we present our clients with two options.
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.nzI’m aware that this is a common structure in NZ, but when we purchased our property in NZ, we were not comfortable giving anyone any share in our investments, we set it up differently!
Trustee company with us as directors
NZ-based trust.We only have one property and have owned it since June, don’t know if there are going to be any long term implications using this (Australian-like) structure, but it shows that you do have options and you do not have to set it up one way just because that is the advice you are given.
I still find it odd, but that’s just me!
We buy properties in Adelaide. No Agent Fees.
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phone 0412 437 582Hi Dr X,
In our trustee companies, the investors are also the directors – the only directors. And the Trust Deed ensures that only they are the persons authorized to appoint and remove trustees. There are many protections included in the Trust Deed.
Our trustee company acts as a co-trustee to ensure that the Trust is regarded as being controlled/administered from NZ, that the ATO does not regard it as an Australian resident Trust.
Whatever you are comfortable with is the way to go.
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.nzThanks for that Christopher, very helpful, I received more info from you via my email as well, so again thanks.
We are in the process of a development that we are looking at selling in 3-6mths time so wanted to know how to structure ourselves for this effectively. I expect that we need to set up the structure prior to selling?thanks
[biggrin]
Hi MaiA,
It may already be too late to set up a structure for the project.
You have bought a section of land and are building on it. When you purchased the section of land, it would have been in your own names (presumably), and you have expended money on building the development.
Are you going to sell to a new structure to carry out the marketing of the development? There is nothing preventing you from selling at cost to an associated entity, and then making the profit in the new entity. Tax will still have to be paid.
However, there would be unlikely to be any gain from doing this, as you would be earning income and have to pay tax in NZ, and then report the income in Australia (whether as a trust distribution or income in your own names) – you would claim as a foreign tax credit the tax paid in NZ, so you would only end up paying a top-up tax in Australia.
These transactions are subject to double tax agreements between our two countries – meant to prevent double taxation. You are now involved in international tax issues, whether you realized it or not.
There is an opportunity to save on CGT, as NZ does not have CGT. However, both countries tax property trading income in a similar way as gross income, so there is no opportunity for deferring or avoiding this form of income tax by using different structures.
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.nzEveryone,
Thank you very much for your responses. Much appreciated.
Angela
HI Chris
Thanks for all of that, really helpful
We havent actually purchased the land as yet, we are setting up a contract to buy it on an option. Therefore your advise is much needed before we actually put the land into our private names. Under the contract we will have 3 mths exclusive rights to buy the land, which just gives us time to work out the details of the development and set up a trust!!
We are looking at selling the home in around 6 mths, so under the trust structure is it correct to think that we wont be up for any CGT but we will be liable for income tax???
We may have some money partners involved of whom we were going to pay out of the proceeds of the development, they are NZ based, what tax implications will this present to us?
Thanks again Chris
Look forward to hearing from you, if you think it better to have a chat, please forward your number and available time
Kind regards
MaiHi MaiA,
Even though both Australia and NZ tax property trading or development income in a similar way, there is still the opportunity to reduce your overall tax bill if the marginal rates that you pay in Australia are above 33% – quite likely as the top rate is 49.5%.
With the extra information that you have supplied, it does look like a NZ Trust could assist you, especially if this is more than a one-off deal. If it is a one-off deal, then just paying the NZ tax and top-up tax in Australia would be the simplest way to go.
If you plan to carry out several developments over time, then the NZ Trust would allow you to cap your tax at 33%, and this may make it easier for you to fund further developments.
The profits would be quarantined as tax-paid profits in the NZ Trust, as that is the Trustee’s tax rate in NZ on undistributed net income. As the income would not be distributed to you in Australia, you would not have to include it in your Australian income tax returns.
At a time of your choosing, you could have the income distributed to you. If you became NZ tax residents, after 6 months of living in NZ, you could pay the tax-paid profits to yourselves and receive a tax refund – as your average tax rates in NZ would be likely to be less than 33% within a range up to $100 000 in any one year.
If that is not a viable option, there is another option through the use of LLCs (limited liability corporations) in the USA.
And, of course, if one of you has a low income in any particular year in Australia, a distribution could be made to that beneficiary – the foreign tax credit would be taken into account, and you might receive a refund of your Australian paid tax on other income.
There are some tax planning options as you can see. They are all legal, but may require liaison between your Australian and NZ tax agents to make sure that you benefit in the best way.
If you wish to take this any further, my contact details are noted below and you can always send a Private Mail through this forum.
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 MaiA,
In case it was not clear, not CGT would be paid in either country on these deals. Income tax would be payable. To qualify for the 50% CGT exemption in Oz, you would have to own the property for twelve months and one day – from the date of purchase as per the Sale & Purchase Agreemens to the the date of sale.
Your money partners would be paid a percentage of the profits or the gross amount of the sale, whatever you have agreed upon. The sum paid is a claimable expense for you and it is income for your money partners.
If the deal is structured as a joint venture with them, then no GST would be payable in NZ on their share of the proceeds. It is possible in other scenarios that you would have to add on GST to their share of the profits or gross proceeds, especially if your money partners are GST registered.
This is not really a problem, as you can claim back the GST in NZ on your expenses – and on the purchase price of the section of land. You would register for GST as your property trading is a business – rather than an investment like rental property investment – and the gross income (sale value of the development in one year) is likely to exceed to $40 000.
Does that make it more complicated than what you may have thought? Mind you, if you were doing the same thing in Australia, you would have had to register for GST. So it is not that different.
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.nzHowdy Folks. Hope you don’t mind if I butt in? I have read through all of your posts here and found them very interesting.
If I may ask you all a question. Is the NZ property market worth looking in to at present, especially from the position of being an Aussie resident? Of particular interest would be any extra benefits, not enjoyed here in Oz, and/or any snags.
Thanks guys.Hi,
Well, there are a number of advantagesm compared to Australia –
* no stamp duty
* no capital gains tax
* higher rental yields (rent/investment)
* can structure for cash-flow positive investment – self-funding
* good capital growthDo you need any more reasons?
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.nzThanks Chris. They sound pretty good reasons. What’s the market like at the moment? And if and when I decide to do something, would you like another client?[biggrin] Silly question, hey.
But seriously, I have read several favourable comments about you and company and would need someone, such as yourself, if I do go ahead.
Regards,
Forklift.
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