What tax liabilities do I have as an Australian resident investing in NZ?

Question from Matt Watson updated on 23rd April 2009:

I am currently living and working in Australia, I own 3 properties in New Zealand and will be purchasing 3-4 more over the next two years. The existing properties are in my name, however I am considering gifting these to a trust and making all future buy and hold investments through the trust. I wish to use the Trusts Online service as it affords me the flexibility to control the operations of the trust quickly and effectively from here in Australia however my parents are reluctant to act as trustees for me as they think any web based trust company must be a scam and that they can become liable for bad debts if things go pear shaped, is this true? Also, if assets are in my name in New Zealand are they up for grabs I am sued by a creditor here in Australia?

Our expert responded:

I really wish I had spoken to you before you went to Australia, not that we knew each other. As you are now an Australian tax resident, your NZ properties are now subject to Australian tax law because as an Australian tax resident, you have to declare tax on your world wide income, which includes your NZ properties.

What that means is that although NZ has no capital gains tax, Australia does, so if you sell your properties while you are living in Australia (yes, even to your own trust), you will be up for capital gains tax in Australia. As the properties are in NZ, you also have to file tax returns in NZ as well. Did you get any tax advice before you went to Australia? And while I understand that you may want to use a cheap service to set up a trust, it really is a false economy.

There are special rules that need to be taken into account when you have an NZ trust and are an Australian resident and I'm not sure that an on-line website will give you that kind of specialised advice. Trustees can become liable for the debts of a trust if a loss to the trust occurs through the trustee's dishonesty, and there are certain cases when the trustees can become liable if they have been negligent. Both of these liabilities can arise regardless of where the trust was formed.

If your parents are also beneficiaries of your trust, then it is doubtful that any lender would give them a limitation of liability because they stand to benefit from the trust. There are other options available to using your parents but you are likely to only get that advice from a structuring expert during a proper consultation. And in response to your last question, should it come to that, then anything you own in our personal name will be vulnerable to attack from creditors.

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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