As we heed the advice by the Reserve Bank governor to look for better returns (when RBNZ dropped the OCR to 1.5% in May) we are seeing a quiet resurgence of social media and blogs promoting the wonderful yields some Australian property is delivering.

It seems many of us have forgotten the barrage of tax issues faced by Kiwis who invested in Gold Coast apartments back in the 1990s.

The property fundamentals may have improved but those tax issues two decades ago still linger on today.

So, it is timely to rehash some of those quirky issues that are not commonly known to those who are only familiar with New Zealand rentals and the new challenges we need to consider when investing in Australian rentals today.

Financial Arrangements

If you have an Australian loan, then New Zealand financial arrangement rules will apply.

This means you are liable to pay tax on any “unrealised” Forex gain (when the Kiwi strengthens) or claim a Forex loss when we convert the AUD loan into NZD at the end of the financial year. While unrealised means it is a notional gain/loss at conversion, this can also the AUD loan at a time when the NZD weakens.

Non Resident Withholding Tax (NRWT)

Unless the Australian lender is also a registered bank in New Zealand, then you as the borrower have to deduct NRWT (usually 10%) every time you make interest repayments. As many of the Australian lenders stipulate all tax liabilities are borne by the borrower, this means your overall cost of funds will increase as you have to cover the NRWT and the full interest repayment. However, you may be able to apply for the lower 2% Approved Issuer Levy instead of the NRWT if you fit the criteria.

5 Year Bright-Line Test

Not many people realise the bright-line test is not restricted to only taxing New Zealand situated residential properties. It extends to cover all residential properties situated worldwide. This means any gains you make when selling your Australian rental properties within five years will be subject to income tax in New Zealand.

Ring-Fencing Losses

We used to be able to claim Australian rental losses against our New Zealand personal income in the past but this will no longer be possible from April 1, 2019 when the ring-fencing losses legislation is enacted.

Last but not least, seek advice from a reputable tax professional in Australia and in New Zealand. In Australia, you need help with getting a Tax File Number, calculating the stamp duty payable, filing an Australian tax return (as you derive rental income in Australia) and advising you whether capital gains tax would apply when you sell your Australian rental.

Similarly, you need an experienced chartered accountant in New Zealand who has seen it all and is experienced in this area. In brief, your Australian advisers will apply Aussie tax rules while your New Zealand accountants will apply Kiwi rules to the same source records for different jurisdictions. Investing in an Aussie rental may indeed be rewarding but please weigh up all the issues and seek advice as sometimes it may not be gold, just because it glitters.

Stephen and his team specialise in advising on property-related transactions, valuation and restructure services, and tax planning. Withers Tsang & Co Phone 09 376 8860, www.wt.co.nz