Trans-Tasman structuring issues
Question from Dhaval updated on 13th March 2020:
We are looking at moving to Australia. We have four properties: two in our personal names and the other two in two separate LTC names. The values of our properties are such that if we restructure all of the three investment properties then our own house will not have a mortgage on it but will still be used as security by the banks. When we move all four of our houses will be up for rent. Please advise the best structure to consider.
Our expert Matthew Gilligan responded:
I cannot give you a definitive answer here as to the best structure because this is potentially a very complex scenario given your impending move to Australia. Furthermore, there are additional facts that I am unaware of that will be important here.
What I will say is that if you are moving to Australia you need to understand any potential tax impact for you in Australia, as well as New Zealand. When you move to Australia and become a tax resident there, there is a default rule which stipulates that you have to return all sources of income to the tax authorities in Australia. However, that rule is then modified if you qualify for the “temporary residency” exemption.
As a result of this I recommend you get advice from an accountant who understands these rules in Australia so that you can firstly determine if you qualify for this exemption because that will also have a potentially significant impact on what structure is best for you. Once you know where you sit in Australia, you can then get advice from an accountant in New Zealand as to the appropriate structure here, bearing in mind the Australian considerations.
As a relevant aside, if all of your properties are rented then you will not have any interest payments that are regarded as private and non-deductible. Therefore, as far as tax is concerned, it is less of an issue whether your borrowing is secured against the rental properties or not.
What you will need to be aware of is that there are different implications for you in terms of being able to claim interest as a deductible expense if you cease tax residency, which is another illustration of the fact that there are complex issues at play here.Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.