Ex-pats get tax back

Question from Rosanne updated on 29th August 2011:

Hi my husband and I bought a house together in 2005, we rented it out immediately. In 2006 we moved overseas. It has been running at a loss for the last 6 years. We were able to claim back some tax while we were in NZ and earning there. We have been doing tax returns for the house each year but obviously we have not been getting any tax back since we became non-tax residents and have not paid tax in nz for 6 years. My questions: What happens when we do return to NZ soon, if we pay tax again will we be able to claim back our 6 years of losses against that? I heard something about a 7 year limit of being overseas? Any help on this matter would be appreciated as we intend to move home in the next few months.

Our expert Mark Withers responded:

The losses you are creating here in NZ potentially build up indefinately and are available to be offset against your income when you return to NZ. If you move back into salaried employment on your return it may be appropriated to seek an alternative PAYE rate to avoid the tax deing dedeucted in the first place and refunded later.

Remember that much of your loss will be from depreciation, if you move back into the property your depreciation is subject to recovery on the first day of the next income year. This could cut the losses down considerably. No further depreciation is now claimible on the building so it may be that the property makes a transition from loss to profit from here on in and the losses begin reducing again.

Be aware also that there is a special tax concession for returning expats who have been away for 10 years or more to be exempt from declaring their foriegn investment income in NZ for 4 years. This is designed to give you the chance to contemplate the future of any assets you have overseas before the income on them becomes assessable in NZ. All good reasons to come home!

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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