Investing in Australian Property – what you need to know
As New Zealand property market sores to new heights some of us are looking at investing in the bigger Australian Market. Below are some of the questions we often get asked:
Do I need to pay tax in Australia?
Rental income sourced in Australia is returned there however as the taxpayer is resident in New Zealand it is returned here as well. You need to do two tax returns, one in each country.
Some important points to note:
- New Zealand tax year is from April to March whereas Australian tax year is from July to June
- Even though income has to be returned in both countries it does not mean that you will end up paying tax twice. Firstly, the property may be running at a tax loss anyway. Additionally, if tax is paid in Australia, then in general a tax credit is allowed in New Zealand for the tax paid, up to the amount of tax that is payable here.
- You can borrow from banks that operate in both countries
- You can apply for the approved issuer status (AIL) and pay a 2% levy instead of the NRWT
- You can borrow in New Zealand
What happens to tax losses?
If the structure is right you will get tax losses in both Australia and New Zealand. This will reduce your taxable income in both countries. However, you need to make the structure is correct to take advantage of this. Give us a call and we can review your portfolio and advise of the best structure.
Can I claim depreciation?
One of the differences between New Zealand and Australia is that Australia allowing depreciation on properties build after 15 September 1985. New Zealand allows deprecation on buildings but at 0%. Both countries allow depreciation on chattels.
What are the implications of borrowing in Australia to fund your property purchase?
You need to be aware of the NRWT rules if you are going to be borrowing in Australia to fund your property purchase. According to the NRWT rules where a New Zealand resident pays interest to a non-resident lender, the interest is subject to non-resident withholding tax. Although NRWT is directed at taxing the non-resident that is deriving the New Zealand-sourced income, it is inevitable that it is the New Zealand investor that bears the cost.
There are 3 exemptions from NRWT
In summary, there are a number of issues for a New Zealand resident to consider when investing in Australia. It’s always best to seek professional advice before you invest, however as the saying goes it’s never too late.
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