Tax Treatment of NZ Investment Property for Singapore Tax Residents
Taxation has always been a complex area to navigate. However, when it comes to investing in properties overseas, a thorough understanding of your local tax obligations is important to help you structure your investments to allow you to utilise your losses and minimise tax obligations.
What is tax residency?
For taxation purposes, there will typically be differences in how much and what you will be taxed on by a country, depending on whether or not you are a tax resident of that country. The criteria for tax residence varies internationally, and it is crucial to understand your tax residency as tax obligations in most countries usually differ depending on whether you are a resident or non-resident.
How tax residency is assessed in Singapore:
According to the Inland Revenue Authority of Singapore (IRAS), you are a Singapore tax resident if your period of stay in Singapore exceed the following thresholds:
- At least 183 calendar days in a year (tax resident for that tax year)
- At least 183 calendar days for a continuous period over two years (tax resident for both years)
If you are in Singapore continuously for three consecutive years, then the IRAS will consider you to be a tax resident in all three years even if you are in the country for less than 183 days in the first or third year.
What are your tax obligations?
As a Singapore tax resident, you will be taxed on all income earned in Singapore, at progressively increasing rates (up to 20% at incomes above SD320,000). You are however exempted from having to pay tax on any foreign-sourced income that you choose to bring into Singapore.
If you are not a tax resident in Singapore, you will be taxed at either a flat rate of 15% or at the resident rates, depending on which method yields the higher tax amount on your employment income. Like residents, you will only be taxed on your Singapore income.
With regards to investment properties, how are incomes and losses from my investment properties in New Zealand treated in Singapore?
Singaporean tax laws state all foreign-sourced income received by Singapore tax residents on and after 1st of January 2004 is tax exempt in Singapore. If you own properties in New Zealand and you work in Singapore, any income or losses generated by your New Zealand properties will be disregarded by the IRAS. As such, you will not be able to offset your tax losses generated in New Zealand against your Singapore income.
How are realised capital gains/losses on NZ property treated while living in Singapore?
Like New Zealand, Singapore does not currently tax capital gains on the disposal of properties.
Based on the information outlined above, how should I structure my investments in New Zealand?
In New Zealand, popular ownership vehicles for property currently include trusts, personal name, and look-through companies (LTC, see separate article). Although trusts may provide additional protection against claims and creditors, they have a major disadvantage from an investment point of view in that only profits, and not losses, can be distributed to beneficiaries. For trusts, losses from properties held in a trust can only be offset against other untaxed earnings the tax may have. As such, you will be unable to use tax losses from properties held in a trust to offset against your personal income. In comparison, a LTC allows both profits and losses to be distributed directly to its shareholders who are then taxed at the personal level.
As foreign-sourced income in Singapore is tax exempt, the structuring of your investments in New Zealand should therefore be considered from a long term investment point of view as well as from the management perspective. If you intend on coming to New Zealand in the future, it may be beneficial to hold your New Zealand properties in a LTC instead of a trust given the accumulated losses can then be used to offset against your New Zealand taxable income once you are a local tax resident.
What about double taxation?
New Zealand currently has a double tax agreement with Singapore, which prevents tax residents of both countries from being double taxed. This will generally apply to employment income in Singapore, as foreign-sourced income is tax-exempt in Singapore. Both countries do not currently tax capital gains on the disposal of property.
The information provided in this article is not intended to provide a comprehensive statement of tax laws and should not be used as a substitute for legal advice.
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