Tax issues with NZ property when living overseas

Question from Dave updated on 1st November 2010:

I bought a house on 1999 in Hamilton, and subdivided/built an additional house. I am moving to Australia and might buy a house as well. I was not able to sell my Houses in this market.
1-How can I claim my tax in NZ or Australia before I leave to Australia?
2-How can I save or not pay tax?
3-Where do I pay tax? NZ or Australia? (tax return)
4-When I sell my properties in future --where do I pay taxes? Australia or NZ?
5-Is there any vehicle I can use before going to Australia?

Our expert Mark Withers responded:

Your question raises many issues. Firstly, gains from subdivision and development of land done within 10 years of acquisition where the work is more than minor are potentially taxed. There are exemptions if the property was your residence or if the work was done to enable you to derive rental income or to live on the land but the facts will need to be carefully examined.

You haven't advised on your structure, the use of companies and trusts can also be problematic if you are offshore bound. LAQC's for example may lose their status if the management base is no longer in NZ. Austarlia also has a capital gains tax which may become relevant if you sell them after becomming tax resident there.

To determine your NZ tax residency you should file an IR886 tax residency declaration with NZ IRD before departure. Assuming they accept you are non tax resident here after departure you are only obligated to file a IR3NR non resident return here and declare the rental income from the houses you retain in NZ. You will also need to include this result in your Australian return.

In 2007 Australia repealed its foriegn loss quarantining rules meaning you may get to claim a NZ tax loss against your Australian income. If the properties produce profits and you pay tax in NZ you will get credit for the tax paid in NZ when you file your Australian return.

Take some proper tax advice before you leave NZ and do the same when you arrive in Australia.

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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