Some time ago I wrote an article about Kiwis in Australia holding NZ properties by using a NZ company or under their own individual names. The feedback was very good. This article will focus on holding NZ properties using a NZ discretionary family trust.
Please click the following link for PART 1 of the article:
Kiwis in Australia owning NZ properties: Tax or No Tax in Australia? (PART 1)
A NZ trust is perfectly fine for holding NZ properties if the owner(s) always stays in New Zealand. However, it becomes a very dangerous arrangement if the owner(s) becomes an expatriate living in Australia. Here are the reasons:
1. NZ is running a settlor tax regime for trust, which is very unique. Australia, like most other countries, is running a trustee tax regime. This means it is extremely easy to fall into a dual residency and double taxation trap.
2. For individuals or companies, dual residency isn’t a big concern because of the Double Tax Agreement – tie breaker rules. However, the Double Tax Agreement is not specifically created for discretionary family trusts and the members within the trust.
3. The temporary resident exemption (discussed in PART 1) does not apply to trusts. If the Australian temporary resident trustee/beneficiary receives any non-Australian income from a trust, the temporary resident exemption applies to the trustee/beneficiary and not tax the trust’s income ONLY IF THE TRUST IS A FOREIGN TRUST. A foreign trust can easily becomes an Australian resident trust if one of the trustees is an Australian tax resident or the central management and control of the trust is in Australia. This means, if a temporary resident trustee/beneficiary receives income from an Australian resident trust, the temporary resident trustee/beneficiary needs to pay tax, even if such income is from overseas.
4. The main residence CGT exemption does not apply to trusts.
As you can see, a trust is a very dangerous arrangement for Kiwi expatraites living in Australia. The temporary resident exemption can be applied easily on individuals, but not the case for trusts. Also, setting up a trust is expensive and the tax filing for a trust is more expensive than individuals. The trust’s users spend more money but unfortunately, it puts themselves into a high risk of paying unnecessary taxes in Australia.
As a AU-NZ international tax consultant, I never ever recommend any Kiwi expatriates to use trust as an entity to hold their NZ properties, unless they really really need to and have the tax planning done very carefully before departure.
This area of Australian tax law is highly complicated and this article can only provide a very simple overview. If you are owning properties in New Zealand using a NZ trust, please feel free to contact us by email: info@cskconsult.com for a consultation session.
