Chartered Accountants NZ: Tax considerations when moving to New Zealand
If you are coming to live in New Zealand, there are a few taxation related issues that you need to consider. This information is an overview of some important facts.
Tax residence
You need to know:
- That New Zealand taxes its residents on their worldwide income
- That tax residence is not the same as your immigration residence status
- Whether you are eligible for the transitional residents’ exemption
Your status as a New Zealand tax resident is the main factor that determines your tax position if you are moving here. A tax resident is taxed on worldwide income, with a tax credit allowed if taxes are paid overseas. In contrast, a non-resident is taxable only on New Zealand sourced income.
How is tax residence established? It is determined by meeting one of two tests. The first test is a simple count of the number of days you are in NZ. The second test determines whether you have an enduring connection to New Zealand, i.e., a “permanent place of abode”. For more detail regarding these tests, please read on.
Transitional residence
Transitional residents (New Zealanders returning after 10 years and new migrants) are eligible for a special concession. A transitional resident is exempt from tax on offshore investment income for four years. This creates a period in which overseas investments can be reviewed and restructured. As a transitional resident you have the opportunity to implement tax planning strategies to help ensure your holdings are tax efficient and to minimise future tax compliance obligations.
Day count test
If you are in New Zealand for more than 183 days in any 12 month period, you are tax resident from the first of those days. The period in question is a rolling 12 month period, not the tax year or calendar year.
Permanent place of abode
The permanent place of abode test is not as clear cut as the day count requirement. The existence of a permanent place of abode is established by considering an individual’s situation in its entirety in order to determine whether they have an enduring relationship with New Zealand. Factors considered include family situation, financial and social ties and relationships to New Zealand.
The application and interpretation of these tests are decided by case law, and will depend on the individual’s special circumstances. Consequently, this is a continuous source of tension between the Inland Revenue Department and taxpayers.
In cases that are marginal, the result of this test may only be clear with the benefit of hindsight, when there is clarity about how initial plans and intentions actually play out. This is especially relevant when New Zealand tax residents depart New Zealand for an uncertain period of time. Regrettably, while Inland Revenue has the benefit of hindsight, taxpayers usually have to make their decisions without that advantage.
At KPMG we can offer you specialist tax advice. If you are moving to New Zealand and require assistance with understanding and mitigating your tax position then please contact us by requesting a confidential, free initial discussion.
Disclaimer: Chartered Accountants NZ: The information in this article is for general interest only and should not be relied upon or treated as business or professional advice. For specific professional advice please contact us.
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