australians can place money in NZ bank, get higher interest, & pay NZ bank interest tax rate of 10%. under australian law, any income from overseas that has already been taxed, is tax exempt.
so if you were getting 4.5% & getting taxed 47% in australia, you would come out with 2.11%. oops, less than inflation. oh well.
but if you invested in NZ, you would get 6% & taxed 10%, coming out with 5.4%……
but hey, its only more than double the after tax return. lets just pretend we didnt see that and continue to invest in Oz banks.
and before some idiot jumps up & shouts, "oh no, you dont want to do that, there is currency risk!" let me point out a few things:
1. currency has equal chance of a move in your favour, improving the return
2. after several years of compound return there is NO SCENARIO in which a currency move could result in a better return from the Oz bank.crashy,
thanks for info.
But, if I had spare cash, in the long run… you would be better off using gearing and buying say property or shares.
Just to let everyone know a basic item of financial interest….." You will never get rich by putting your after tax money in the bank!"
in the long run, yes. but in the next 5 yrs…. NO
Which New Zealand bank is paying 6%? Their current cash rate is 5% with further cuts expected.
Don't you have to declare all foreign-earned income in your Australian tax return?
And won't that mean it will be used when calculating your taxable income?
And then won't the tax you have already paid in NZ be deducted from what you owe the ATO?
That's how it worked when I was trading shares in USA – thought it would be the same for NZ???
Craig.
"Don't you have to declare all foreign-earned income in your Australian tax return?"
yes
"And won't that mean it will be used when calculating your taxable income?"
no, because as I already said, if income has already been taxed by another country, then it is tax exempt in Australia. the variation on this is dividends which provide a tax credit. but Im not an accountant so this may need checking.
"That's how it worked when I was trading shares in USA – thought it would be the same for NZ???"
I assume your US income wasnt taxed.
crashy wrote:"Don't you have to declare all foreign-earned income in your Australian tax return?"no, because as I already said, if income has already been taxed by another country, then it is tax exempt in Australia.
It is not that simple.
Australia has double tax agreements with many countries, but not all. So you could be taxed twice, depending on the country.
Australia does have a DT agreement with NZ. However, even if there is a DTA you may still have to pay tax on part of your income. You still have to pay Australian tax on the income, you just can a credit for the foreign tax paid.
Terryw | 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
I would argue that this is not the time to pile up cash in bank accounts, but to put it to good use and after careful consideration buy either property (Australia or overseas), buy into overseas shares or funds which at the moment present real value for money. We may not be at the bottom of many markets, but I do believe we're getting close and that means it's time to get back in.
With "close to the bottom" I was referring to the various share markets around the world, property markets will take longer to sort out and some I would avoid. I do believe that well selected areas in Australia will suffer relatively little from this downturn and we will not see a wholesale 30% or 40% price reduction across the market (even in the US or the UK this is NOT happening, certain areas are being hit hard and others are holding up quite well)
Hi Crashy,
Have a bit more detail now to show you how this works. Below quotes from ATO website – Australia and New Zealand Treaty – key points:"Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the source country may charge on dividends, interest and royalties flowing to residents of the other country. These limits are, 15 per cent for dividends, 10 per cent for royalties and 10 per cent for interest."
"Double taxation relief for income which may be taxed by both countries is required to be provided by the country of residence as follows:
– in Australia, by allowing a credit for the New Zealand tax against Australian tax payable on income derived by a resident of Australia from New Zealand sources
– in New Zealand by allowing a credit against New Zealand tax for the Australian tax paid on income, profits or gains derived by residents of New Zealand from Australian sources."My interpretation therefore is that any income earned in New Zealand will be taxed in Australia at your nominal tax rate, with a credit for any tax already paid in NZ.
Craig.
don't forget if you make a capital gain in NZ the ATO will want their tax also
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