Commerical Property Investment NZ - convert from Company owned to NZ Look Through Company Aust Trust

I bought a commercial investment property in New Zealand about 15 years ago under a New Zealand company and I as director. The property will start making significant profits now and I asked my NZ accountant if their is a way to minimise the company tax which is currenlty 28% on profits in NZ.

He advised to set up a NZ Look Through Company (LTC) and have an Australian Trust as the owner of LTC.

Everything was running smoothly until the Intrernal Revenue (NZ Tax Office) requested the ATO to confirm the following:

1. The company is not considered a tax resident of Australia
2. Would remain a non tax resident of Australia should the company become a LTC
3. Is not liable for tax, as an Australian resident on any income.

Before I contact ATO can anyone share any light on this issue and best structure to minimise tax on a NZ Commercial Property owned by NZ Company?

My NZ accountant also suggested altenrative is you sell the company to a NZ trust but would their be any capital gains tax on the sale in Australia.

Any feedback would be greatly appreciated.

 

You seem to have a controlled foreign company. Thats not wise. I wouldnt be calling the ATO in a rush. The ATO may now initiate an audit and also seek to tax this. They have close dealings with IRD and each refer matters to each other. They may see this as avoidance if AU tax hasnt been addressed. Double tax may even result. You need to consider the double tax agreement and the specifics of your company activities etc. I would probably seek advice from a firm that specialises in NZ / Aus joint tax advice. Legal advice may be best as the DTA issue may best be seen as a legal question.

The issue is not so much ownership. It is who pays tax.

The test for a company is where its has a permanent establishment (DTA Article 5) . Thats seems like it may be Australia although further information on its structure, presence and activities may be explored.

Only once this is addressed and confirmed can you then seek to correct and report the correct income and pay tax in the correct state. If it has been wrong up to now then you may be out of time to amend and face double tax issues that may be a concern.

 

Has the company been making loses to date?

 

Look through companies dont make profits or losses. They are akin to a partnership.

 

Well it currently is not a LTC. It is a NZ company with the intent for turning it into a LTC. To date it has been making a loss so no tax implications to date.

Thnaks for your advice Paul. It is a New Zealand company to date and pays GST and potential company tax in New Zealand when it makes a profit. Until there are dividends distributed to shareholders their is no foreign income. There are no tax implications to date.

Just trying to find best solution to minimise tax.

 

not based on advice I received from Moore Stephens for a NZ structure. this was an example done by them

 

there is a structure called an NZ Limited Partnership but this IS NOT an NZ look through company.

 

I would be seeking joint NZ AU tax (and likely legal) advice from the one practitioner. who is able to do both. I had a client who once did some things in NZ without advice. He was detailed at AUK airport on departure and his laptop seized as it contained NZ Government data. Long story it was mis-understanding and after obtaining a carnet (yeah I had to ask too) he had the laptop returned but then the companies office started breach issues as the company wasnt audited and lodging financials despite complying with GST and tax law as a branch of a aussie company. Absolute mess.

NZ has some terrific business benefits but also has some wierd laws.

 

This sort of advice is complex and would probably cost about $10k to $20k. Not something that I would touch.

 

Thanks for all feedback. Funny thing is both my very experienced NZ and Australian accountants did further research and to date think the structure is fine. I am surprised the IRD is holding it up.

I have found an accounting firm in New Zealand that are both a registered tax agent in Australia and New Zealand with quite reasonable fees and experience in this area.

I will pursue further this issue with them and keep you posted how I go.

If anyone knows of other accounting firms that are a registered NZ and Australian tax agent let me know.

Thanks all again for all your feedback.

 

give Mike Reddy a call 1300 791 600.

 

Thnaks Mike. Will do.