Can an overseas resident enjoy tax benefits on rental income?

Question from David updated on 1st September 2006:

I am moving to Japan and will have 2 (and growing) investment properties. As I will have no (working) income in NZ, will I be able to make use with depreciation and tax benefits on the rental income from the properties. I'm not a fan of having tax credits accumulate as it's possible I may never have taxable income from a wage or salaried position in NZ again. The 2 current properties will produce an income of $650 p/w of which I will top up $155 p/w. Thank you, David.

Our expert responded:

As you are moving to Japan (I assume permanently) you will become a resident of Japan and therefore a non-resident of NZ. I am also assuming that all ties with NZ such as a home and bank accounts will be broken other than the ties with your investment properties.

If you own the investment properties in your own name, you will be required to file non-resident income tax returns with the Dunedin branch of IRD which is the non-absentee office. You will also be required to file a tax return for these NZ properties in Japan.

If you own the properties through an entity, then please refer to the earlier question on Australian tax issues as the same issues will apply here.

If you derive a taxable profit (having claimed all of your allowable expenses), you will be required to pay tax here in NZ. As a double taxation agreement exists between NZ and Japan, any NZ tax paid as a non-resident will be allowed as a tax credit by the Japanese tax office when you file tax returns as a resident of Japan assuming you own the properties in your own name.

If there are any losses from the investment properties, these must be carried forward and offset against income derived in future years as long as the loss would have been subject to NZ tax if it had been a profit. The loss unfortunately can not be offset against income you earn in Japan.

If you do return to live in NZ, the accumulated losses will be able to be claimed against any personal income earned after your return.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.










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