Tax residency opinions

For individual taxpayers, New Zealand tax residency is determined via the application of three key tests: 

  1. Have you been physically present in New Zealand for more than 183 days in any consecutive twelve-month period (note the count is not limited to specific income years)? If yes, then likely you have obtained a New Zealand tax residency status. 
     
  2. Once a New Zealand tax resident, have you then been physically absent from New Zealand for more than 325 days in any consecutive twelve-month period? If yes, then you may no longer be a New Zealand tax resident although consideration must be given to the final test. 
     
  3. Do you have a ‘permanent place of abode’ (PPOA) in New Zealand? It should be noted that a PPOA is not as simple as just having a home available to you in New Zealand. Instead, consideration must be given to your overall connection/enduring relationship with that New Zealand home. If the answer is yes, at the time you are first deemed to have a PPOA in New Zealand, until the time at which you are no longer deemed to have one, you will qualify as a New Zealand tax resident, regardless of the answers to either of the two previous questions. 

It is this last test that creates the issues for most taxpayers attempting to determine their New Zealand tax residency status. Firstly, because the PPOA test always overrides the days count tests, and secondly, because unlike the day count tests, whether you have a PPOA is often left to subjective interpretation simply because there is no black and white answer. Each case must be considered purely on its own merits, although publicised commentary on previous judgements issued by the courts can be useful in assisting to decide. 

To understand the importance of the issue, your New Zealand tax residency status determines which of your worldwide income sources New Zealand can tax. Equally, it can also provide a level of protection from other jurisdictions looking to tax your worldwide income, where New Zealand and the other jurisdiction have concluded a double tax treaty agreement (DTA).  

Finally, understanding when a New Zealand tax residency status is triggered, helps determine when your transitional tax residency status commences (if applicable). Under the transitional tax residency rules, non-residents coming to New Zealand have a four-year period where the only overseas income subject to New Zealand income tax during that period is foreign employment income and foreign personal services income. Essentially the four-year period provides a reasonable length of time for the non-resident to organise their overseas investments and the like prior to becoming subject to New Zealand taxation on their worldwide income. 

At Gilligan Sheppard, we can review your tax residency status for you, provide an opinion in this regard and then advise you of your New Zealand income tax obligations as applicable. The issue applies not only to people looking to come to New Zealand for a period, but equally to those looking to go overseas, particularly on an employment secondment or the traditional ‘overseas experience’ (OE). You certainly do not want to return to New Zealand and discover you suddenly have a huge tax bill with all sorts of penalties attached. 

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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.