Previously I have written an article about Kiwis in Australia holding NZ properties using a family trust:
Here is a real case that I would like to share: A kiwi (lets call him Sam) has a family trust in New Zealand. Sam’s NZ home is held by the family trust. He is the settlor and the trustee of the family trust. The beneficiary is Sam himself and his son. After Sam’s departure to Australia, his son lives in the property and pays Sam a rental income every fortnight. Sam is a temporary resident for Australian tax purpose.
Sam’s NZ family trust becomes an Australian tax resident because Sam (the trustee) is now permanently residing in Australia. It has 2 very serious tax consequences:
1. Any rental income paid by Sam’s son is now taxable in Australia
2. The family home is now subjected to Capital Gains Tax (CGT). It is deemed to be acquired by the trust on the date that the trust becomes an Australian tax resident. The CGT is payable later if:
- Sam dispose the family home, or;
- The trust becomes a non-resident for Australian tax purpose again, i.e. If Sam later moved back to New Zealand
The worst news is: the CGT main residence exemption does not apply to properties owned by a trust!
It is a very big mess. Since Australian tax can be as high as 45% (not including medical levy), the impact is massive.
If Sam holds his NZ home under his own name, or done the tax planning before leaving New Zealand, he can avoid all the taxes mentioned above because of the temporary resident exemption. The temporary resident exemption, just like the CGT main residence exemption, only applies to individuals.
From my experience, Kiwis love to hold their properties using a NZ trust. It is nothing bad about using a trust if the trustees can always remain in New Zealand. Otherwise, it could be a real big mess and cost you thousands of dollars.