Double tax whammy

Question from Anne updated on 8th October 2009:

I am residing in NZ and investing in the development of a property in Australia. I am borrowing to send money over as a loan to build/develop the property. I understand the loan & interest incurred can be repaid back to me without being taxed, but how can I avoid paying 2x tax on the profit (NZ& Aust tax)...can the profit be gifted back??

Our expert Mark Withers responded:

There can be quite a few issues associated with investing offshore. In your situation though, the interest you pay on the funds borrowed here to build the dwelling will still be deductible here and in Australia. This may mean there is no profit. If there is a taxable profit, the tax you pay in Australia can be claimed as a credit here in NZ. This means that despite having to declare the income in both countries the tax is effectively only paid once.

For the benefit of other readers contemplating investing in Australia here are a few of the issues to consider...

  • You must file a tax return in Australia Australia has capital gains taxes and stamp duties
  • You must account for your Australian transactions in NZ in NZ dollars. 

Movements in exchange rates can create the potential for gains and losses caused by movements in the value of your Aussie mortgage. In certain circumstances these can effect the tax outcomes. If you borrow money in Australia non-resident witholding taxes are payable in NZ on the interest paid to the Aussie bank. This can be avoided by applying to pay the cheaper approved issuer levy as a alternative. As with everything, seek tax advice on your specific circumstances.

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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