Buying In Australia
Those looking to buy across the ditch need to be aware of a bundle of tax issues, and should factor them into their decision, writes Mark Withers.
31 January 2020
With the Kiwi dollar riding high and some talk that we may achieve parity, Kiwis are again being tempted by the prospect of investing in Australia.
But those looking to buy across the ditch need to be aware of a bundle of tax issues, which they should factor into their decision. This articles explores some of those issues.
Australia has recently altered its stamp duty rules, with the effect of increasing stamp duty payable by foreign buyers, which includes New Zealanders.
You should seek local legal advice on the impact of the Australian stamp duty rules and what the investment will actually end up costing.
Because you will be deriving income in Australia, there is a requirement for you to file a tax return in Australia, returning the income from the investment. Australia typically has a June 30 balance date, whereas our own is March 31. For practical purposes this balance date difference is ignored when taking an Australian result into your New Zealand tax return.
Despite this, the figures in your Australian accounts will need to be converted to New Zealand dollars and the deductions, specifically depreciation, adjusted to comply with our own rules where they differ from Australia’s.
If you generate a profit in Australia it is important to have this result at hand when completing your New Zealand return as the New Zealand Government will give credit for tax already payable in your Australian return.
Similarly, if you are in loss, this should still be claimed in Australia to ensure you have losses to offset future profits or even an Australian capital gains tax, if you eventually sell at a profit.
Bright-Line Rule Applicable
Now, New Zealand has of course introduced its five-year bright-line rule. Because you are a New Zealand resident taxpayer, the residential property you have purchased in Australia is still subject to the New Zealand bright-line rule - meaning that if you sell it for a gain within five years, this gain is taxable to you in New Zealand, despite the property itself being in Australia.
Probably one of the biggest things to consider is where and how to borrow the finance. It’s tempting to borrow in Australia because their interest rates are a bit lower than ours, but understand this introduces a foreign exchange risk into your affairs that can impact your tax position.
Appreciate that your Aussie-dollar mortgage must be expressed in Kiwi dollars each year, so if the Kiwi dollar has appreciated, this will reduce the number of Kiwi dollars needed to pay off the
Aussie loan. This forex gain is taxable in New Zealand, in some cases on an annual unrealised basis depending on the quantum of the forex movement.
You must also comply with Non-resident withholding tax (NRWT) and approved issuer levy obligations when making interest payments to foreign lenders. Impacts from these regimes differ depending on what foreign lender you utilise. if the foreign bank is registered with our New Zealand Reserve Bank as having a banking license for their New Zealand branch these NRWT obligations can, in certain circumstances be completely avoided. Check the Reserve Bank website for the list of foreign banks with registered banking licenses in New Zealand.
If you are buying off the plans but intend using New Zealand dollars to settle your purchase, you may also consider taking out a forward exchange contract with your bank to buy the Aussie dollars (you will need in a few years’ time) now while the exchange rate is favourable. This strategy can lock in the current exchange rate and reduce the risk that the Kiwi dollar has fallen when you do need to settle.
Many Kiwis are pleasantly surprised with the quality of the bricks and mortar buildings they can get for their money when buying in Australia, and of course, making an acquisition in another country also diversifies your property portfolio and adds another exciting dynamic to the whole investing equation.
Do your research first and take advice on the tax and legal issues associated with investing overseas and having debt in a foreign currency, but by all means, consider expanding your horizon while our dollar is strong. ■