The share market, bank collapses, and property prices are all interconnected, and changes in one area can have a ripple effect on the others. In particular, volatility in the share market and bank collapses can significantly impact property prices and inflation.

Volatility in the Sharemarket
The share market is often subject to volatility, which refers to the degree of variation of a financial instrument's price over time. The share market can be volatile due to a variety of factors, such as changes in interest rates, political instability, or economic uncertainty.
Volatility can cause share prices to fluctuate rapidly, and this can have a significant impact on investor confidence. When investors become nervous, they may sell their shares, which can cause further declines in the market. This can trigger a domino effect, leading to a market crash.

A market crash can have significant economic consequences, such as a decrease in consumer spending, a decline in business investment, and an increase in unemployment. A market crash can also lead to bank collapses, as banks may have invested heavily in the stock market, and a significant downturn can wipe out their assets.

Bank Collapses
Bank collapses can have far-reaching consequences, affecting not only the banking industry but also the broader economy. When a bank collapses, it can cause a loss of confidence in the banking system, leading to a run on other banks.

​The collapse of a bank can also cause a credit crunch, making it harder for businesses and individuals to access credit. This can have a knock-on effect on consumer spending, business investment, and economic growth.

Bank collapses can also lead to a decline in property prices, as banks may have lent heavily to the property market. When a bank collapses, it may need to sell off its assets to pay its creditors, including its property assets. This can lead to an oversupply of properties in the market, causing prices to drop.
​
Effect on Property Prices and Inflation
Volatility in the share market and bank collapses can have a significant impact on property prices and inflation. When the share market is volatile, investors may turn to property as a more stable investment. This can increase demand for properties, causing prices to rise.

However, if a market crash or bank collapse occurs, property prices may decline due to oversupply and reduced demand. This can have a knock-on effect on inflation, as property prices are a significant component of the Consumer Price Index (CPI).

Inflation occurs when the general level of prices for goods and services rises over time. If property prices decline, it can lead to lower inflation, as property is a significant contributor to the CPI. This can have both positive and negative effects on the economy. Lower inflation can lead to lower interest rates, making it easier for businesses and individuals to borrow money. However, if inflation is too low, it can lead to deflation, which can have negative economic consequences, such as a decrease in consumer spending and business investment.

Conclusion
Volatility in the share market, bank collapses, and property prices are all interconnected, and changes in one area can have a significant impact on the others. Investors and policymakers need to be aware of the potential risks associated with market volatility and bank collapses and take steps to mitigate these risks. This can include diversifying investments, implementing stronger regulatory measures, and promoting economic stability. By doing so, we can help ensure a stable and prosperous economy for all.
​

Want to chat about your situation? Contact us on 099730706 line 2 or here

What is a Look Through Company or LTC? That's a good question. ​

Basically, it's the replacement for the old LAQC (Loss Attributing Qualifying Company).  At tax time, you look through the company to the shareholders, and distribute the income (or losses) to them.

How is it different from a normal company then?
A "normal" limited liability company can pay dividends and pay salary to its shareholders. Whatever is left after that is what it pays tax on.  A LTC distributes all the profit (or loss) to the shareholders.  It's more like a partnership, but with a limited company wrapped around it.

How do you figure out who gets what?
The income distribution is based on the shareholding. So if you have a 90% shareholder and a 10% shareholder, then the 90% shareholder gets 90% of the profits/(loss) and the 10% shareholder gets 10%.

So, what's the point of that?
Many people use LTCs to own their residential rental investment property.  A common strategy that financial advisors recommend is to purchase negatively-geared rental property (negative gearing means that the expenses are more than the income).  The shareholders have to top up the mortgage with their own money, often $50-$100/week.  The LTC then has losses at the end of the financial year.  These losses are then distributed to the shareholders.  In a rental property scenario, rental losses can only be offset against other rental income

Can you give me an example?
Sure.  Mr Smith owns a rental property in his own name, which generates about $11,000 of income (after expenses) per year; he also earns $130,000 per year before tax. Mrs Smith works part-time.  They set up a LTC and it purchases a negatively-geared rental property.  They put about $125 a week into the LTC to help pay the mortgage.  Mr Smith has 99% of the shares, and his wife the remaining 1%.  At financial year end (31 March), there are losses of about $10,000. Mr Smith gets 99% of these to offset against his wages.  The formula is

Wages + rental income - LTC losses = net income

In this case, it would be

$130,000 wages + $11,000 rental income - $9,900 LTC loss = $131,100

Mr Smith paid $33,820 in PAYE tax, based on his salary of $130,000.  Because he can utilise the LTC rental loss and offset it against his personal rental income, he only has a small amount of tax to pay at the end of the year ($363).

See this article for more info and examples of how losses work.

How is this different from a partnership?
Another good question. See this article for an explanation.

I'm convinced. How do I get a Look Through Company setup?
Simple! Fill in the form here and click Submit. We'll send you an invoice, and within 2-3 working days your company should be incorporated.  Easy and painless.

I've got a few more questions.  Can I talk to somebody?
Sure.  Contact us today.

Here are our 6 tips for buying a holiday home:

Want to talk about tax? Wealth creation? Planning for retirement? Contact us on 099730706 line 2 or email us.

Investing in property in New Zealand can be a good opportunity to generate rental income and potentially earn long-term capital appreciation.

​Here are some things to consider when investing in property in New Zealand:

1. Research the market: It's important to research the local property market to find out what types of properties are in demand and where they are located. You can also research the historical performance of the market to get an idea of how the value of properties has changed over time.
2. Consider the location: The location of the property is a key factor to consider when investing. Look for properties in areas that are likely to experience strong demand, such as those close to amenities and transport links.
3. Determine the type of property: There are different types of property you can invest in, such as houses, apartments, townhouses, and commercial properties. Consider the type of property that will best suit your investment goals and budget.
4. Calculate the costs: Investing in property involves upfront costs such as the purchase price, as well as ongoing costs such as mortgage payments, insurance, maintenance, and property management fees. Make sure you have a clear understanding of all the costs involved so you can budget appropriately.
5. Seek professional advice: It's a good idea to seek the advice of a financial advisor or property investment specialist before making any investment decisions. They can help you understand the risks and potential returns of investing in property and provide guidance on the best course of action for your specific circumstances.

Contact us on 0800890132 line 2, or via our contact form. We'll help you evaluate your situation and connect you with the right people.  

​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!)