ARE THE LOSSES FROM MY RENTAL IN NZ TAX-DEDUCTIBLE IN AUSTRALIA IF I’M WORKING THERE? PART 2

Are the losses from my rental in NZ tax-deductible in Australia if I’m working there? That is a very good question! When New Zealanders move to Australia and retain rental property in NZ, the tax implications can be complex.  The answer is “maybe.” Clarifying your situation involves DTAs, tie-breakers, the type of visa you enter Australia on and more. Read on….

This blog article explores how the Double Tax Agreement (DTA) between New Zealand and Australia affects:

• Tax residency
• Deductibility of rental losses
• Capital Gains Tax (CGT) exposure

We’ll examine two scenarios involving a couple moving from NZ to Australia and renting out their former NZ home, highlighting how their visa status and citizenship affect their tax obligations.

Scenario 1: One Partner Is an Australian Citizen

Let’s consider John (Australian citizen) and Joan (NZ citizen). They own a home in NZ which they plan to rent out after relocating to Australia.

Tax Residency and the Tie-Breaker Test

Under the DTA, individuals who are potentially dual residents (i.e., resident in both NZ and Australia) must apply the tie-breaker test, which considers:

1. Permanent home location
2. Centre of vital interests
3. Habitual abode
4. Nationality

If the NZ home is rented out and the couple lives permanently in Australia, the tie-breaker will typically assign Australian tax residency.

Temporary Resident Status: Joan Is “Tainted”

Although Joan enters Australia on a Special Category Visa (SCV) — automatically granted to NZ passport holders under the Migration Act 1958 — she cannot qualify as a temporary resident for tax purposes because her partner, John, is an Australian citizen.

Key Point: The ATO considers a person “tainted” for temporary resident status if they are married to or in a de facto relationship with an Australian citizen or permanent resident — even if the relationship later ends.

Tax Implications

Because neither John nor Joan qualifies as temporary residents:

• They must declare worldwide income in Australia, including NZ rental income.
• They may be able to deduct NZ rental losses against Australian income (if the property is personally owned).
• Their NZ property is subject to Australian CGT if sold while they are Australian tax residents.

CGT Exposure

The ATO states:

“Generally, foreign and temporary residents are subject to CGT only on taxable Australian property, such as real estate in Australia and assets used to carry on a business in Australia.”
👉 Source: ATO – CGT for foreign residents

Since John and Joan are not temporary residents, their NZ property is drawn into the Australian CGT net. If sold, CGT will apply based on the market value at the time they became Australian tax residents.

Scenario 2: Both Partners Hold NZ Passports 

Now let’s consider a differnt couple — James and Beks, both NZ citizens — who move to Australia and rent out their former NZ home. They enter Australia on Special Category Visas (SCV) and are not Australian citizens or permanent residents.

Tax Residency and the Tie-Breaker Test

As in Scenario 1, the DTA tie-breaker test will likely assign Australian tax residency if they live permanently in Australia and rent out their NZ home.

Temporary Resident Status: Both Qualify

Because neither James nor Beks are Australian citizen or permanent resident, and they are not in a relationship with someone who is, they qualify as temporary residents under Australian tax law.

Tax Implications

As temporary residents:

• They do not need to declare NZ rental income in their Australian tax returns.
• NZ rental income is only declared in NZ.
• They cannot deduct NZ rental losses against Australian income.
• Their NZ property is not subject to Australian CGT.

Key Point: Temporary residents are generally exempt from CGT on foreign assets, including NZ property.

This means that James and Beks can rent out their NZ home, report the income in NZ, and avoid CGT exposure in Australia — provided they maintain temporary resident status.

Summary of Key Differences

Ownership Structure Matters

Personally-Owned Property

• Rental losses may be deductible in Australia (if not a temporary resident).
• Income must be declared in both countries.
• CGT may apply.

LTC-Owned Property

• Australia does not recognize LTCs as transparent entities.
• Losses are not passed through to shareholders.
• Income may be taxed at the company level.
• CGT implications depend on residency and ownership structure.

Recommendations for NZ Citizens Moving to Australia

If you’re moving to Australia and renting out your NZ home:

1. Determine your tax residency using the DTA tie-breaker test.
2. Assess your eligibility for temporary resident status — this affects income reporting and CGT exposure.
3. Review your ownership structure — personally-owned vs LTC.
4. Seek professional advice — Trans-Tasman tax is complex and nuanced.

👉 Find a Trans-Tasman tax specialist when you get to Australia. We’ve seen more than one accountant in Australia get it horribly wrong and report NZ rental income in the Australian tax return!

Conclusion

The tax treatment of NZ rental income and CGT exposure in Australia depends on:

• Your citizenship and visa status
• Whether you qualify as a temporary resident
• The ownership structure of the property
• The DTA tie-breaker test

Understanding these factors can help you avoid unexpected tax liabilities and structure your affairs efficiently. Always consult a qualified tax advisor before making decisions. Talk to us today

What about…

• If you live or work in the UK?  See this article.
• If you live or work in Malaysia or Singapore?  If Singapore, click here. For Malaysia, see here.