Are the losses from my rental in NZ tax deductible in Australia if I’m working there? Part 1

“Are the losses from my rental in NZ tax deductible in Australia if I’m working there?”  That’s what we were recently asked by a client.  It appears that if your NZ rental property is owned in your personal name, the answer is yes.  But if it is owned by a Look Through Company (LTC), what then?  We didn’t know the answer, so we rang the Australian Taxation Office (ATO).  After speaking to three different people, no one there knew either, so we have written to them.  Here’s our letter below… we’ll let you know when we get a response:

ATO
GPO Box 9990
Sydney
NSW
Australia

Dear Sir or Madam

Re: Personal attribution of losses from a Look Through Company (LTC)

We have some clients that are moving to Australia, where they will receive a regular wage from which tax is deducted by their employer and forwarded to the ATO.  My questions are:

1. Seeing as a New Zealander working in Australia is taxed on his worldwide income, does the ATO allow losses from rental property in New Zealand owned by a New Zealand LTC to be offset against personal waged income earned in Australia?
2. Seeing as a New Zealander working in Australia is taxed on his worldwide income, does the ATO allow losses from rental property in New Zealand personally owned by said individual to be offset against personal waged income earned in Australia?

By way of background: The New Zealand Inland Revenue Department (IRD) has recently abolished the LAQC structure (Loss Attributed Qualifying Company) and replaced it with the LTC (Look Through Company).  Whereas the LAQC taxed profits at corporate tax rates, the LTC taxes profits at the personal tax rate of the shareholders.  In either case, losses flow through to the shareholders.  In New Zealand, the IRD allows such losses to offset personal waged income, resulting in a situation in which the individual has effectively been overtaxed, and thereby generating a tax refund.

Yours sincerely
Garreth Collard


Click here to see the ATO's reply.