Are you a New Zealand tax resident?

New Zealand tax residents pay tax in this county on their worldwide income.  This is a straightforward rule on the face of it – but what is a New Zealand tax resident?

Kiwis remain tax residents until they have been outside New Zealand for 325 days in any 12 month period – and have stopped having an “enduring relationship” with this country.

The 325 day test is easy – it’s just a question of fact.

But the question of an enduring relationship with New Zealand is more subjective.  One of the key planks of the enduring relationship question has always been the permanent place of abode test.  A person who retains a permanent place of abode is likely to also remain a New Zealand tax resident.  This has historically been considered along with factors such as where your immediate family live, where your children go to school, whether you belong to New Zealand professional bodies or sporting clubs, whether you have bank accounts or investments in this country or employment to return to on your return – and whether you have personal effects like cars, furniture or clothing retained here.

But the IRD have recently issued a draft Interpretation Statement (IS) which sets out the Commissioner’s latest views which have evolved considerably.  If finalised, this IS will result in many more Kiwis who are working offshore for a long period of time remaining as New Zealand tax residents for the duration of their time abroad. 

Under the draft IS, the notion of an “available dwelling” has greater emphasis.  Kiwis who retain a residential property in New Zealand are likely to be deemed to have an “available dwelling” – even if it is rented out to a long term tenant.  In order for the dwelling to be “available”, it will not be required that it is immediately available.  The dwelling may be a long term rental property that will never be personally occupied by the taxpayer or their family.

This is a tough departure from the IRD’s previous thinking in this area.

This draft IS will be of concern to Kiwis who are currently working offshore and who have considered themselves no longer New Zealand tax residents.  And it will be of concern to Kiwis who are considering leaving the country for a long stint abroad.  If you have retained residential property of any sort in this country, the likelihood is now greater that you will remain a New Zealand tax resident and therefore liable to pay tax here on your worldwide income.

Please call us if you are in either of these situations.