We enjoy helping New Zealand rental property owners meet their tax obligations.

As part of our work we often help clients who own offshore rental properties in places like England and the wider United Kingdom. Often these properties are a result of our client migrating to New Zealand and opting not to sell their family home, choosing instead to rent it out and retain it as an investment.

We advise these client’s that as New Zealand tax resident’s they are liable to pay tax on their worldwide income, which includes any rental income from properties in other countries. They will be able to claim deductions for expenses that relate to the rental income received offshore and may also be able to claim a credit for any tax paid offshore on the rental income received.

What a lot of our client’s do not realise is that if they have an offshore mortgage, Inland Revenue requires that Non-Resident Withholding Tax (NRWT) is paid on any interest payments made to the offshore bank. There are some exceptions such as mortgages with Australian banks held in relation to an Australian property. In addition, offshore bank accounts (including loans) can be subject to the Financial Arrangement rules in New Zealand which can be complex to apply.

NRWT rates vary between 10% and 15% of the interest payments made to offshore banks. Fortunately, in most cases New Zealand tax residents who are required to pay NRWT can register for Approved Issuer Levy (AIL). AIL is a concessionary regime which allows New Zealand tax residents to pay a 2% levy on any interest paid to an offshore bank. There are some exceptions, such as interest paid to associated parties.

However, the most important thing to note is that an AIL registration cannot be made retrospectively, therefore you must register for AIL before the interest payment is made to pay 2% instead of 10% or 15%.

Inland Revenue is becoming more proactive in this area and is gathering information from offshore banks and undertaking compliance work to check that New Zealand tax residents are meeting their NRWT requirements.

Inland Revenue can impose high penalties on taxpayers who don’t meet their tax obligations in full, as the New Zealand tax system is based on voluntary compliance, Inland Revenue do not accept ignorance of the tax rules as an excuse.

We are taxation experts in relation to rental properties, If you have an offshore rental property, feel free to contact us for a no obligation discussion about how we can help you meet your rental property tax obligations as part of our fixed fee service.