Migration structuring

Are you considering moving offshore, or alternatively coming to New Zealand (NZ), and would like to know more about how your changes in circumstances may affect your present tax residency status, and/or tax filing obligations? 

Then rest assured, our tax team is suitably qualified to advise you on all aspects of tax residency, including when you are likely to trigger a tax resident/non-resident status from a NZ income tax perspective, how any double tax treaty agreement (DTA) between NZ and your destination/departure country may apply to you, and what all these considerations may mean from a NZ tax filing obligation perspective. 

Moving to New Zealand

If you are moving to NZ, either permanently or temporarily, then it is important to understand in advance, the Inland Revenue’s (IRD) taxing reach upon your arrival, particularly if you will continue to have income earning connections offshore, whether that be in relation to passive investments or active working engagements, either in an employee or self-employed capacity. 

For those who have been away from NZ for more than ten years, or are coming to NZ for the first time, once a NZ tax residency status has been triggered, usually you will qualify for the transitional tax residents regime (TTR) – in essence a four year period where only personal services income (employment or contractor) derived from foreign sources will be subject to NZ tax. A primary benefit of TTR, is the ability to come to NZ, get your bearings, and then have some time to decide how to structure the ownership of any offshore investments, in order to mitigate any tax seepage exposures (increased global tax costs), should NZ at some point be able to tax your worldwide income. We can help you in making these structural decisions. 

New Zealand Tax Residency

NZ tax residents are potentially subject to paying NZ income taxes on their world-wide income. This means you are required to return all your income in your NZ income tax return, regardless of where that money was earned, or where it is kept (on-shore or off-shore). 

You do not need to be a resident from an immigration perspective, including having any type of NZ visa, in advance of triggering a NZ tax residence status. Instead, the existence of a NZ permanent place of abode (PPOA), even if you have retained a PPOA outside of NZ, or being physically present in NZ for a combined period exceeding 183 days in any 12 month rolling period (so not tied to a calendar or income year), can trigger a NZ tax residency status. 

Satisfying either of these two tests, usually deems you to commence being a NZ tax resident either from the date your NZ PPOA is established, or the first day of your 183 day presence – whichever occurs first. Once a NZ tax resident, then consideration needs to be given to such things as the TTR regime or the potential application of a DTA. Additionally, if you continue an employer relationship with a foreign employer, will your presence in NZ trigger any filing obligations for your employer, or if you are a director of a foreign company, what implications may your NZ tax residency status have on the tax residency status of the foreign company. 

Moving out of New Zealand

If the shoe however is on the other foot, and you are looking to leave NZ either permanently or temporarily, then understanding the impact of your intended movements on your existing NZ tax residency status is crucial to ensure you remain tax compliant in NZ during your absence. 

The NZ PPOA test is one of your first considerations, because as long as you are deemed to retain one, you’ll retain your status as a NZ tax resident, regardless of your period of time away from NZ. Absent the retention of a NZ PPOA, once you are absent from NZ for more than 325 days in any rolling 12 month period, you will be considered a non-resident for NZ tax purposes, from the first day of absence within the 325 day period (note that any part day present in NZ is treated as a full day of presence. 

Once a non-resident, it’s important to appreciate that in most cases NZ will retain a taxing right over any NZ sourced income, although that taxing right may be limited in some way via the application of a relevant DTA.  

So, if you are moving in or out of New Zealand, even if for a short period of time, have a chat with us in advance to ensure there are no nasty surprises in store for you, post the transition. 

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Richard Ashby (our tax specialist) provides advice, comments and updates on what’s been happening in the world of tax each week.