Deducting foreign debt?

Question from Fresco Su updated on 22nd June 2012:

I am a foreign investor and I have applied for a mortgage loan in my home country (Taiwan). The property is registered under me and my spouse(who is a New Zealand resident living in Taiwan). Is the loan interest that I pay in Taiwan a tax deductible item in New Zealand? Also, we are travelling back to Auckland on an annual basis to make sure the property is in good condition. Are our travel expenses tax deductible here as well?

Our expert Mark Withers responded:

Regardless of the fact that you are non resident you are required to declare the rent from the property as it is income derived in New Zealand. The interest on the foriegn debt will be deductible against the rental income in New Zealand if the borrowed money was used to buy the property. In certain circumstances interest on foreign debt can attract non-resident witholding taxes or approved issuer levies. There are also thin capitalisation rules that can restrict the deductibility of interest in certain circumstances. Depending on the size of the debt, the movements in the debt level caused by movements in the exchange rate can create unrealised exchange gains and losses that may impact the tax position here. You should seek specific advice on your affairs from a tax professonal in New Zealand and back home in Taiwan.

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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