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New Zealand Tax Residency Rules

Tuesday 26 July 2016, 4:02PM

By Beckie Wright

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Below are the rules that determine whether a person is resident or non-resident and the tax treatment that applies in New Zealand as explained by Mahoney Accounting Services Limited.

Different tax treatments can apply to people arriving in or leaving New Zealand.  It all depends on whether a person is resident or non-resident in New Zealand for tax purposes.

As the rules on tax residency can be complex, the information below does not take into account the effects of any Double Tax Agreements that may apply.

Permanent Place of Abode Rule

A person is resident if they have a permanent place of abode in New Zealand regardless of whether they also have a permanent place of abode elsewhere. This is irrespective of any other tax provisions.

Example:

Julia decides to join her friends working in Australia for 2 years.  She lets her cousin Pania live in her house in New Plymouth until she returns. Julia is still tax resident in New Zealand during the 2 years she spends in Australia as she has a permanent place of abode in New Zealand.

183/325 Day Rules

If a person is present in New Zealand for a total period, or periods, of more than 183 days in any 12 months they are deemed to be a resident.  The person is deemed resident from the first day of the 183+ day period in New Zealand.

Any part of a day a person is present in New Zealand is included in calculating presence or absence.

Example:

Jane leaves England to backpack in New Zealand and arrives on 1 May 2015.  Jane becomes resident for tax purposes in New Zealand on the 184th day which is 31 October 2015.

A person becomes non-resident if they are absent from New Zealand for more than 325 days in any 12 months. The person is deemed to lose residence from the first day of the 325+ day period absent from New Zealand.

This doesn’t apply if the person has a permanent place of abode in New Zealand or is a government servant absent from New Zealand in the service of the New Zealand government.

The 325 day rule only applies if a person is already tax resident to see if residency ceases.

If the 183 and 325 days overlap, a person remains resident until they cease to be resident under the 325 day rule.

Example:

Jane decides to leave New Zealand on 1 May 2016 to return home to England.  She is still resident for tax purposes in New Zealand until the 326th day of her absence which is 22 March 2017.

How are residents and non-residents taxed in New Zealand?

Residents are taxed on income sourced worldwide and the New Zealand income tax rates apply.

Non-residents are taxed on income sourced from New Zealand only and non-resident withholding tax applies for their non-resident passive income. This is generally 15% for passive income such as interest and royalties and 30% for dividends.

However, personal services income of a non-resident is taxed at New Zealand income tax rates. In addition, a non-resident deriving any income from New Zealand doesn’t qualify for any rebates or tax credits, unless they become resident during the tax year.

What happens when a person changes from non-resident to resident?

For permanent arrivals from Overseas from 1 April to the date of their arrival, only New Zealand sourced income is taxed. From the date of arrival to the following 31 March, worldwide income is taxable and the appropriate rebates or tax credits are allowed

Example:

Hubert decides to immigrate to New Zealand from Germany.  He arrives on 1 August 2015.
Hubert’s worldwide income (including the rent he receives from his house in Germany) is taxable in New Zealand from 1 August 2015.

Transitional Resident Rules

A tax holiday may be available for transitional residents from 1 April 2006.

A person will be a transitional resident if they have been a non-resident for a continuous period of at least 10 years immediately prior to becoming resident (and have not been a transitional resident at any time before).

Foreign sourced income is exempt for transitional residents (except for income from overseas employment and personal services performed overseas).

The period of exemption is 48 months from the end of the month in which the person became tax resident. The first day of the exemption period is the earlier of the date the individual established a permanent place of abode or the 184th day the person was present in New Zealand in a 12 month period.

The exemption can only apply once and transitional residents and their spouses are not eligible to receive family assistance payments. However, a person may elect not to be a transitional resident.

Example:

Colin is a New Zealander who has been living in Australia for the past 14 years.  He decides to return to New Zealand to live and arrives on 26 April 2016.  Colin establishes a permanent place of abode in Christchurch on the day he arrives. He will be a transitional resident and eligible for the temporary exemption on foreign-sourced income. The exemption will apply from 26 April 2016 and will end on 30 April 2020.

If you need help working out if you are resident or non-resident for tax purposes in New Zealand, talk to Mahoney Accounting as they will be happy to help you.