Moving overseas, how do I structure my LAQC?

Question from Rachael updated on 22nd January 2008:

My partner and I are moving to the UK for 3 years we have set up an LAQC and are transferring the mortgage across to it. Originally purchased for $395k. We have had a valuation done at $410k. We plan to purchase a second rental in NZ while we are overseas. I have contacted my bank and they are happy to swap our house over to the LAQC at no cost or change to our mortgage rate. When we draw up the sale and purchase agreement at what price do we put it through as? The original purchase price? Or at the new valuation price? What happens to the mortgage if we use the valuation price?

Our expert responded:

A transaction such as this is called an associated party transaction. This means that the transaction must be done on the same basis as if the property was being sold to a completely independent third party, which means that you sell at the market value stated in the valuation, not your purchase price. One issue for you to consider is that the losses in an LAQC can only be offset against New Zealand income, so unless you have other sources of income here in NZ, then the losses will just continue to accrue and be carried forward until you come home. The other issue is that as it is a company and you are going to be overseas and no longer tax residents here in NZ, companies legislation says that if a company is 25% or more owned by an overseas taxpayer, it must be audited. as such, your LAQC will now require an audit so there is an extra compliance cost for you that will provide very little value for you. We would not have recommended people going overseas set up an LAQC.

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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