Tax & Property: Ownership Structures

It is common for people to own properties in their own name or in partnership with their spouse.

While partnerships have to file a tax return, partnerships are not taxed separately. Instead, the taxable profit from the partnership is allocated to each of the partners. Each of the partners file an individual IR3 return and pay tax on their share of the partnership’s profit, in addition to paying tax on other income they earn.

Depending on your financial situation, you may be better off owning property using a different vehicle such as a trust, company, or look through company.

Trusts provide asset protection and can provide a tax advantage if set up correctly. Trusts can cost a few thousand dollars to set up correctly.

Companies are a separate legal entity. This means the assets and the liabilities of the company are separate from the shareholders. Registering a company takes less than a day and only costs $160. Currently, companies pay a tax at a rate of 28% on their net profits, which is lower than the highest income tax bracket for individuals.

Look Through Company (LTC) is a company, where the company’s income and expenses are passed onto the shareholders, and income is taxed at the shareholder’s marginal tax rate.
This can be beneficial if the shareholders have a lower marginal tax rate than the company tax rate. There are restrictions on who can elect to be an LTC. In particular, the company has to be resident in NZ and the company has to be closely held. Publicly listed companies cannot be LTCs. To be an LTC, you have to notify IRD by completing the IR862 form.

Remember, no two person’s tax affairs are the same. Ultimately the right tax structure for you will depend on your particular tax situation. To be sure, you should get tax advice specific to you when you do any form of tax planning.

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