Our Experts Answer:
There are some relatively complex tax issues that are potentially relevant here. First, interest incurred on money you borrowed to buy a home is not going to be deductible. On the other hand, interest incurred on money borrowed to buy a rental property in Australia will be deductible. The new rules prohibiting the deductibility of interest on residential rental properties do not apply to rentals outside NZ. As for the structure for the existing home that is going to be a rental, in years gone by it would have been likely that you would have been best served selling the property into a rental company. Now, however, this will not allow you to structure your bank debt in a more effective manner - unless the existing home qualifies as a new build. As you suggest, interest that is not able to be claimed as a deduction in relation to a residential rental property can be claimed later if that property is sold in a taxable sale. In your case though, if that property is your current home that you have owned for long enough to fall outside the bright-line period, it may be that you can sell it in the future without needing to pay tax, so there would be no taxable gain to be offset by any denied interest deductions. Also relevant are the proposed new rollover relief rules which might provide a means of moving the property into trust ownership without triggering disadvantage in relation to the bright-line rule. The bottom line is to get specialist advice, as there are some complex issues here, not the least of which will include how you account for a rental property in Australia under the New Zealand tax rules. There are a number of tricky traps that can arise in that context.