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Chapter 1: What is the main topic discussed in this episode?
We are back in your life, and today is New Zealand becoming Australia's tax haven.
Chapter 2: What major tax changes has Australia announced?
Australia has announced huge tax changes. We've got tax man Matthew Harris, my associate. We've got my best friend, Michael Vincent. I should say casual acquaintance, actually, probably, with Matthew. I'm getting less friendly with you as every podcast goes on. So...
Gents, we've already talked about the possibility of how we make this really attractive for Australian business owners to look at New Zealand. Let's break down the changes because, Matt, they are huge.
These are big changes. No one likes to be taxed more. I don't think anyway.
As tax havens go.
Chapter 3: How does ring-fencing affect Australian property investors?
We're not the most exotic, hey? When you go down the list, it's like Cayman, Monaco, Singapore, Bermuda, Hamilton. It just doesn't have the same ring to it.
No shade on Hamilton. I love you, Hamilton. Yeah, I love Hamilton too. Just to save this podcast. Just to save the podcast. In all seriousness, though, this isn't the first time that New Zealand's been referred to as a tax haven, actually. We have a number of things in our tax system which... for other countries, look quite appealing. So no capital gains tax, for example.
But we also have things like foreign trusts, which don't pay tax on offshore income. And unlike Australia, because that's the point of this podcast, we don't tax residents and non-residents any differently. So I think it's fair to...
say that new zealand is a tax haven especially in particular to these changes um new zealand trusts were like globally renowned for being very easy to learn i don't want to derail this podcast we do a whole one on foreign um trust yeah yeah you can like money laundering yeah yeah good stuff okay well let's uh move it up back along james didn't want to do that yeah yeah no we're not going to be talking about uh money laundering on uh this podcast so i guess for decades
Much like New Zealand, Australia's investment culture has been built around leverage, negative gearing, capital growth, and generous tax concessions. Obviously, this budget has really shocked a lot of people in terms of the quite big changes. Matt, break them down for us. Yeah, so I think, should we start with negative gearing and or ring fencing?
So New Zealand's had that for a little while. What that means, in short, is that if you make a loss from a rental property, so your expenses are higher than your income. Which most normal rental properties are. Yeah, it would be pretty common to have a negatively geared property. So you have your rent, then your main expenses, interest, rates, insurance.
So let's say you lose 20 grand a year.
yep yeah 20 grand so under the old rules in australia that 20 000 could offset other types of income so salary and wage income being the main one and you would get a refund so i would pay 20 my my tax threshold would drop by 20 grand yeah because on my normal salary just day-to-day job yep that's pretty convenient yeah and that's not bad new zealand um used to have it and um we had uh
and property investors expected refunds every single year. You guys remember this because it's not that long ago. You get the odd one that still asks, right? Yeah, we get the odd one that still asks, where's my refund? We're like, this has been gone for years.
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Chapter 4: How does New Zealand's tax system compare to Australia's?
And can I also use that against the sale in the future or could you only use it once? No, you can only use it once.
I know that they did and I think it still remains they have some CGT discounts. It's pretty limited.
Yeah.
But they got it once. Well, let's jump on to CGT because that was another big change. So that's gone.
So Ring Fencing's gone.
Sorry, Ring Fencing's in. Yeah, right.
So Ring Fencing's bought in. So now they operate that tax in a similar way to us where the losses have to stay on that property or inside that portfolio or... Yeah, exactly right.
So we've used a little bit of jargon, but ring fencing is a pretty simple way of saying it's ring fence back. About the property. About property only, correct.
Which I think is fair, right? I think it's fair if you don't pay tax on the capital gain. Yes. So let's move on to CGT. So another big thing that happened. So there was obviously the top tax rate in Australia is 47.5%. So if, I don't know, you make half a million dollars of... half a million dollars of profit on a property when you sell it. In the old rules, you got a 50% discount on the $47,500.
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Chapter 5: What are the implications of negative gearing in Australia?
Do I not look chintzy? You know, what if they go, okay, well, you know, the market's not going to perform well from here. I'm cashing out.
Yeah. True. Who's going to buy those houses?
Yeah. One thing which I think the accountants are going to win with, Matt, is this inflation indexing over time feels bloody complicated. Oh, yeah.
Yeah, and you know if they have to complicate a rule to achieve a simple thing, they haven't thought it out properly. I love, this is, I'm going to put my captain of industry hat on. I love changes in policy. Anytime a client has to ask us to do something, obviously we get an opportunity to charge for that work. So this is definitely a win for us. for accountants and lawyers.
And again, on most social media channels, the algorithm must have me because I can't open it up at the moment without seeing some guy on a whiteboard talking about how trusts and bucket companies aren't working anymore.
What's a bucket company?
That's an Australian thing where they clear up money into a company to get a lower rate of tax. So the government's, we're not covering this because it's a little bit complicated, but in short, there's been other changes to the way that trusts are used and bucket companies are used that mean that a higher rate of tax will be paid by nearly everyone using those structures.
But though, you know, you can bet that any savvy person out there with some form of income to manage will be talking to their advisors and getting advice. And I've always thought of tax and the way that it all works is kind of like a bit of a game, for lack of a better analogy. You've got the Tax Administration Act and the Income Tax Act, like the rule book. Then you've got the two players.
So you've got the government and you've got the taxpayer. And both sides are trying to get an outcome. And you're allowed to manage that outcome however you want as long as you don't cheat.
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