Migration to New Zealand is breaking records in 2015 – many of whom are Kiwis returning from long stints in Australia having acquired one or more rental properties during their time there. So what are the tax implications of such a move?
Here is a common scenario of a returning Kiwi with rental properties in Australia managed by an Australian domiciled property management firm receiving rental income of say A$15,000 – and with no other Australian sourced income.
New Zealand and Australia are party to a Double Tax Agreement (DTA). This DTA outlines which country has the sole right to tax specific types of income. The tie-breaker test in this DTA (to settle circumstances where you are considered tax resident in both countries) states that you will be a resident where a permanent home is available to you.
The income required to be returned in an Australian income tax return is the rental income (or loss) from Australian rental properties. The tax rate on non-resident income in Australia is 32.50%. Using a total amount of Australian rental income of A$15,000, there would be tax payable in Australia of A$4,875. Remember that Australian Capital Gains Tax will continue to apply to the eventual sale of the properties regardless of the residence of the owner. An Australian tax agent would be required to give more detailed and specific advice – and to prepare and file the Australian tax returns.
New Zealand Obligations
As a resident in New Zealand for tax purposes, worldwide income of the individual must be included in the New Zealand income tax return. However, there may be the ability to claim a credit for the tax paid in Australia. In New Zealand (using an exchange rate of 0.9597), the income to return would be NZ$15,629 – with foreign tax credits of NZ$5,079 for the amount of tax paid in Australia.
We will use a New Zealand marginal tax rate of 30% for this income. The tax payable is NZ$4,688 – but because NZ$5,079 is available as a tax credit having already been paid in Australia, there is no further tax payable on this income in New Zealand. The rental income has now been correctly taxed in Australia – and isn’t taxed again in New Zealand.
A couple of things to note: 1) The calculation of income or loss relating to the Australian property must be in accordance with New Zealand tax rules; and 2) The foreign tax credits are available only up to the amount of New Zealand tax payable on this Australian income, and cannot be used to offset income tax on other types of income such as New Zealand sourced income. Thus in this example, NZ$391 of Australian tax credits are not able to be utilised in this country.
If you are in this situation, please do not take this article as specific advice – but give us a call at Elevate CA to discuss your specific situation so we can assist you in meeting your tax obligations properly. Every situation involving a New Zealander returning permanently from another country is distinct and different.
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