​Perhaps you’ve been thinking "I want to buy property," but you’re worried about your debt. Here are 5 debt pay-off strategies!  Before you start looking for a real estate agent, scheduling property tours, putting down offers, it’s time to get rid of your debt once and for all - or reduce it as much as possible. When you’re ready to invest in real estate, EpsomTax.com can help you along the way! In the meantime, these tips will help you tackle your debt burden.

As you browse local listings, you might be worried that the high asking prices will prevent you from breaking into the housing market. But if you think outside the box, you might be surprised by your options. For example, you could consider buying an apartment, purchasing a home with space for a “mother-in-law” suite that you can rent out, or buying a home “as-is.”
 
If you choose to buy a home “as is,” you’ll save money upfront, but you’ll also be responsible for fixing any problems after you move, like structural issues, eliminating mold and mildew, patching leaks, and getting rid of pests. A seller will not be responsible for fixing problems like this.

​If you’re a business owner, there are a few things you can do to increase your take-home pay and increase your home buying budget. For instance, by structuring your business as a Limited Liability Company (LLC), you can take advantage of additional tax breaks. With LLC status, you can also rest assured that your personal financial assets will be better protected if your business runs into economic trouble. Before you start gathering your paperwork for filing, check the rules in your area for forming an LLC.

 What if you’re juggling multiple loans or forms of debt? You might be wondering which debts you should pay off first, or you might stress out about missing payments. Consolidating your debts can help you avoid these pitfalls. If you’re interested in consolidating your debts, Nectar recommends calculating your average interest rates first, because you’ll want to ensure that your debt consolidation loan interest rate is either equal to or lower than this figure.

If you’re struggling to make all of your payments on time, you may want to call up your creditors and talk to them about setting up alternate payment plans. But you’ll also want to explore a few ways that you could increase your income. Picking up a side-hustle is a great way to pay off your debts on a faster timeline and make your payments more comfortably.
 
Which side hustle should you pursue? Unity recommends walking dogs, joining a ride-share app, doing odd jobs for your neighbors, or becoming a mystery shopper.

Overall, savvy budgeting is the key to paying down your debt. You need to make sure that at the end of the month, you have plenty of money left over after paying all of your necessary bills. If you know that you’ve been overspending, it’s time to start tracking every penny you spend. Try tracking your spending carefully for a month, and then sit down to go over everything you spent money on. Where can you cut back? Is there anything unnecessary that you were purchasing that you can eliminate from your budget completely?
 
Dealing with debt can be frustrating. But with the right approach to personal finance, you won’t be stuck with your debt forever. By saving carefully, looking for additional sources of income, and budgeting well, you can pay off your debts and buy your dream home!
 
Are you interested in real estate investing? Turn to EpsomTax.com to get started! Fill out the contact form on our website today to get in touch or call 099730706 line 2

The Australian Tax Office (ATO) wrote back!  Call me pessimistic, but I didn't think we'd get a reply.  Nonetheless, a few days ago it arrived.  Here's the two questions we asked, and the response of the ATO regarding personal attribution of losses from a Look Through Company (LTC):

Question #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?


Answer
"For Australian income tax purposes, companies are unable to distribute lossees from rental properties (or other losses) to their shareholders."

In other words, No.

Question #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?
​
Answer
"If an Australian resident's overseas property tax deductions are greater than their overseas rental income, they will have a foreign tax loss. They can use their foreign income loss to reduce their Australian income."

In other words, Yes.

So, what's in it for me then?
Well, dear reader, the point is this: If you have negatively-geared rental property in New Zealand, which is personally owned i.e., not by a company, then you can claim the losses against your tax in Australia. 

How it works is this:

1. File the relevant tax returns in New Zealand first, then
2. Do likewise in Australia.

BUT, there is a gotcha.  This means that 

1. You'll have to pay CGT to the Australian government when you sell the property, and
2. Any claims would be clawed back.

So, you need to consider the long-term scenario before doing so.  We recommend you talk to an accountant who is skilled in this area first.

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.

In this blast from the past (2013), Daniel Carney of Goodlife Financial Advice brings you this insightful interview with Garreth Collard, Principal at EpsomTax.com 

The topic in question is whether an LTC is the right ownership structure for your Residential Investment Property. We pick Garreth's brain to get to the heart of whether an LTC is right for you. A 'must see' for any investment property owners!

Topics Discussed are:

• What is an LTC?
• Who would benefit from setting up an LTC?
• Partnership or LTC: which is better?
• How do you set up an LTC?
• How do you manage the LTC?

Inland Revenue released a Tax Information Bulletin (TIB) in September 2019, which clarified this.

For the purposes of this blog post, we are going to assume that the LTC or an individual only holds residential rental property i.e. no commercial, they are not a trader or an associated person or a developer etc, they don't have an Airbnb-style short-stay accommodation house in the picture.

Can losses from an LTC with residential rental property be offset against income from rentals owned by a partnership or in your personal name?
It depends on whether

1. the LTC decides to apply the ring-fencing rules on a portfolio basis or on a property-by-property basis.
2. the shareholders have any other residential rentals with income/loss to offset against this

However, the answer is essentially, "Yes", if:

1. you have decided to use a portfolio basis for the LTC (that is spread the losses and profits out between the various properties owned by the LTC) 
2. you have at least one residential rental property held in your own name or in a standard partnership i.e. we are not commenting on "limited partnerships" here

So the result is, you can have a negatively-geared LTC, and given the above points, the losses can flow through to you as a shareholder. You can then offset this against profits from a personally-owned rental (either solely owned or in a partnership). The situation also works in reverse ie there are profits in the LTC and losses in the personal/partnership rental.

Note that you can't offset any losses against income from other sources e.g. wages, like you used to in the good old days. That is what the concept of "ring-fencing of losses" means. The losses are "ring-fenced" so that they only apply to residential rental property.

Some interesting points

• If an LTC applies the rules on a property-by-property basis, the shareholders have to also take that approach in their returns. If it applies the rules on a portfolio basis, ditto.
• This is not the case for partners in partnerships. If a partnership has filed a partnership return applying the rules on a particular basis, the partners do not necessarily need to apply the rules on that same basis. So a partnership now gives much more flexibility than the LTC in this one respect.

​
Do restructure strategies such as selling your old family home to an LTC still work?
We have previously recommended this, in blog posts such as this one.  The answer is now a big "no." Why? Changing ownership structures will now not shift/change non-deductible debt into deductible debt in any residential investment property scenario, including short-stay accommodation. For more info, see this blog article

For more info, the IRD Sept 2019 TIB is below

As always, situations vary, so please contact us for advice on your specific situation. Call 099730706 or email us here

With the government's shock introduction of laws slashing interest deductions on existing rental properties, where can you as an investor put your money? What will get you the best return while still maximizing tax deductions? We present 9 strategies: 

Changes announced in April 2021 by the government: 

• ​Bright-line test increased to 10 years (except for new-builds, which remain at 5 years); more info here
• amending the "main home" exemption which would require tax to be paid on gains
  made for periods the property is not used as the owner’s main home (a "change of use" rule).
• not allowing property owners to claim interest on loans used for residential properties as an expense against their income from those properties. This will start from 1 October 2021, and will be phased in over 4 years for existing properties. There will be an exemption for newly built homes. More info here
• Ring-fencing rules applied to short-stay accommodation e.g Airbnb

​Note that this law is very much "being made up as they go along" so lots of things are unknown, or not even decided on yet.

At present, when you receive rents, you can offset expenses against that rental income to reduce the taxable profit.  A big part of this is interest paid on the rental mortgage/s.

If the expenses are more than the income (a "loss"), the Ring Fencing laws mean the loss can't offset non-rental income, and the loss instead is carried forward to the next year. If you have two or more rentals, the loss from one property can offset the profit from another (depending on how your affairs are structured).

However, under these new laws, the interest deduction will (over 4 years) be reduced, then finally removed.  Rental properties will make more profit, and for almost everyone: there will be a lot of tax to pay.

And of course, if you can't claim the expenses on interest, but still have to pay it... where does the money come from? You have to raise the rent.

Q: How do I work out the tax impact?
A: The calculator below will help you work out the taxable income. The exact tax depends on many things e.g. owned personally or via a trust or LTC? How much wages you receive etc etc.​ Note that this calculator assumes you already own/have "acquired" the investment property/ies.

Q: My rental was a new build. Does it still qualify as a new build under these laws?
A: Probably not. 

Q: Is short-stay accommodation caught by the new interest deductibility limitations?
A: It would appear that mixed-use-assets (MUAs) - which are holiday homes partly used personally and which are vacant for at least 62 days in a year - are not caught by these new rules, but IRD specify this (at 2.33) "the Government considers it important that where a residential property could be used to provide long-term rental accommodation, the income tax treatment is the same whether the property is used to provide long-term rental accommodation or short-stay accommodation. Any income tax advantage provided for properties used for short-stay accommodation could reduce effective housing supply." In other words, it would seem that yes, it is caught. Just remember that this is all "draft" at this stage, so not actual law.

Q: When did I "acquire" my rental property?
A: For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some conditions still need to be met). More info here. Note that for the purposes of the changes outlined here, a property acquired on or after 27 March 2021 will be treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 that cannot be withdrawn before 27 March 2021.
​
Q: My property sale will be taxable due to the Bright-Line Test (BLT).  Can I claim the interest costs in that scenario?
A: No one knows. IRD say "The Government will consult on the detail of these proposals. Consultation will cover an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale."

Q: How do the "main home" changes work?
A: Actually, it reminds us a bit of how CGT works in Aussie. There is a great explanation at Stuff together with an example.  (Thanks Stuff.co.nz!)

Fear not!  MBIE have provided this great checklist to work through:

Phase 2: Law changes to take effect from 11 February 2021

• Security of rental tenure: Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice. New termination grounds will be available to landlords under a periodic tenancy and the required notice periods have changed.
• Changes for fixed-term tenancies: All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed-term unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies.
• Making minor changes: Tenants can ask to make changes to the property and landlords must not decline if the change is minor. Landlords must respond to a tenant’s request to make a change within 21 days.
• Prohibitions on rental bidding: Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
• Fibre broadband: Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them, unless specific exemptions apply.
• Privacy and access to justice: A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest.
• Assignment of tenancies: All requests to assign a tenancy must be considered. Landlords cannot decline unreasonably. If a residential tenancy agreement prohibits assignment, it is of no effect.
• Landlord records: Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
• Enforcement measures being strengthened: The Regulator (the Ministry of Business, Innovation and Employment) will have new measures to take action against parties who are not meeting their obligations.
• Changes to Tenancy Tribunal jurisdiction: The Tenancy Tribunal can hear cases and make awards up to $100,000. This is a change from $50,000.

 
Phase 3: Law changes to take effect by 11 August 2021 (but may take effect earlier if the Government agrees)

• Family violence: Tenants who experience family violence will be able to withdraw from a fixed-term or periodic tenancy without financial penalty by giving two days’ notice and evidence of the family violence. If they are the only tenant, the tenancy will end.
• Physical assault: If a tenant physically assaults the landlord, owner, or agent of the landlord, or family member of the landlord/owner, and the Police have laid a charge against the tenant, landlords can issue a 14 days' notice to terminate a fixed-term or periodic tenancy.

Contact us for advice or call now

Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?

Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.

If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.

So, how do you know whether you are considered a property speculator, dealer or wheer you are an investor? 

• What was your intention when you bought the property?
• What pattern have you established in terms of property transactions?
• Are you (and if so, how) associated with a developer, builder or property dealer?
• Will the Bright-line Test* apply?
• Will you be affected by rezoning?

​How do you know if selling your home will be taxable?  Think carefully about the answers to these five questions.

Q. Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?
A. No.  The amount of time you hold the property is immaterial.  It’s your intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.

Q. Right-o.  So, is there some sort of level?  That is, my first couple of properties are tax-free and then I pay tax after that?
A. Ahhh… no.  Again, it’s intention, patterns and associations – not numbers of properties sold.

Q. What period of Brightline Test applies to my house?
​A. The bright-line property rule looks at whether the property was acquired:

• on or after 27 March 2021, and sold within the 10-year bright-line period
• between 29 March 2018 and 26 March 2021, and sold within the 5-year bright-line period
• between 1 October 2015 and 28 March 2018, and sold within the 2-year bright-line period.

Please note that the government has indicated that new builds will continue to be subject to a 5 year bright-line period. Before this can be legislated, what is considered a 'new build’ is still to be consulted on. The Government intends for the legislation to be retrospective so that new builds acquired on or after 27 March 2021 will continue to be subject to a 5-year bright-line period. More info here

Q. What about sub-dividing? Is that taxable?
A. That's a big subject. Contact us.

Q. Great.  It looks like I might have to pay tax then.  How do I figure that out?
A. Contact us.

* For more info see this link at Inland Revenue

 1. MORTAGE HOLIDAY: In other news, with the OCR dropping to (and staying at) 0.25%, your bank should be passing on rate cuts for any floating loans, and it is worth looking at existing loans to see if you should break and re-fix or extend the term. Break fees are tax-deductible. Ask the bank or your mortgage advisor to do the calculations for you, or use this tool here. You might also want to look at a mortgage holiday, but just be aware that this will increase the loan,^ but it will buy you some time, so in the big picture, may be worth it. We suggest you only do this if you really need to.

Please see this detailed page with info about mortgage holidays, including links for all the major banks to apply for one. See also our blog post with 4 options for your mortgage to improve cash-flow right now

​2. INTEREST RATES: Check with your bank re break fees on your loans, and look at whether the math adds up to break and renegotiate one or some loans at lower interest rates.

3. RENTS: Rent increases are worth considering, as you can now only increase the rent once a year.

4. PAYMENTS: Of course, cash-flow is king, and in this environment, we suggest asking your suppliers if you can start paying in smaller regular installments, rather than bigger sums. This will help reduce the impact of having less cash coming in. EpsomTax.com group offer interest-free time payment plans to all customers as a matter of course; please contact us to arrange this now.

5. INVESTING: This might also be the time to look out for housing bargains - see this article about timing and buying.  If you can get a good deal on a cash-flow positive rental, that's going to introduce some $ into your portfolio. Heads-up: Banks are deluged with lending applications, so getting mortgage approval is slow

6. OTHER RESOURCES: Xero.com have provided a page with links to educational content. You don't have to be a Xero user to access all of it. Webinars include managing stress, resilience, business continuity and so on. 

​What good news is there for the coming weeks and months, in view of the COVID-19 pandemic and its effects on the economy? 

Government policy changes include:

• Increasing the small asset depreciation threshold to $5,000 for the period 17/03/20 to 16/03/21.  It will return to $1,000 for 2021/22 onwards
• Giving Inland Revenue the discretion to remit use-of-money interest (UOMI) for customers significantly adversely affected by COVID-19. Affects all tax payments due on or after 14 February 2020. (There are some conditions, see here for more info. For those who don't qualify; tax pooling is still a cost-effective option.)
• Increasing the provisional tax threshold from $2,500 to $5,000 i.e. if your 2019/2020 income tax was under $5,000, you are not a provisional tax payer for 2021 year
• Allowing 2% depreciation on commercial and industrial buildings from 2020/21. 
• Giving wage subsidies or leave payments in some situations.* Find out more HERE. 
• Business Finance Guarantee: loans for businesses with annual revenue up to $80 million can apply for loans up to $500,000, for up to three years. Click here for more info.
• COVID-19 small business cashflow loans:  10k minimum loan, 1 year interest-free, no repayments till year 3, then 3% interest p.a.  There are some fishhooks if you miss a payment, so be aware of your responsibilities if you apply and are accepted. More info here.  Apply via the IRD website (use your myIR account)

* The wage subsidy and leave payments are NOT subject to GST - an Order in Council was passed to treat it as exempt (Section 5(6E)(B)(iii GST Act). The wage subsidy paid to the employer is not taxable; it is excluded income under section CX 47 of the Income Tax Act 2007; it is also therefore not deductible when paid by the employer as part of wages to employees. The payments made to employees are taxable for the employee and subject to PAYE, KiwiSaver deductions, Student loan etc in normal way. The same is true for self-employed persons: it is taxable income. NB: you only need to show a 30% revenue reduction for a single 4-week period to receive the full 12-week lump sum; you should be able to show that you took active steps to mitigate the financial impact of COVID-19, which could include drawing from your cash reserves (as appropriate), activating your business continuity plan, making an insurance claim, proactively engaging with your bank or seeking advice and support from either the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme.

^ How it works is that the principal payments temporarily stop and the interest is added to the mortgage

Are you thinking about buying a rental property but not sure if now is the right time to dive in?  

There’s nothing like a worldwide pandemic to give you wobbly legs at the thought of making a big financial investment! It may seem like a precarious time to buy a rental property due to Covid-19 and political uncertainty around landlord requirements. However, there are other drivers which may indicate that it is a good time to enter the property market or expand your portfolio.  Let’s take a closer look! 

Something to keep in mind when thinking about purchasing an investment property is any new and ongoing legal requirements on landlords. 

For example, the new healthy homes standards have been introduced for rental properties in New Zealand, to ensure tenants have access to warm, dry and safe homes.  These standards set specific and minimum requirements, including heating and insulation for rental properties. This means any property you purchase will either need to be up to specification when you buy it, or investment will need to be made to get it ready for tenants.