Interest Deductibility for Non Residents

Summary

• The Thin Cap rules apply to non-resident individuals, trusts and companies with non-resident shareholders
• The Thin Cap rules limit the deductible interest that may be claimed if the debt percentage is more than 60% of the property cost or value
• The Thin Cap rules should be considered if:
o you have rental property in NZ and you are looking to relocate overseas
o you are a non-resident looking to purchase property in NZ

Thin Capitalisation Rules (“Thin Cap Rules”)

If you’re based overseas and have an investment property in NZ, then you need to be aware of the Thin Cap rules. These

Auckland Accountants, Thorne Accounting Offers Recommendations On Chattels Valuations

• We are Auckland Accountants that recommend a chattels valuation for every residential rental property
• In November 2011, the IRD released an updated list of residential rental property chattels that can be depreciated
• Depreciation cannot be claimed on chattels unless a chattels valuation is completed
• The benefit of a professional chattels valuation will always outweigh its cost
• You can do your own chattels valuation if you can justify the value applied to those chattels to the IRD in the event of an audit

Chattels Depreciation Rules

In November 2011, the IRD released their updated list of residential rental

Summary

(1) For commercial buildings, assets listed under the “Building Fit-out” depreciation category may still be separately depreciated
(2) Separating the fit-out cannot be done retrospectively
(3) A fit-out pool of 15% of the buildings tax value can be created on 1 April 2011 if depreciation was only claimed on the building prior to that

Can depreciation still be claimed on the fit-out for a commercial building?

Historically, many commercial and residential property investors paid for valuations to be performed when an investment property was purchased so that any chattels and fit-out could be separated from the purchase price. This would allow a

It’s now official. The legislation to abolish gift duty from 1 October 2011 has been enacted. This means that there will be no gift duty payable for gifts made on or after 1 October 2011 and that gift statements will no longer be required to be filed with the IRD for gifts made on or after 1 October 2011.

The abolition of gift duty means that you can forgive any remaining amount under your existing gifting programme all at once. Any future property transferred to your trust can be acknowledged and gifted entirely on the same date.

Home and Income Can you borrow against the rental only?

If you borrow funds to purchase a rental property, the interest on those funds will be tax deductible as the funds have been used to purchase an income earning asset. If you borrow funds to purchase your own home, the interest on those funds will not be tax deductible as the funds have been used to purchase a private asset.

What about the situation where you purchase a property as a home and income. That is, a property where you live in part and rent out the other part.

In the past, there have been some taxpayers that would sell a property between associated companies and avoid paying the GST. The way this worked was the purchaser company would claim the GST but the vendor company would go into liquidation before paying that GST.

Clearly, the Government and the IRD didn’t like this so new rules were introduced on 1 April 2011 that made it compulsory for certain land transactions to be done on a zero-rated basis. This way there would be less risk that the IRD would miss out on their money from a

Repairs vs Assets

The costs of any repairs carried out on a property are deductible unless is it ‘of a capital nature’. Costs of a capital nature generally refer to improvements and are not deductible. Instead, improvement costs are added to the cost of the asset they improved or are depreciated as a separate chattel.

Take the common scenario of an investor replacing the bathroom in a rental property that they’ve owned for a few years at a cost of $6,000. If that cost is treated as repairs, the tax relief might be $2,000. If that cost

Now that loss attributing qualifying companies (LAQC) will no longer exist after 31 March 2011, I have revisited various property ownership options to determine their advantages and disadvantages for property investors going forward so that you are armed with the information to make an informed decision about the best ownership structure for your rental properties.

Before you can make a good decision about the best ownership option for your situation, you need to do three things:

(1) Complete a projected profit and loss for your rental properties to determine the amount of profit or loss that the property will make.

(2) Determine the expected

Not just any NZ company can be a look-through company (LTC). And it can be rather detrimental to your tax situation if your company no longer meets the requirements as losses can be trapped within the company and a liquidation required to preserve your tax free capital gain.

This article looks at the requirement that a LTC cannot be resident of another country.

A company may only be a LTC if it has 5 or fewer owners, is resident in NZ and is not treated as a non-resident under any double tax agreement. This can cause problems for those

What the Changes to the LAQC Rules Mean:

Given the higher compliance costs of LAQC’s and LTC’s compared to personal ownership, and the looming reduction in benefits described about, we have to ask the question as to whether they still have a place for property investors.

So, I have briefly outlined the previous benefits of using an LAQC and whether that benefit will still exist under a LTC.

(1) Can offset losses against personal income

While both an LAQC and LTC allow any loss to be offset against your personal income, this is also the case with personal ownership so this

In the May 2010 budget, the government announced it was going to make changes to LAQC’s. On the 15th of October, the government finally released the draft legislation for those changes. This article outlines those changes.

(1) There is a new tax entity called a Look-through company (LTC)

Rather than making lots of changes to the existing LAQC companies, the government has instead created a new company called a Look-through company.

(2) The end of the LAQC

The one and only major change to the LAQC rules is that any loss will no longer be attributed to the shareholders