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Minimising Taxes

What’s the best financial structure, to invest money earned overseas, to buy a rental property and then minimise tax and fees as much as possible?

By: Property Investor Team

1 March 2020


I am wondering if there is a suitable financial structure to invest money from overseas freelance consulting work directly into investment in a property (rental home) at home in New Zealand. I have no intention of avoiding tax or fees but I’d like to minimise them as much as possible over the next two to three years.

I would need a small mortgage to buy an average property. And I am wondering if it is possible to purchase a property with a look-though company (LTC) and then use the overseas income and rental income to pay the mortgage and minimise profits all around?


I am going to assume you are a New Zealand tax resident, and as such, are required to declare all your income sources in New Zealand, including the foreign freelance work. That being the case you are free to use the income to repay a mortgage whether the property is in an LTC or not, but, not without that income first being subject to tax.

So you should budget for and pay the income tax on the income before you invest it in building equity in the property.

Of course using the net income to reduce the mortgage will maximise profits and increase your tax bill. - Mark Withers

Investment Prospects In Hamilton


We are thinking of buying a four-bed, four-bath new build in Hamilton East, close to the University. We have been told that tenants are available for 12-month lease at $250 per room, so $1,000 gross per week.

The purchase price is mid $600,000s. Our research indicates that
Hamilton has good capital growth prospects and with a gross rental return of around eight per cent, it looks like a sound deal. We would appreciate any feedback.


As a quick look that return looks attractive. However, I’d caution you to make sure that it isn’t inflated in any way as you’re obviously going to want the property to continue to perform once you are past the 12-month mark. Hamilton does have good long term growth prospects. But do some more due diligence to ensure that the stated return is likely to continue to play out over the long term. - Kris Pedersen

Failed Tenant Bond Transfer


We recently had new tenants move into our property. They advised us that the bond
would be transferred from their previous tenancy. However, they recently advised us that their landlord wouldn’t release the bond and that issue is now under dispute. In our last communication with our tenants they advised us that the bond would be paid by a specific date.

That date has now lapsed. We have not heard from them in two weeks and their phone number supplied has been disconnected. What could be our next steps?


If a new landlord accepts a bond transfer, they need to send a completed Bond Transfer Form to Tenancy Services once it has been completed by the tenant and signed by the old and new landlord. Bond transfers take up to 15 working days to process. In some cases it may take longer if there is an issue with that transfer form, for example if not all parties to the previous bond have signed. If you would like to check the status of a bond transfer to your rental, you can contact Tenancy Services.

“Notice to Remedy” can be issued to a tenant (or landlord) for any breaches in the tenancy agreement that are capable of being put right.

The notice is actually a letter that outlines the breach (such as unpaid bond), and what needs to be done to resolve it. A landlord may also request that the tenancy be terminated as a consequence for non-payment. If so, they then need to specifically issue a ‘14-day Notice to Remedy’. This notice gives the tenant a timeframe to fix
the problem.

If it’s still not resolved within that timeframe, the landlord can apply to the Tenancy Tribunal for mediation or a tribunal hearing to have the matter resolved - which may result in termination of the tenancy and order of repayment for any monies owed.

Additionally, a landlord may wish to visit the premises to see if the tenants are still living there. Note that a landlord cannot enter the premises without the tenants’ consent, or without giving the legally required notice in writing. For more information on the disputes processes available, go to tenancy.govt.nz/disputes. - Jennifer Sykes

Changing Ownership Structure


My husband and I currently own investment properties jointly. We are looking to
change the ownership structure tob “tenants in common” (for the purpose of our wills). Would that change trigger the bright-line test and, therefore, a tax liability?

‘An inexperienced landlord may find it tempting to establish a side communication channel with the tenant, thereby undermining the work that the property manager has done’


As with many questions in tax, what appears to be a simple question on the face of it
does not necessarily have a simple answer. Instinct suggests that the simple transformation of ownership from joint ownership into “tenants in common” ownership should not trigger any consequences under the bright-line rule.

We can be reasonably confident that there is no disposal, but where matters are not necessarily so clear is whether there is a restart of the bright-line clock. If the property were under a formal partnership, there is potential for there to be a deemed dissolution and disposal for bright-line purposes, but joint ownership generally between spouses is not regarded as a partnership.

The catch here is that the brightline rule starts from the date that the instrument to transfer the land to the person is registered under the Land Transfer Act.

This could mean that the bright-line clock is reset for a fresh five-year period. Philosophically, I have trouble with this conclusion because I think that the right answer is that there is no disposal under the bright-line rule and no acquisition and restart of the bright-line clock, but the legislation does not clearly cater for this situation.

You should consider getting professional advice to support your position if you are concerned. - Matthew Gilligan

Disclosing Tenant Information


I have signed up my property with a management company. On requesting a copy of the tenancy agreement they were reluctant to provide me with one.

Upon my insistence, they sent me one where they had crossed out all
tenants’ information. As a landlord I do have a right to know who is staying in my property. Secondly, this was not disclosed, nor has been written anywhere in my agreement with the management company. I have also not been involved in the selection procedure of the tenant, which is very frustrating. Could you please advise if there is a remedy for this?


Your management agreement presumably gives your property manager the authority to start and end tenancies.

With that in mind, there is no need for you to know the names of the tenants, nor to have a copy of the tenancy agreement.

An inexperienced landlord may find it tempting to establish a side communication channel with the tenant, thereby undermining the work that the property manager has done. It is understandable, therefore, that your property manager doesn’t want you
and the tenant to start talking to each other.

As long as the manager is doing their job properly you don’t necessarily have a right to know who is living in your property.

You have signed that right over to the property manager when you appointed them with the authority to manage the start and end of tenancies. I suggest that you talk with your property manager and try to get an understanding of each other’s position and concerns.

This communication should have been established at the start of your relationship. - Bernard Parker ■


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