How should I structure my NZ rental whilst overseas?

Question from Daniel Harding updated on 22nd January 2008:

Shortly I will be moving to the UK and intend to be working there for the next 3-5 years before returning. I have a house here in my name which I will later use to leverage into rental property, but for the mean-time I will rent it out using a property manager. My personal income will be from the UK only, topping up rental income to pay for management, mortgage costs. Will I be taxed (a second time) on the money I transfer to NZ? Can I claim management/repair costs? Realizing I cannot claim interest, is it worth me setting up a LAQC or concentrate on paying off my house?

Our expert responded:

As you are already aware, the interest on your current property is not tax deductible as the purpose for borrowing the money was to purchase a family home. However, if you sell the property to an entity at market value, the entity will be borrowing money to buy an investment asset and thus, the interest will be tax deductible. The question is, what entity? The losses from an LAQC can only be offset against NZ sourced income and in addition to that, if a company is 25% or more owned by an overseas tax resident, it must be audited. These are two very good reasons as to why an LAQC would not be suitable. With a trust, assuming it has been set up correctly, the loss is carried forward and offset against future year profits. Under either entity, all the normal expenses of owning an investment property that are tax deductible, will be tax deductible. And if and when you transfer money from the UK into NZ, as long as it is capital, that is, after tax money, then there will be no further tax payable here in NZ once it arrives.

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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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