Buying a rental in Australia? Some tax issues to consider

With COVID-19 still raging across Australia and its property market taking a hit, some Kiwis may be eyeing up the current price dip and thinking now’s a good time to snap up a Gold Coast or Bondi apartment. It may well be, but first it pays to consider a few of the tax aspects of this type of investment.


Here are the top three things to bear in mind before launching into this idea.


First, if you’re a New Zealand tax resident, it’s likely you’ll need to pay tax in New Zealand on any income received from the property. You may also need to pay tax in Australia on the property, in which case you may then be entitled to claim foreign tax credits in New Zealand for the tax paid in Australia.


Second, as well as paying New Zealand tax on the rental income, you may also have to pay New Zealand tax on any gains you make if you later sell the property. New Zealand’s land taxing rules apply to overseas property owned by New Zealand tax residents in the same way as for New Zealand property.


Third, if the property is financed by a foreign currency loan, New Zealand’s financial arrangement rules may apply. These rules mean that foreign exchange rate movements will affect the amount of deemed interest expenditure that can be claimed as a deduction in New Zealand. Furthermore, as a borrower, you may need to withhold non-resident withholding tax (NRWT) from the interest you pay on that loan and return that NRWT to Inland Revenue.


These issues can all get rather complicated and the tax impact will depend on the individual scenario. While the tax complications shouldn’t always be a barrier to these types of investments, they do require sound tax advice and forethought.