Is renting the property from our LAQC considered avoidance by the IRD?

Question from nicole pike updated on 26th September 2007:

My partner and I have set up an LAQC through which we purchased our new home and also our sold our old property to the LAQC for purposes of rental. We are renting the new property from our LAQC with the intention of eventually moving on and adding this property to our portfolio. Is renting the property from our LAQC considered avoidance by the IRD?

Our expert responded:

Absolutely. This is a good example of the importance of getting good advice from professionals with experience in property. In this case, it is you that will have to face the harsh penalties imposed by IRD, not your adviser. There is no commercial reason as to why you would sell your home to an LAQC and then rent it back, other than to save tax. In NZ, you are not allowed to do anything for the primary purpose of saving tax. Saving tax must be a secondary or side effect. As to your old home, if you are renting that property to third parties (that is, not yourselves), then that property will be fine. One point often overlooked though is whether or not the old home even makes a good property investment in the first place, which should definitely be considered before deciding to keep the property as a rental or not.

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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