The Changing Face of Tax Residency in NZ

The Changing Face of Tax Residency in NZ

Changes to the Tax Residency Rules as they apply to individuals has become clear with the application of the rulings set out in a recent case, CIR (Commissioner of IRD) vs Diamond:

An individual is a tax resident here in NZ if you have a permanent place of abode here in NZ.  It must be available to you and will be a question of fact.  A rental property owned by you or your trust is not necessarily enough to ground you as a tax resident.  As will all cases, it is a question of fact to a certain degree.  We recommend getting good advice from us early.

If you do not have a permanent place of abode here in NZ but you have been here for a period not less than 183 days in any twelve month period, you will be an NZ tax resident.  With this you are in general taxed on world wide income, unless you can prove Transitional Residency.

Transitional Residency applies to New Migrants, or returning residents after a continuous period of at least 10 years of being a “non-resident”.  The word “continuous” is of utmost importance.  If there is a break or breach and you happen to reach the 183 day test as mentioned above, this option will not apply, or at least the count starts again when you have again moved offshore.

Transitional residency can be of benefit.   Income earned offshore will not be taxable for a period of 48 months from the date of entry into NZ – so for example offshore investments, super schemes, pension funds, offshore rentals.  Income generated here on NZ soil will be taxable here in NZ.  If services performed here in NZ results in remuneration by an overseas source, this too will be taxable.  So you can see a pattern.  Work done here, you will be taxed here regardless of source.

You can opt out of transitional residency of course.  This can be done by applying for family assistance unknowingly, or intentionally.  Signing the application is enough.  Other methods of opt out are if you include world wide income on your return, even if in error.

These rules are being put into practice more and more in this firm as we see new migrants and returning residents.  Tracking is so important as are the facts to enable us to provide you with the right advice, as it relates to your particular situation.