As we near the end of some of the New Zealand Government Covid-19 Border restrictions, many Kiwis are either planning on returning home, or jetting off on an epic adventure. While it isn’t always top of the to-do list before travelling, it’s important to know where you stand when it comes to your New Zealand tax compliance and obligations. We’ve jotted down the need to knows on New Zealand tax residency:
NZ tax residency:
You become a tax resident when the first of the options occur:
· You’ve been in NZ for more than 183 days in any 12-month period (they don’t need to be consecutive).
· You have a permanent place of abode in NZ. (This is more of a subjective test, where IRD will also look at your personal ties to New Zealand ie: economic, family, social, employment or business, or personal property). Note it doesn’t matter whether the property is rented out during your absence – this is still classed as a permanent residence.
· You are away from New Zealand in employment with the New Zealand government (regardless of the time spent overseas).
You become a non-resident taxpayer when both of the following occur:
· You do not have a permanent place of abode in New Zealand.
· You are away from New Zealand for more than 325 days in any 12-month period.
*Note there are special rules that apply for seasonal workers check these out here: https://www.ird.govt.nz/roles/non-residents/working-in-new-zealand-as-a-recognised-seasonal-employer-rse-worker.
Remember, you can still be a New Zealand tax resident without actually being a New Zealand resident.
Do you know your tax obligation?
NZ tax resident:
Worldwide income of a New Zealand tax resident is subject to New Zealand tax laws. This means that regardless of where in the world the income is sourced, it needs to be included in your income tax return (IR3). Most of our clients who earn foreign income, fall under this category. The foreign tax paid on your foreign income can then be credited to cover a portion of your outstanding New Zealand tax obligation (depending on whether the foreign tax paid is proportionate to your New Zealand income and marginal tax rates.) It can get a little confusing, so best to have your accountant run over this to ensure you’re claiming the correct amount of foreign tax credits.
NZ tax non-resident:
If you’re eager to shoot off as soon as foreign borders open, once you meet the non-resident criteria above, you may need to complete your final income tax return up until the day you departed/ and or met the non-residency criteria.
As a non-resident, you’re taxed only on the income you receive from a New Zealand source. This can include PAYE Income, New Zealand contracting income, Residential Rental Income, Interest, Dividends, or Royalties. If your only income is Interest, Dividends or Royalties, and the correct amount of non-resident withholding tax has been applied, you will not have to file a non-resident tax return (IR3NR). In any other cases, you will need to file a return in line with the end of the New Zealand financial year, complete with all New Zealand income received during the year.
Proving you’re a non-resident is much more subjective than the opposite. Although our advice varies depending on the situation, we usually advise clients who are intending to move overseas permanently, to sell up on their property, belongings and close all New Zealand bank accounts. This is to ensure they don’t meet the ‘permanent abode’ criteria mentioned above and do not have to pay New Zealand tax on worldwide sourced income.
Transitional residency
You can apply for a transitional residency only one-time. Essentially, this means you will be taxed on income that is sourced in New Zealand, as well as worldwide employment income or personal services. Transitional residency can last for 48 Months (essentially until the first of the two tax residency tests are triggered). You’re eligible for the transitional residency if you’re a first time NZ tax resident, or you’re a returning tax resident who has been a non-resident for at least 10 years.
NZ Student Loan
Before you rush off as soon as the borders open, remember, your student loan could start acquiring interest after you’re absent from the country for more than 184 consecutive days. You can apply for a 1-year repayment holiday, meaning you won’t have to make any student loan repayments; however, you will still be charged interest. You could qualify for interest free loan repayments if you meet any of the following criteria:
· Studying overseas
· Working overseas for the New Zealand Government
· Are working overseas because your New Zealand employer requires this
· Are working overseas as a volunteer
Click here for more criteria https://www.ird.govt.nz/student-loans/when-can-i-keep-my-student-loan-interest-free-overseas
Tax residency can be a messy business when you get it wrong, so it’s always best to seek the advice of your accountant before making any decisions or filing your tax returns. Otherwise, welcome home, or safe travels on your adventures ahead!
Your Outside Team
Contact
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
