Extracting equity from NZ?

Our Experts Answer:

You have indicated that the two existing mortgages on the property are already at a level that creates a tax loss on the rental arrangement. This would suggest that the property is quite low yielding especially if there is still equity in the property. You don't need to restructure the ownership to extract equity for the deposit in Australia, you can simply borrow against the asset as it is in your own names. The only debate would be on whether additional interest would be deductible. Quite honestly, given losses are already being produced I would question the sense of a corporate restructure, especially when you are in Australia. The extra losses, if successfully engineered around the tax avoidance provisions would produce no additional tax refund in New Zealand because you aren't paying any tax in NZ to get any refunded. The situation in Australia is also complicated because losses to you as individuals would be deductible but it is unlikely NZ corporate losses could be offset against personal incomes in Australia even if the company successfully applied for LTC status in NZ. There are also thin capitalisation rules that limit interest deductions for non-resident investors if their debts exceed 60% of property value. The other option to release the equity is to sell the property, pay off the mortgages and use the surplus to buy in Australia. Whilst I appreciate you have indicated a desire to keep the property, you are clearly putting down roots in Australia and accordingly holding loss making property in NZ may need a rethink.