Tax residency concerns

Preeti asks:
(updated on Thursday, March 24th 2016)

My property is rented out in New Zealand. I work and live in Australia.

I file a NRIR3 tax return in NZ for this properties rental income and expenses.

I also show income and deductions for this property on my Au Tax return as foreign net income or loss which is allowed to be offset against my employment income earned in Australia.

Do my losses keep accumulating in New Zealand? And how do I deal with this on my tax return in NZ?

Our Experts Answer:

Assuming you are a non NZ tax resident you are not required to declare your Australian earnings in NZ. In this case your losses on the NZ derived income from the local rental property continue to accumulate. If the property turns the corner and becomes profitable, these profits will offset the losses.

If you return to NZ and work you are able to offset the accumulated losses against this future income. If you move into the property a deemed disposal occurs and you must deal with a depreciation recovery: this may trigger income that will offset some or all of the losses. This would also be the case if the property was sold.

Just a note on tax residency: IRD have recently released a new interpretation statement on tax residency that elevates the significance of retaining property in NZ, especially if it was your old home, and still legitimately being considered non resident. If the property is " suitable for your occupation" it could be viewed as a permanent place of abode in NZ that could call into questions your assumptions around your tax residency.

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