Australian Residential Rental Properties
Grange Associates Ltd - 21 February 2012
Many New Zealanders choose to invest in Australian residential rental
property. A typical investment is a Queensland apartment that is available for holiday rentals by being
part of a managed pool.
The best ownership structure for such properties is either
individually or through a trust. There are pros and cons under both options, but essentially the
arguments can be simplified to availability of losses for individuals and asset protection for trusts.
Generally, the use of a company is the least desirable option as the likely result is the imposition of
For New Zealand income tax purposes all trusts are taxed in accordance
with the residency of the settlor. A settlor is deemed to include anyone that lends money to the trust
for less than a market rate or chooses not to collect market interest by failing to demand it. It also
includes any person that a nominee settles a trust on behalf of, with an example being an Australian lawyer
settling a trust upon the instructions of a New Zealander client. Typically in this situation the New
Zealander would act as trustee and lend money to the trust.
Irrespective of the ownership structure, individual or trust, because
the rental property is situated in Australia the income sourced from it must be returned to the Australian
Tax Office. If a taxable surplus occurs then income tax will need to be paid in Australia at the
prevailing rates. Any losses resulting will be available to be carried forward and offset against
a future surplus from the property.
Then because New Zealanders are taxed on their worldwide income,
whether that be as an individual, a New Zealand trust or an Australian trust with a New Zealander settlor,
the rental surplus also needs to be returned on the relevant taxpayer’s New Zealand income tax return.
Again any loss will be available to be offset against a future rental surplus, or if the relevant taxpayer
has other income during the year, it can be offset against that income.
It is not an automatic consequence that income tax will be paid twice
on any rental surplus; once in Australia and once in New Zealand. Normally the rental surplus will
first be taxed in Australia under their tax treatments at the appropriate rate. Then the income,
modified to reflect New Zealand tax treatments, will be taxed here at the appropriate rate, but with credit
being given for any income tax already assessed in Australia up to the amount of the New Zealand
The major difference in calculating the taxable rental surplus in the
two jurisdictions concerns depreciation of the building itself. In Australia no depreciation on
buildings is allowed on those built before 1985, whereas in New Zealand depreciation on buildings
is not allowed from the 2012 income tax year. The depreciation of chattels is similar in both
Where a New Zealand investor borrows money from an Australian bank to
purchase an Australian residential investment property there may be an obligation to pay NRWT (non resident
withholding tax) to New Zealand’s Inland Revenue. The analysis to determine if NRWT is necessary is a
little complicated and instead of trying to reproduce it here, those that are interested are welcome to
follow this link to Inland Revenue’s QB 11/01. If NRWT is payable consideration should be given
to an application for approved issuer status so AIL (approved issuer levy) can be paid at 2%
When borrowing from a foreign bank another issue to be aware of
concerns the accrual rules. A consequence of the accrual rules may be that foreign exchange gains and
losses on the loan will need to be included in the borrower’s New Zealand income tax
You also need to be aware of Australia’s capital gains tax. This tax
is payable when the property is sold and the amount levied is dependant on factors such as the structure
adopted, property’s location and period of ownership.
We intend that this article should only provide a limited background
to this topic. Accordingly, we strongly recommend that you obtain independent and specific professional
advice before committing to the purchase of an Australian residential rental property. The most
suitable ownership structure and financing arrangements are fact specific and need to be tailored to your
particular circumstances. Please contact us before you act.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
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