Would my overseas losses offset my NZ income?

Question from Jude updated on 24th July 2008:

I am looking at buying a Holiday Letting Apartment in the Gold Coast where we can holiday as well as let out while we are not there. The rent received will not fully cover the mortgage [shortfall of about $100pw] I live and work in NZ [Kiwi]. I read from a previous answer that I would have to file a tax return in Australia and also would need to also submit a tax return in NZ for the property. My question is would the loss of the property in Australia be offset against my income here in NZ, if so how does that work as I would have presumed I would have to earn in Australia to get any tax benefits? Also if I run at a loss would I have to pay tax on the rental income in Australia? Thanks in advance Jude

Our expert responded:

If you ask the Australian Tax Office (ATO - our IRD equivalent), they will say that you do not need to file a tax return if your property is making a loss, and strictly speaking, that's correct. What they don't tell you is that capital gains tax is payable in Australia if you sell the property and that you can offset your rental losses against the tax payable, buy only if you filed tax returns to record the loss with the ATO in the first place. The bad news is that you are correct, you have to file tax returns in NZ and Australia, so you have double the compliance costs. However, the good news is that because you have to file a tax return here in NZ (assuming you buy the property in your personal name), you are then able to offset the loss in Australia against your personal income here in NZ without earning any income in Australia. As an aside, any costs incurred while you are using the property for yourself will not be tax deductible and you will need to exclude them. This includes interest on your mortgage. And you need to take out your mortgage with a lending institution approved by IRD otherwise there will be extra unnecessary costs involved in making your mortgage repayments.

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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