Tax obligations if changing status to non-NZ tax resident

Question from Doug updated on 18th November 2010:

We bought a house, lived in it less than two years and have now moved overseas. This is a permanent move. The house is in our names. We will be non-resident for tax purposes. We have a mortgage of $240,000. Firstly, can we now make deductions as landlords and if so, what are these? Secondly, next year I can withdraw $45,000 retirement savings, should I retire some of the mortgage or buy another property?

Our expert Mark Withers responded:

Despite being non NZ tax residents you are still obligated to file IR3NR non resident tax returns here in NZ that disclose the income you continue to derive in NZ. All the normal deductions are available to you including interest, rates , insurance, repairs etc. If you have a profit tax is payable on it in NZ. If you have a loss this will carry forward and be offset against future NZ derived income.

A loss is not likely to produce any refund as you will not have paid any tax in NZ to get any refunded. Reducing the NZ loan in future is probably wise beause your money is then deriving a return equivilent to the NZ mortgage interest rate and debt reduction is considered a risk free investment decision. Remember that the NZ property may also create tax issues in the country you are tax resident in so you should also take tax advice on the NZ affairs from a local accountant in your country of residence. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

 

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