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Sit back and relax – attracting skilled talent to NZ
Packing up and moving to another country, will often involve multiple decisions needing to be made, some of which can have material consequences for you if you make the wrong choice. The process is often made harder, by the numerous emotions that will usually accompany the shift – leaving family and friends, new cultures and customs to learn and the ability to navigate the new location upon your arrival there.
One of those decisions is what to do with your various investments, particularly if the destination jurisdiction has a less favourable taxing regime to the one you presently experience. Should you restructure, or at least sell up now, in order to avoid potentially more onerous taxation consequences should you decide to wait until you are settled in your new country before you take any action.
If your destination is NZ, and you have not been a tax resident of the jurisdiction for the past ten years, then as the title to this article suggests, you can essentially sit back and relax, wait until all the emotions of the move have passed, and then take time to make some key decisions. The ability to take this approach is all due to NZ’s transitional tax resident’s regime (“TTR”) which was first introduced in 2006, essentially as a carrot to attract more skilled talent to NZ.
Under TTR, once you have triggered a NZ tax resident status, essentially for the next 48 months, the only foreign sourced income subject to NZ taxation, is that which you derive either from employment or from the supply of personal services. So take for example a case where you need to sell your home, however the market is somewhat depressed so you decide to rent the house out for 18 months hoping the market will improve. During TTR, this foreign sourced rental income is exempt from NZ taxation. Equally are dividends from shares held in foreign companies and interest earned from those foreign bank account deposits.
Should you still derive foreign sourced employment or personal services income post your arrival in NZ, while it may still be exposed to NZ taxation, usually you will receive a credit against the NZ tax payable, for any foreign income taxes you have already paid.
TTR is essentially an opt-out regime, which in other words means, unless you actually elect for TTR to not apply to you (which you might do for example if you wish to claim family assistance benefits in NZ), it automatically applies to you for the four year period, once you are considered a NZ tax resident. In this regard, your status as a NZ tax resident is usually triggered once you have either physically spent more than 183 days in NZ in any rolling 12 month period (then applying from the first day of the 183 day period), or you have established in NZ, what is referred to as a permanent place of abode (PPOA – residency commencing from the date of deemed establishment).
The benefits of TTR can only ever be claimed once, so once the regime has applied to you, if you go away from NZ for more than 10 years and then return, you do not qualify for TTR again.
So if NZ is a destination you or your client’s are considering, bear TTR in mind, and most certainly do not hesitate to contact us for any further advice.