Am I liable for capital gains tax?

Question from michael updated on 29th September 2009:

I am an Australian citizen wanting to purchase an investment property in New Zealand. I note that New Zealand currently has no capital gains tax. I may need to bring some trades in to renovate my prospective property as the level of expertise needed is not available in NZ for some trades. I may also need to import some special materials. Can you inform me of how the taxation system will treat these 'strange' strategies and if I will be liable for CGT in Australia. Thanks for your advice.

Our expert Mark Withers responded:

Whilst NZ doesn't have a capital gains tax ( yet !! ) or stamp duties, you may well remain liable for capital gains tax in Australia if you are to remain an Australian Tax resident. You should seek advice from an Australian tax advisor on your Australian filing obligations.

The cost of making "dilapidation repairs" to a recently acquired property would generally be considered capital improvements as they would be problems that already existed pre-purchase rather than deductible repairs to damage caused by your tennants. Capital improvements are not deductible but are able to be depreciated.

The fact that you are bringing tradespeople over is of no particular issue to the deductibility of the costs. Seems an odd thing to do though, believe it or not we do have competent tradespeople here in NZ!

One other side point, Australia recently repealed it's foreign loss quarantining rules which had prevented Australian residents deducting losses on NZ rental properties against other Australian income. This may be of benefit to you in Australia if the property trades at a loss.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.



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